W&I Insurance in the context of Renewables and Infrastructure. Munich, 9 March 2017 Renewables Day

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1 W&I Insurance in the context of Renewables and Infrastructure Munich, 9 March 2017 Renewables Day

2 Quick overview of recent W&I history 1,600 1,200 # Submissions EMEA 1, # Submissions DACH region 410 Source: AIG Source: AIG

3 Transactional Liability Insurance 3 different product types: Warranty and Indemnity Insurance Tax Insurance Contingent Risk Insurance Covers Unknown risks Covers Known tax risk in a stand-alone policy Covers Known legal risks in a stand-alone policy This presentation will focus on Warranty and Indemnity Insurance, (W & I Insurance ) (referred to as Reps and Warranties Insurance in the USA) 3

4 Advantages of W&I Insurance Advantages for sellers: Facilitate clean exit for sellers Eliminate need for an escrow Free up sale proceeds for re-investment/return to investors and shareholders Advantages for buyers: Distinguish a bid in a competitive auction Protect relationships with sellers who may become the buyers key employees / business partners Extend the duration and/or cap of warranties Mitigate enforcement risk against distressed/remote Sellers 4

5 Process Options Process Options Option 1 Bridging the Gap Buyer/Seller reach an impasse during deal negotiations and an insurance policy is used to bridge that gap In such cases insurance is typically introduced late in the process Option 3 Stapled Insurance Seller staples the W&I insurance to the deal Seller s liability cap is very low, combined with draft insurance policy provided to bidders Once selected, the process will flip to the Buy side The Buyer will be the ultimate insured Option 2 Buy Side Bid Differentiation Buyer deliberately offers to cap the Seller s liability under the SPA to a low level Buyer s bid now looks more favourable Buyer wins auction and secures protection via W&I insurance Option 4 Sell Side Seller is the insured under the policy Used if seller is not able to limit liability as expected Relatively uncommon but useful for closed end funds wishing to wind up 5

6 Premium, Retention, Limit Premiums: Usually 1% to 2% of the limit of the policy Depending on ratio of limit/deal value, retention and deal specifics AIG Minimum premium: EUR 95,000 Retention: first loss piece to be borne by insured matching seller s cap Usually 0.5% - 1% of transaction value Limit: Usually approx % of deal value Maximum AIG limit: EUR 90 million 6

7 Indicative timeline 6-8 Days 1-2 Days Execution of the Non- Disclosure-Agreement (NDA) Provision of the latest SPA version, submission and requested parameters Provision of the Non- Binding Indication (NBI) (no costs) 2-3 Days Provision of the Expense Agreement (EA) Provision of a list of individuals for Virtual Data Room (VDR) access Returning the Non- Reliance-Letters (NRL) Receipt of the DD- Reports 3-6 Days Receipt of the first set of answers to background questions (Tranche I) Receipt of a second set of answers to deal-specific questions (Tranche II) Underwriting Call Provision of the first Policy Draft and Warranty Spreadsheet Policy negotiation On risk confirmation 7

8 A broad range of Renewables and Infrastructure Transactions have been completed through the usage of W&I as deal facilitator Sample of precedents for W&I insurances in the context of Renewables and Infrastructure Transactions Offshore wind farms in the planning and approval process (up to wind turbine generators, >500MW offshore wind project) Currently operating offshore wind farms (>70 wind turbine generators, operational >200MW offshore wind farm) Acquisition of onshore wind farms Acquisition of a district heating and energy production company (district heating system (production and distribution) with total capacity of >600MW) 8

9 W&I Insurance adds significant value through the coverage of specific Renewables related topics Uncertainty regarding legal issues, for instance: Ownership, possession or use of land Private neighborly relation laws Uncertainty regarding the enforceability of permits, for instance: Zoning law requirements Approval in accordance with BImSchG Uncertainty regarding the financial situation, for instance: of the Seller of the Target Uncertainty relating to tax issues 9

10 Case study: Offshore Key Facts General UW Topics Renewable Specific Topics 100 % share purchase Offshore deal Single asset of the target was the BSH permit with no operational activities Regulatory and general entrepreneurial risks connected to the future development Financial Statement Anti-trust clearance Tax: Foreign permanent establishment Permit Viability of and third party challenges regarding the permit Compliance with all obligations and conditions of the permit Energy production capacity Government subsidy claw-backs 10

11 Any Questions? 11

12 Contact Details Dr. Xianbei Li Attorney at Law Senior Underwriter AIG Europe Limited Direktion für Deutschland Speicherstrasse 55, Frankfurt Phone: +49 (0) Mobile: +49 (0) Fax: +49 (0) Michael Gaul LL.M. Attorney at Law Norton Rose Fulbright LLP Theatinerstrasse Munich Phone: +49 (0) Mobile: +49 (0) Fax: (0)

13 Whilst every effort has been taken to ensure the accuracy of the information in these pages, we make no representation and/or warranty express or implied that the financial information and/or information is correct, complete or up to date. The financial information and/or information is subject to change at any time without notice. You should not take (or refrain from taking) any action in reliance on the financial information and or information and we will not be liable for any loss or damage of any kind (including, without limitation, damage for loss of business or loss of profits) arising directly or indirectly as a result of such action or any decision taken. AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. Products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Not all products and services are available in every jurisdiction, and insurance coverage is governed by actual policy language. Certain products and services may be provided by independent third parties. Insurance products may be distributed through affiliated or unaffiliated entities. Certain property-casualty coverages may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds. AIG Europe Limited is authorised and regulated by the Financial Services Authority. Registered in England: Company Number Registered Address: The AIG Building, 58 Fenchurch Street, London EC3M 4AB.

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