Munich Re backs kWh Analytics’ parametric wind hedge product

Global reinsurance giant Munich Re has provided the capacity to support a parametric wind proxy hedge risk transfer product, structured using a solution from kWh Analytics, for a 79MW, wind project in Virginia, developed by Apex Clean Energy.

The financial structure features the embedded parametric hedge, provided by reinsurer Munich Re, advised by kWh Analytics, and using its kWh Analytics Indifference Structure for debt sizing, while MUFG and CIBC served as lenders to the project.

Utilising kWh Analytics’ Indifference Structure alongside the parametric Wind Proxy Hedge allowed Apex Clean Energy to optimize financing for the Rocky Forge project.

This follows Munich Re’s backing last year of the first parametric wind hedge paired with the Indifference Structure, also developed by kWh Analytics.

By linking the hedge with the Indifference Structure, the transaction mitigates wind resource volatility by ensuring investment-grade cash flows above the P99 wind speed scenario, enabling higher debt capacity.

“The structure’s implementation with a marquee sponsor in the wind space helps to demonstrate the growing market adoption of this innovative risk transfer solution,” kWh Analytics explained.

As well as this, the deal also provides notable financial leverage.

During the mini-perm period, it delivers roughly $7 in additional debt capacity for every $1 of premium paid.

Furthermore, the hedge also protects against wind speeds falling below a specified meters-per-second threshold, covering severe downside scenarios.

It’s also worth highlighting, that these transactions can be backed by insurance-linked securities (ILS) capacity as investors tend to have an appetite for these types of parametric risks.

Geoffrey Lehv, SVP & Head of US Accounts for kWh Analytics, commented: “We are thrilled to have contributed to the success of the Rocky Forge Project and excited to execute on this structure with such an experienced sponsor and banking partners.”

Bill MacLauchlan, CEO Munich Re Trading LLC, said: “The success of this Wind Proxy Hedge transaction demonstrates the market’s recognition of this innovative risk transfer solution.”

A representative from Apex Clean Energy, also added: “Implementation of the Wind Proxy Hedge structure went smoothly, and we are evaluating this product on additional projects. The ability to materially improve project returns while reducing equity requirements makes this an attractive financing tool in our development portfolio.”