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6 Insurance

Martin Benatar, Munib Hussain

From: International Project Finance (3rd Edition)

Edited By: John Dewar

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved.date: 02 June 2023

Credit risk — Capital markets

This chapter discusses the importance of project insurance. Financiers take an onerous approach to insurance in project finance transactions, requiring a comparably more robust insurance programme than would be adopted in a project that is financed on balance sheet alone. This reflects the fact that until the project company has established a reliable revenue stream, it will have a low level of capitalization and be highly leveraged. The primary function of insurance is to act as a risk transfer mechanism. In return for a known cost (the premium) the uncertainty associated with both the frequency and severity of loss is transferred to the insurer. The discussions cover insurance programme design, project company control, the breadth and scope of the insurance programme, legal and commercial influences on procurement, and insurance risk itself and lenders’ clauses.

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