|By Business Wire||
|August 16, 2013 02:57 AM EDT||
Professor Yan Haifeng, director of School of Finance, Nanjing University of Finance and Economics, recently pointed out some of 25-year insurance solutions for many China-based solar PV module providers, are problematic, which could cause severe loss to PV project financing party.
In brief, some of the 25-year insurance product is very risky not only in its insurance terms and transparency of policies but also its insurer’s financial strength. Taking Powerguard as example, its insurance terms are unfriendly and it infringes upon the rights of insureds and obligees. Under its policy, the insurance terms of the insurer define that “the insured shall not make any legal action against the insurer”. Therefore, under its policy, the insured’s acceptance of its policy means the buyer has given up its right of taking legal actions. If there is any dispute, insureds or its obligees (buyer, financiers, etc.) have no right to take legal actions. Similar unfriendly terms are quite a few under its policy.
The transparency of policies is also a big issue for the investors, some 25-year insurance product has many terms which are not transparent, but it forces the insurance applicant to sign Non-disclosure Agreement (NDA) to block the channel of information release. For obligees, since they don’t have ways to read the original content and terms of policy, their rights are unprotected.
What’s more serious, assuming some of the insurance buyers suffer loss and claim indemnity, is the insurer able to take these warranty risks? Taking Hanover International as example, its 2012 annual report shows that its after-tax profit is about £8.7 million and its net assets about £120 million. While its insurance product has covered over 15 China-based solar module makers annually with total accumulated annual policy limit over $40 million. Based on this development trend, Hanover International’s accumulated limit within next 3 years will be more than its net assets. There are severe financing risks for the insurer, the buyer and the investor.
However, many financing banks haven’t noticed the severity of problem and do not have in-depth inspection. “Not only the PV module makers will suffer huge loss, the financiers will suffer far more than them.” Professor Yan commented.
Extended Reading: Analysis on Global PV Industrial Long-Term Insurance
and Future Prospects