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There Is No Bad Luck Only Bad Planning

Peter Jakszentis - Munich Re
Technical Services Director


Wed, 02/21/2018 - 15:46

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Q: What added value does Munich Re offer the Mexican market?

A: Munich Re has been involved in many renewable energy projects around the world. But each project, although of the same technology, is susceptible to a different set of risks depending on the location. A PV project consists of modular systems that are susceptible to flooding and strong winds, although not so much to earthquakes since those same modules are flexible. Therefore, a PV project would have very different risks in the jungle where there can be strong precipitation than in the desert, where there can be strong winds. A wind park, on the other hand, consists of a whole unit that is susceptible to heavy rains and earthquakes, although not so much to flooding. 

It is vital that investors are aware of these factors before they even allocate contracts because the impact of these elements on capital expenditure at the beginning of the project might be small but awareness can create much more favorable conditions when allocating for risk. For example, if a wind park allocates more money and material to building the project’s foundation then the risk associated with an earthquake decreases, meaning that a small increase in capital becomes hugely beneficial to the overall financing of the project. 

In Mexico we have the capacity to insure projects for up to US$150 million but before putting that amount of money into a contract we want to minimize the risk of an incident happening and to find ways to avoid the situation, which goes hand in hand with having an expert workforce. Few  companies really understand how a proper and tailored financial insurance of that amount works, or how to implement an appropriate evaluation process. 

Our added value can be found at almost any stage of a project’s development, be it at the beginning by defining bankability criteria and project financing, during the project’s development by providing insurance capital, or at the end by avoiding delays. Munich Re’s interests are aligned with the project’s shareholders, such as banks and investors, and we want the project to materialize on time and without any problems.

Q: How does Munich Re assess the risks related to environment and social impact factors?

A: Developing a project in a hostile environment always creates delays. Our financial modeling and deep global experience means we are adept at handling such incidents. One factor we continue to see is the social and environmental tension that arises from cultural interests when a project is planned within a natural reserve or in a protected area. The related risk factors are hard to quantify, even more so when financial institutions such as the World Bank, Citibank or Munich Re are involved because the subsequent actions against the project can reach global levels. 

Q: How does Mexico’s attitude toward insurance affect Munich Re?

A: Banks always prefer projects that are predictable but sometimes they lack the knowledge to properly allocate risks because their expertise is not in the area of project management. For example, with wind parks in Mexico an important factor to consider is crane availability because there are not that many here that can handle the heights required for a wind project. In the event of a natural disaster, many projects would need to use these cranes. Banks do not have the expertise to quantify these kind of risks and therefore impose harsher conditions for financing. In such cases financing institutions such as Munich Re can offer a higher added value to the project developer.

Insurance in Mexico is often considered an obligation that project developers have to banks, but without due care a project will not be properly protected and investors could lose large amounts of money. Munich Re has a strong commitment to project developers and therefore ensures that in case of an incident, a payment of 30 percent of the physical damage is provided within 30 days following the incident. This is one of our key differentiators in the Mexican market

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