Client Need: A large hydroelectric power company in South America is exposed to several risks that have been substantially impacting their annual revenue, including decreased generation capacity due to low water discharge levels. In past years, prolonged droughts or lack of snowfall have led to drops in production of 30-40%.
Pain Point: Financial losses due to low water discharge are excluded from traditional ‘all risk policies’, as low water discharge neither constitutes physical damage, nor is it classified as a business interruption. Thus, lost revenue due to reduced hydropower yield has typically been considered uninsurable, leaving the company with an uncovered $60M USD revenue gap in some years.
Our Solution: With construction underway for critical plant infrastructure updates, the company’s CFO knew they couldn’t absorb another bad year and sought an alternative solution. Together with their broker, we defined a customized parametric cover that will trigger when annual river flow falls below a historical mean, resulting in reduced power generation capacity of 20% or more.
The Result: Utilizing publicly available gauge and satellite data, calibrated to the energy company’s power generation history and characteristics, we were able to model and monitor the exposure. At the end of the risk period, the client was swiftly paid a corresponding indemnity for each day that the water level fell below the predefined power generation index, thus stabilizing their revenue and filling the gap left by their traditional policy.