New Policy Insures Against Forced Power Outages.

Swiss Re New Markets Corp. has entered an agreement with Mirant, an energy risk-management company and marketer of power, natural gas and other energy commodities, to provide generator forced-outage insurance.

The cooperation will focus on investor-owned utilities, municipals and cooperatives with less than 2,000 megawatts of generating capacity, and independent power producers with less than 3,000 megawatts of capacity in North America.

Volatile power markets are a major risk for power-generation companies. "The threat of unplanned outages combined with increased replacement costs or lost revenue can substantially impact the financial performance of power producers," said Dave Mckenzie, director, new business development, Mirant.

Generator forced-outage insurance is triggered when a generating unit is not operating due to a forced outage order and the price of electricity is in excess of a defined strike price.

"Companies today are more willing to explore insurance-based solutions to mitigate earnings and cash flow volatility," said William Anderson, director and global head of SRNM's Utility & Power Industry Practice. "This dual-trigger approach provides greater efficiency than either a call option or simple outage coverage, since the probability of outage and excessive spot-market prices is factored into its price."

Swiss Re New Markets is a division of Swiss Reinsurance Co.