Swiss Re New Markets Corp. (SRNM) announced Tuesday that it has entered into a co-operation agreement with Mirant to provide generator forced outage insurance (GFOI). The co-operation will focus on investor-owned utilities, municipals and co-operatives with less than 2 000 MW of generating capacity, and independent power producers with less than 3 000 MW of capacity in North America.
Volatile power markets are a major risk for power generation companies. “The threat of unplanned outages combined with increased replacement costs or lost revenue can substantially impact the financial performance of power producers,” said Dave McKenzie, director, New Business Development, Mirant. “With GFOI, power generation companies can have an added level of protection against an unexpected forced outage period.”
GFOI is triggered when a generating unit is not operating due to a forced outage or derating and the price of electricity is in excess of a defined strike price. “Companies today are more willing to explore insurance-based solutions to mitigate earnings and cash flow volatility,” said William Anderson, director and global head of SRNM’s Utility & Power Industry Practice. “This dual trigger approach provides greater efficiency than either a call option or simple outage coverage, since the probability of outage and excessive spot market prices is factored into its price.”
McGriff, Seibels & Williams will be marketing coverage and providing brokerage and policy services. An affiliate of SRNM will be providing the structure and substantial capacity to underwrite the risk.
The coverage will be available to other market participants and intermediaries.
Mirant Bermuda, Ltd., an affiliate of Mirant, will be assuming a portion of the GFOI risk through reinsurance. Mirant has implemented similar coverage for its own generation, and will be providing engineering, risk management and operational advice to Mirant Bermuda Ltd.
Swiss Re New Markets is a division of Swiss Reinsurance Company (Swiss Re), one of the world’s leading reinsurers with over 70 offices in more than 30 countries. In the 2000 financial year, gross premium volume amounted to CHF 26.1bn ($15.4bn) and the net income after tax reached CHF 3bn ($1.8bn).
Mirant is one of the world’s leading competitive energy providers. Headquartered in Atlanta, the company has integrated energy operations in North and South America, Europe and Asia. A leader in energy risk management and marketing of power, natural gas and other energy commodities, Mirant has one of the industry’s largest energy commodity trading floors.
McGriff, Seibels & Williams, Inc. is a leading international risk consultant and insurance brokerage firm and is the largest independent energy broker in the United States.