Next-Gen FAQ

//Next-Gen FAQ
Next-Gen FAQ 2019-07-02T21:15:52+00:00

Executive Summary

The following is a summary of our Next-Gen ARBOC Invalidation insurance in the form of a Q & A. This has been done based on the questions asked historically in this space. Please note that due to the variety of the ARBOC buy-sell transaction types, the customization of the Next-Gen insurance would create certain terms and conditions that need to be manuscript depending on the niche ARBOC exposures presented to us and our underwriters.

General Questions & Answers

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How will the Next-Gen work in Requests for Offers or in In-Use Trading Agreements? 2019-06-14T23:36:34+00:00

In part because the Next-Gen is not a liability policy and because of the absence of any ARBOC information affirmations or attestations, the Next-Gen does not create potential coverage issues for the Buyer-Covered Entity when the Supplier-Seller purchases the invalidation coverage before the delivery of the ARBOCs. The Next-Gen insurance is like property coverage. It indemnifies whomever the ARBOC property owner is up to the Market Price of an Allowance or up to the Replacement Limit selected for damages to scheduled ARBOCs caused by invalidation perils irrespective of who purchased the coverage.

If for Invalidation Security purposes the invalidation risk remains with the Supplier, or the Insurer with the Next-Gen, then the Buyer and Supplier must only agree on the Replacement Limit for each ARBOC, and the creditworthiness of the highly rated global Lead Insurer. The Next-Gen Program welcomes the review of and input on the Next-Gen coverage by IOUs, Suppliers, and Buyers.

What about Underwriting? 2019-06-14T23:36:09+00:00

Each Issuance of ARBOCs requires a completed Issuance application and the Full Verification Report. Underwriting for low-risk Issuances will be quick and straightforward. The Portfolio option offers Buyers and Suppliers Preferred Issuance and Preferred Project rating plus a streamlined, customized underwriting process.

Are there limits to how many ARBOCs can be in any one Issuance? Alternatively, are there limits on how many Issuances in one Portfolio? 2019-06-14T23:35:50+00:00

No  – Four Global Insurance Companies provide capacity to transfer practically unlimited ARBOC market values for High-Volume Issuances or Multiple-Issuances in any sized ARBOC portfolio.

How would the Portfolio or Multiple Issuance option work? 2019-06-14T23:35:27+00:00

The rating for a Covered Entity Portfolio is based on 36 months of Compliance Offset Detail history. The rating also contemplates the ARBOC purchase projections out 12 to 24 months.

For both the Covered Entity Buyer and Supplier, the Portfolio option incorporates rate discounts based on the number of ARBOCs that are added to the Portfolio policy by Issuance endorsements throughout twelve months.

Can the Owner of ARBOCs self-Insure a portion of the invalidation loss? 2019-06-14T23:35:02+00:00

The Stated Limit option can be used by ARBOC owners to transfer any percent of invalidation risk for a Single Issuance or a Portfolio with Multiple Issuances of ARBOCs.

Is there a deductible or self-insured retention? 2019-06-14T23:34:41+00:00

No.

What limit can be purchased? 2019-06-14T23:34:17+00:00

The limit for each invalidated ARBOC can be based on the Market Price of an Allowance, or the Market Price of a CCO-Zero. The Market price is determined from a five-day average preceding the Final Determination date.

What can the Owner of ARBOCs expect about policy maintenance? 2019-06-14T23:33:56+00:00

Coverage commences automatically when the Owner of the scheduled ARBOCs receives the title in CITTS. An Initial Determination notifies insurance company of a potential invalidation loss. The Next-Gen coverage requires minimal maintenance if any at all.

How are ARBOCs scheduled onto the Next-Gen policy? 2019-06-14T23:33:40+00:00

ARBOCs are added to the Next-Gen policy by Issuance endorsements. Each Issuance or Reporting Period of ARBOCs are identified by ARB Project ID.

How long is the invalidation policy period? 2019-06-14T23:33:24+00:00

Maximum coverage term for each Issuance of ARBOCs scheduled on the Next-Gen policy will be three years.

Who is indemnified by the Next-Gen insurance? 2019-06-14T23:32:56+00:00

The Owner of the scheduled ARBOCs on the Final Determination date is indemnified.

Who can purchase this coverage? 2019-06-14T23:32:39+00:00

Both Buyers and Suppliers of ARBOCs can use the Next-Gen: Covered Entities, Offset Project Operators, or Authorized Project Designees. We will also consider Carry-Trade aggregators.

Invalidation Perils

The Final ARB Determination triggers the Policy if the following perils were linked with the scheduled ARBOCs.

  • Overstatement of GHG Reduction or Removal Enhancements

  • Double Issuance for GHG Reduction or Removal Enhancements

  • Environmental Health and Safety Invalidation Error

In addition, if there are other ‘perils’ that need to be addressed we can certainly consider (e.g., Untimely Surrender Obligation expenses or specific items raised in the Trading Agreement or Request for Offer by Investor Owned Utilities) – we would need underwriter agreement and if that is provided we would work to manuscript the Policy accordingly.

Key Exclusions

There are several material exclusions as follows:

  • Any retroactive change, non-renewal, or expiration of current Regulation

  • Defense and Legal expenses 

Key Contacts

California Compliance Insurance Solutions (CCIS) specializes in ARBOC invalidation risk transfer using the Next-Gen. CCIS in partnership with AmWINS Group, the nation’s largest wholesale insurance distributor, developed the Next-Gen coverage template. Together with four Global Insurance companies, the Next-Gen Program aims to create an insurance market that will promote efficiencies and scale to drive downward invalidation transfer costs. Next-Gen Program also aims to innovate with an eight-year coverage term and insurance for Low Carbon Fuel Standard credits.

Contact Matt Wallace at 916 813 6050 or Matt@ComplianceInsurance.net

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