Project Finance - Insurance Consultancy

Project finance is a method of financing used to provide off-balance-sheet funding and is based on the principle that lenders recover their principal and interest solely from the project’s returns. Whilst in traditional financing methods the borrowing entity is liable to lenders with all its assets and receivables, in project finance this liability is limited to the project’s own performance; the project company established to carry out the project may not hold any assets or liabilities other than the project itself. Those providing finance to the project company must carefully assess the risks that may arise in relation to the project during the construction and operational phases. When one considers that the funds lent by the financiers are to be repaid solely from project revenues, the importance of insurance in this process becomes self-evident.

From an insurance perspective, the key considerations for lenders are as follows:

1. To obtain the broadest possible insurance cover and, as far as possible, transfer to insurers the risks that could prevent or delay the repayment of the financing.
2. To prevent risks and delays that may arise in the claims payment process by taking over from the insurer the rights arising from the reinsurance contracts behind the insurance policies, such as paying premiums, collecting claims and even negotiating directly with the reinsurer (cut-through).

Upon examination of the content of ‘cut-through’ clauses, it is observed that whilst some contain provisions that protect the insurer and are compliant with local laws, others place all liabilities on the fronting insurers and are entirely subject to the laws of other countries.

At Galata Reinsurance and Insurance Brokerage A.Ş., we provide consultancy services for even the most complex project finance processes, drawing on 25 years of experience in project finance and insurance.