Mr. Stephan A. Jacob, Munich Re, Germany Iceland Geothermal Conference 2013 March 5-8, 2013, Harpa, Reykjavík

1. Risk Mitigation Solution for Geothermal
Projects –
Way to support Financing
Iceland, March 5-8, 2013
Stephan A. Jacob

2. ▪ Munich RE & Renewable Energy
▪ Main Issues for Geothermal Projects
▪ Exploration Risk Insurance
Agenda

3. MUNICH RE & RENEWABLE ENERGY

4. Added value within the group
Diversified structure – More security
05/10/2017Company Presentation Munich Re 4*This listing is incomplete and provides no precise indication of shareholdings.
Munich Re (Group)*
Asset Management
Primary insuranceReinsurance Munich Health
Belgium
Corporate Insurance Partner
Great Lakes Reinsurance (UK) PLC
KA Köln.Assekuranz Agentur GmbH
MSF Pritchard Syndicate 318
Temple Insurance Company
Watkins Syndicate
Munich Re (Group)

5. Munich Re
05.10.2017Company Presentation Munich Re 5
11,000 employees
€27bn in premium income
Solutions and products for more than 4,000 clients on five continents
Note: Figures (rounded up or down) relate to Munich Re (reinsurance).
Source: Munich Re Annual Report 2011
Reinsurance

6. We are present in all markets through our global
subsidiaries
05/10/2017Company Presentation Munich Re 6
n
n
Chicagon
Columbusn
n
n
Montreal
n
n
Philadelphia
n
Princeton
n
San Francisco
n
Toronto
n Bogotá
n
n Caracas
n Mexico
n Santiago de Chile
n São Paulo
n Auckland
n Melbourne
n Sydney
n Beijing
n Calcutta
n Hong Kong
n Kuala Lumpur
n Mumbai
n Seoul
n Shanghai
n Singapore
n
n
Munichn
n London
n Madrid
n Malta
n
Moscown
Parisn
n Accra
n Cape Town
n
n Nairobi
n Port Louis
n
Milan
Zurich
Amelia
New York
Vancouver
Buenos Aires
Johannesburg
Taipei
Tokyo
Atlanta
Hartford
n n Dubai

7. Accumulation of extreme natural catastrophes at the
start of the year
Geophysical events
(Earthquakes, tsunamis, volcanic eruptions)
Meteorological events
(Windstorms)
Major loss events
Natural catastrophes Hydrological events
(Floods, mass movements)
Climatological events
(Temperature extremes, droughts, wildland fires)
Earthquakes
New Zealand,
22 February
Landslides,
flash floods
Brazil, 12/16 January
Floods,
flash floods, Australia
Dec. 2010–Jan. 2011
Severe weather,
tornados
USA, 22–28 April
Severe weather,
tornados
USA, 20–25 May
Cyclone Yasi
Australia, 2 February
Wildland fires
USA, May–June
Earthquakes,
tsunami
Japan, 11 March
Earthquakes
New Zealand, 13 June
Natural catastrophes January–June 2011 – Number of events: ~360
© 2011 Münchener Rückversicherungs-Gesellschaft, GeoRisikoForschung, NatCatSERVICE 05/10/2017 7Company Presentation Munich Re

8. Climate change and natural hazards
05.10.2017Company Presentation Munich Re 8
1 Source: Munich Re, GeoRisksResearch; Data source: Hadley Centre SST data set (HadSST2)
2 Source: Munich Re, GeoRisksResearch, NatCatSERVICE
US$ 125bn
in economic losses from Katrina – the
highest hurricane losses ever.2
0.74°C
increase in sea surface temperature
since 1900.1

9. MR analyzes the impact of natural catastrophes
(bn US$)
© 2011 Münchener Rückversicherungs-Gesellschaft, Geo Risks Research, NatCatSERVICE – As at January 2011
Overall losses (in 2010 values) Insured losses (in 2010 values)
50
100
150
200
250
300
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
9

10. In our reinsurance core business our value proposition
is based on three pillars
05/10/2017Company Presentation Munich Re 10Source: RID
Clear positioning as a comprehensive service reinsurer
▪ Expertise and appetite for
complex risks
▪ Expanding the limits of
insurability –
innovative coverage concepts
▪ First-class modelling and
tailored solutions
▪ Capital management
solutions
▪ Prime partner for traditional
risk transfer
▪ High capacity per exposure
▪ Pioneer in risk management
▪ Efficient reinsurance of
standard risks
▪ Risk-driven services
(e.g. underwriting tools)
▪ Product development support
▪ Facultative underwriting
Growth partner/
Know-how provider
Value optimiser/
Complex risk taker
High level of security

11. New risks and opportunities for Munich Re
Renewable Energies / New Technologies
Wind
Water
Solar
Geothermal
Bio energy
Resources
(e.g. wood,
silicium)
Components
Power plants
(e.g. Module)
Storage
Grid
(e.g. expansion,
de-regulation)
Efficiency
(e.g. insulation,
usage)
Renewable Energies New Technologies
Source: Munich Re, Asset Liability Management (ALM) 11

12. MAIN ISSUES FOR GEOTHERMAL PROJECTS

13. Despite advantages over other RE, it is challenging to
finance geothermal projects
13
Lack of Finance
During
Exploration/
Feasibility Phase
To make
geothermal
investments
more
attractive
• High Upfront Investments
(resource is not yet verified)
• Planning Often Volatile
- Uncertainty about final output
- Exploration risk
- Uncertainty about final costs
• Complex And Individual Analysis
• Long Lead Times
• Rival Green Technologies
- Low gas prices
- Wind power, solar, PV

14. EXPLORATION RISK INSURANCE

15. The Exploration Risk Insurance helps to overcome major
investment constraints and supports financing
▪ Challenge: expense of drilling and exploration risk
Investors in and operators of geothermal projects are
always dogged by the geological exploration risk: major
investments are lost if their bore holes do not yield the
desired results.
▪ Solution: Exploration Risk Insurance
The Exploration Risk Insurance covers the costs of the
bore hole in the event of unsuccessful exploration,
providing security for investment and planning.
15

16. Exploration Risk Insurance supports project finance
Exploration Risk Insurance
Objectives
Planning Reliability
Equity Requirements
Investment Costs
Business Facilitation To get easier access to investors
To use as a budgeting instrument
To protect against lost investments
To reduce a bank‘s equity requirements
16
to support
Financing
Loan Interest Rates To reduce interest rates for drilling loans

17. Exploration Risk and insurance – a challenging
approach
17
Elements of an Insurance
the equitable transfer of the risk of a loss
from the insured to the insurer in exchange for payment
used to hedge against the risk of a contingent, uncertain
loss.
law of large numbers (multitude of insured persons who
have the same risk)

18. Exploration Risk and insurance – a challenging
approach.
18
Law of Large Numbers
Car Insurance
Large number of
cars
Retrospective
view
Diversification
intrinsic
Exploration
Risk Insurance
Small number of
gothermal
projects
Prospective
view
Diversification
difficult

19. • Forcast until 2015 (Mwel)
USA
5,400 MW
Germany
15 MW
Italy
920 MW
Austria
5 MW
Turkey
200 MW
Iceland
800 MW
Portugal
60 MW
China
60 MW
Thailand
1.0 MW
Russia
190 MW
Japan
535 MW
Phillippines
2500 MW
Papua New Guinea
75 MW
New Zealand
1,240 MW
Australia
40 MW
Ethiopia
45 MW
Kenya
530 MW
Indonesia
3,500 MW
Costa Rica
200 MW
Nicaragua
240 MW
El Salvador
290 MW
Guatemala
120 MW
Mexico
1,140 MW
Total Installed
Capacity 2015
= 18,481 MW
France
20 MW
Will geothermal develop to a commodity product?
Canada
20 MW
Honduras
35 MW
Chile
150 MW
Argentina
30 MW
Greece
30 MWHungary
5 MW
Netherlands
5 MW
Spain
40 MW
Nevis
35 MW
Guadeloupe
15 MW
Source: IGA 2010
• Demand tripples in the next 25 years (source: Baker Hughes)
19

20. Learn CurveFlexibilityIndividuality
Geothermal remains a niche market from the
insurance point of view
Risk evaluation
according to the
project`s
requirements
Risk evaluation
according to the
project`s needs
Risk evaluation
including the
experience from
other projects
Main elements of risk evaluation
Diversification
Risk evaluation
based on a
balanced portfolio
20

21. Insurance related
informationen
Project related
informationen
Geological / technical
informationen
ERI requires an individual risk evaluation process
Well data
Well design
Measures to enhance
the output
Location of the project
country / politics
Developer
experience
Project partners
track record
Total risk
Individual insurance
needs
Sum insured
Scope of insurance
Single risk
Portfolio
Cost of capital
Reservoir exploitation
Geological / tectonic
data
21

22. Determination of
corner stones of
the policy
(Worst-Case)
Evaluation of the
data quality
Excellent
Sufficient
Not sufficient
Evaluation of the
geological risk
Low Risk
Medium Risk
High Risk
Not insurable
ERI requires an individual risk evaluation process
22

23. Policies are developed individually for each project.
Approach from Inquiry to Policy
23
•Investors, Operators,
Brokers, Insurers,
•Consultants
Inquiry
•To provide MR with
req. information
•If necessary, ask for
additional information
Documents
•Rough evaluation,
whether project is per
se insurable
First Indication
•To develop tailored
insurance solution
•Provide policy
Insurance
Concept
Monitoring
Consulting
Drilling Phase
Duration depends on:
▪ Data availability
▪ Progress of project
▪ Location of project
▪ Etc.

24. Exploration Risk Insurance insures the thermal output
of the reservoir
Insured Event
24
Thermal Output
• e.g. flow rate, draw down, reservoir temperature, steam
• determined project-specific
• for production well(s) and/or injection well(s)
Preconditions for coverage:
Successful completion of bore hole according to drilling contract
Accomplishment of all measures to stimulate the well according to
drilling contract (e.g. acid job…)

25. The investment costs are covered
Insurance Coverage
25
Investment Costs
Exploration costs:
• Seismic
• Surveys
• Consultants
Drilling costs:
• According to
drilling plan
Costs for stimulation
measures:
• Acid job
• Side track
Sum Insured

26. Premium – Factors of Influence
Insurance premium depends on various factors and is
project specific
26
Quality/quantity
of available
information/data
Geological circumstances
Location of project
Individual needs of insured
•Sum insured
•Scope of coverage (e.g. partial
loss)
•Deductible
•No claim bonus
Cost of capital
Overall risk involved

27. Munich Re has the same interest as the developer –
to have a successful project
27
Key issues
ERI available for hydrothermal projects
Experienced developers/ management
Excellent documentation
Early stage involvent of MR
MR provides insurance and expertise
Policy: flexible and tailor-made
MR Focus: Germany, North America

28. MR provided the first ERI for a geothermal project worldwide in
Unterhaching (GER).
Munich Re covered exploration risk for geothermal project in Unterhaching, near Munich
▪ MR insured first well in 2004 (depth: 3350m)
▪ Outcome:
▪ Water temperature: 122°C
▪ Flow rate: 150 l/s
▪ Geothermal Capacity: max. 3.36 MW(el); 38 MW (therm.)
Source: www.geothermie-unterhaching.de
28

29. Munich Re insured geothermal project in Taufkirchen.
Munich Re covers exploration risk for geothermal project in Taufkirchen in Bavaria
▪ MR insured first well (2010) with option to insure up to 4 wells
▪ The output of an existing biomass plant is to be increased by
20 MW to 80 MW with the aid of geothermal heat. It is also
planned to produce electricity.
▪ Planned depth up to 5,000 meters
▪ Drilling was successful
Pixelio/OliverBrunnerPixelio/OliverBrunner
29

30. Munich Re insured the project in Traunreut
Munich Re covers exploration risk for geothermal project in Traunreut in Bavaria
▪ MR insures first well (2011) with
option to insure a 2nd well
▪ Planned: up to 5.5 MW(el.) and 12 MW(therm.)
▪ Final depth approx. 5,100 meters (MD)
▪ Drilling finished: July 2012
▪ First well was not successful
▪ MR paid the full sum insured
Source: www.geothermie-traunreut.de
30
Source: www.geothermie-traunreut.de

31. Munich Re insured the project in Viborg / Denmark
Munich Re covers exploration risk for geothermal project in Viborg / Denmark
▪ MR insures first well (2012) with
option to insure a 2nd well
▪ Planned: up to 5.5 MW(el.) and 12 MW(therm.)
▪ Planned depth approx. 2.900 m (MD)
▪ Project was stopped
Source: www.geothermie-traunreut.de
Exploration Risk Insurance
31
Source:
www.rossengineering.dk

32. Munich Re insures the project in Geretsried -
currently drilling
Munich Re covers exploration risk for geothermal project in Geretsried in Bavaria
▪ MR insures first well (2012) with
option to insure a 2nd well
▪ Planned: up to 5.0 MW(el.) and remaining heat
for district heating
▪ Planned depth up to 5,000 meters
Source: www.enex.is
32

33. Munich Re insures first well of the Greenhouse Project
„Floricultura“ in Heemskerk NL
Munich Re to cover first well for Greenhouse Heating in Heemskerk / NL
▪ MR insures first well for a Greenhouse Complex
▪ Sandstone Formation in West-NL
▪ Planned depth approx. 2.900 - 3.000 m (TVD)
▪ Drilling to in first half of 2013
Source: Daldrup & Söhne AG
Exploration Risk Insurance
33

34. Munich Re to cover a project in the Rift Valley / Kenya
drilling is to start soon
Munich Re to cover exploration risk for geothermal project the Rift Valley / Kenya
▪ MR insures up to 8 wells (2013)
▪ Planned: up to 140 MW(el.)
▪ Planned depth approx. 3.000 m (TVD)
▪ Drilling to start soon
Source: Marine Power Generation
Exploration Risk Insurance
34

35. Thank you very much
for your attention
©2013MünchenerRückversicherungs-Gesellschaft©2013MunichReinsuranceCompany
Stephan A. Jacob, MBA
sjacob@munichre.com
Phone: +49(0)89-3891-3565

36. Munich Re pools its
international health
insurance and
reinsurance
expertise in a new
business segment:
Munich Health.
Munich Re redefines
its positioning in
reinsurance with a
new branding.
History of Munich Re was affected early by natural
hazards
1880
First major loss in the
20th century: the
earthquake in San
Francisco on
18 April 1906.
Munich Re's liability:
US$ 2.5m
Munich Re acts fast
to settle losses on the
spot.
20091906
Munich Re has 511
employees and a
premium volume of
DM 737m.
1960 2005
Katrina – The largest
loss occurrence in
insurance history
With wind speeds of
up to 280 km/h and
gusts reaching 350
km/h, Katrina sweeps
over the Gulf of
Mexico at the end of
August. Estimates put
overall losses at US$
125bn and insured
losses at US$ 61bn.
Financial strain for
Munich Re: approx.
€1.6bn.
36
Munich Re is founded
on 19 April 1880 at
the instigation of
Carl von Thieme,
Baron Theodor
von Cramer-Klett
and Wilhelm Finck.

37. Exclusions
Exploration Risk Insurance – Munich Re Concept
37
Insufficient water quality
Loss of hole
Loss of drilling fluids
Time delays during drilling operations
Non-compliance with service specification
Financial problems
Gross negligence/ wilful act
Infidelity, fraud, etc.
Sabotage

38. Sufficient flow rate /
temperature
Insufficient flow rate /
temperature
Reduced flow rate /
temperature
No compensationReduced
Compensation
Full Compensation
The Insurance benefit will be handled flexibly
according to the requirements of the project
Loss Adjustment Alternatives
38
Digital Solution:
Partial Loss Adjustment:
Sufficient flow rate /
temperature
Insufficient flow rate /
temperature
No compensationFull Compensation
1
2

39. A comprehensive risk assessment is required to insure
the individual project
Requirements for Individual Risk Assessment
39
• Conception (Doublet, Triplet etc.)
• Requirements regarding thermal output (flow rate, reservoir
temperature)
• Requested cover and trigger definition
Business plan
• Geological, seismic and hydro geological analyses
• Project and bore hole plan
• Including options for enhancement of productivity considered
(horizontal drilling, sidetrack, stimulation, etc.)
• Cost estimates
• Data bases in the same representative geographical area
• Other Internal and external experts’ reports
Feasibility studies