Crux Connects: Alisha Soares of Marsh on tax credit insurance and risk mitigation

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MO: That's consistent, particularly from the buyer perspective, with what we're hearing at Crux. Backing up a bit, I'd love to also spend a few minutes on a high-level view of the market. Now that we're a little more than halfway through the second quarter, what are some notable trends that you observed in the first quarter, and how has the market evolved in 2025 compared to where we were at the same time last year?

AS: There are lots of risks out there currently in the market, and there's also a significant amount of appetite. There are over 25 markets that are able to underwrite tax insurance from a primary perspective. One of the biggest impacts that we're seeing is that, because there are so many risks that are available and so many opportunities, carriers want to participate, but they're being selective in the opportunities that they're going after. 

The first item is really addressing what type of solar project, for example, is it? Where it's a utility-scale project and there's one asset that they're looking at, it's an easier construct because it's one and done, versus having a portfolio where they're constantly having these multiple iterations of bring-downs for projects as they come online. Underwriters are looking at what do we have capacity for? What are we willing to undertake? From an underwriting perspective, it's obviously more appealing for them to have to focus on that one bring-down in a utility-scale project. That impacts what projects they're willing to quote, as well as impacting the pricing. Underwriting fees are going up significantly, and you can see a significant uptick to the extent that these underwriters are engaging in portfolios that have multiple bring-downs, because each bring down is now bringing in additional underwriting fees. 

That means that the smaller transactions with multiple portfolios and projects coming in are typically more challenging to place. Not only is there an uptick in underwriting fees, there's also an uptick in minimum premiums. Because there are so many risks, because the underwriters are able to be selective, we are seeing that price creep.

MO: Is there anything that's really surprised you the most about the first quarter?

AS: I don't think that there's necessarily anything that's been surprising. I think the insurance market is extremely collaborative and innovative. We've been living, for example, the Inflation Reduction Act (IRA), as that was coming out, and getting guidance kind of piecemeal. Nothing really surprises me in this space. It's just being able to re-engineer how we approach the various risks and the concerns that are coming with the new legislation that's continuing to roll out. 

Maybe from a sheer volume perspective, I'm always surprised that there's just so much out there that needs the insurance market to respond to. Managing the sticky components, as I mentioned, with respect to getting the market to underwrite those harder risks with respect to the step-up component that we talked about, as well as the various portfolios and niche projects.

MO: You alluded to certain factors that are shaping emerging trends when it comes to which projects are actually receiving quotes. When it comes to risk mitigation, specifically from the buyer perspective, what risks are you hearing most in discussions in this current environment?

AS: It's still very heavily ITC based, so really protecting that valuation component. We are seeing more discussions around certain manufacturing credits, as well as §45Z, §45Q. In fact, Marsh recently bound the first §45Z policy. But generally, those tend to push further out. Marsh is heavily focused on ITCs. We see a lot of other potential risks coming around as well, but I think the majority of what we're seeing is the ITCs, so the specific risks associated with that credit and really having discussions around change of law, the step-up in basis. Those continue to dominate the conversation.

MO: How is the market handling the possibility of a change in tax law, and what might that look like?

AS: Historically, the market has gotten comfortable covering an exclusion for change in law to be limited to code and regs, and further limited to just prospective change in law. Historically, the insurers were comfortable covering retroactive change in law. Since we've had these evolving discussions and the House bill has come out around what are we looking at for the renewable energy market going forward in terms of tax credit availability, a lot of the market has pulled back in terms of covering retroactive change in law. Meaning that certain markets are broadening the exclusion to include an exclusion for retroactive change in law. Further, there are a handful of markets that are broadening beyond limiting to code and regs. That would be inclusive of any potential notices or informal guidance that comes out that is counter to the covered tax positions in a policy. 

It's really important to focus on, when you're selecting your carriers and moving into these policies and transactions, understanding what are the limitations and parameters of these changes in law? The underwriting community, a lot of these insurers and their reinsurers are making their underwriting guidelines much more limited in this respect. 

As I highlighted in the beginning, the good news coming out of the House bill, where it's viewed as the worst-case scenario, where we would expect the Senate to somewhat provide a moderating response in their turn. As Crux has noted in certain blogs, et cetera, there are Republican senators that have come out and said there are certain things that are too restrictive. The point being here for change of law, with respect to the risks that Marsh is typically covering off, there hasn't been anything that has triggered a retroactive change in law. That's the good news. 

So when we view change in law, now that's something that, from a buyer's perspective, is less concerning, because we haven't seen the House bill come out and say that there's going to be a retroactive change in law definition with respect to the ITCs and PTCs.

MO: To bring it to life a bit more, what would a change in tax law mean for tax credit buyers?

AS: In a tax credit policy, if you have a change of law exclusion, which all of these policies do, it would ultimately potentially lead to a disallowance of a credit or portion of the credit. There would be out-of-pocket expenses for the payment of the credits that were purchased from the seller, and the buyer wouldn't be able to recover those lost credits under the policy

MO: I especially appreciated your comments about retroactive change in law and noting the outcome of the House bill. I would love to spend just a few more minutes there. With that context, how should buyers think about retroactive change in law?

AS: So taking the House bill into consideration as of late, if we expect that to be the worst-case scenario and there's no retroactive change in law that applies to the ITCs and PTCs — whether it be the historic 45/48 or §48E and §45Y with the tech-neutral credits — that should provide the buyer with some comfort that retroactive change in law is unlikely to occur. What we've been seeing in the market recently is that every buyer and their counsel wants retroactive-change-in-law coverage and assumes that it's readily available because historically, the market has been there. As I mentioned earlier, there's been a significant pullback in the market, and it's not guaranteed that every market can cover that retroactive change in law. This is also where we're working with traditional insurers, as well as managing general underwriters that have reinsurers. Their underwriting guidelines are prohibiting them from providing that coverage currently. 

What that means is, from a buyer perspective, if they're wanting that coverage, for the seller, oftentimes they're having to look at a more limited pool of underwriters that will provide that coverage, and so they're getting hit with an incremental cost associated with that coverage. The House bill is beneficial to buyers and sellers both because hopefully it provides buyers more comfort that maybe we can get comfortable not having that retroactive-change-in-law coverage, which results in a cheaper premium for both parties. 

The other component is that, while this is great coming out of the House bill that retroactive law doesn't currently apply, it's still something that, because carriers have those underwriting guidelines in place now, it's going to be hard for them to all of the sudden go back and get signoff to narrow that exclusion, where they retake that retroactive change in law. That's going to be challenging to do, so I don't necessarily see all of the markets coming back online saying, “OK, we can offer retroactive change in law.” But I do think we know where we're seeing a lot of challenges when we're having to place these large insurance towers where you're bringing in excess markets and excess capacity, because the primary carrier typically only takes the first $25 to $50 million of loss. 

So I think that while maybe from a primary perspective, you're not going to see all the markets come back and say, “We'll offer retroactive change in law,” I think it'll be easier to source for those larger towers, because oftentimes we're able to get more flexibility from a market when they're in an excess position, versus primary.

MO: When we think about change in law more broadly, how can buyers insulate themselves from that risk? And I'm curious what kind of terms you've been seeing in transaction deals to protect buyers from change-in-law risk.

AS: It can be negotiated contractually in the purchase agreement, and I think that a lot of this and a lot of insulation can be done around the timing of entering into the transaction in terms of executing the tax credit purchase agreement and funding. So, for example if the buyer’s entering into a purchase agreement prior to the funding date, and if a retroactive change in law occurs during that window, the parties won't fund. So they're protected in that situation. If you have insurance and it's procured prior to the funding date, typically, that's done with an insurance deposit. There's an amount that the parties would be out of pocket for on that deposit, but the buyer’s insulated during that window, because, again, that's really the only thing that the parties would be out of pocket for. 

Any kind of change in law that occurs between the funding and the tax filing date — so if the funding is that placed-in-service date — you'd want to check that the insurance policy covers the retroactive change in law. If that's something that the buyer is demanding, which we've been seeing lately, then the parties need to go with an insurance market that provides that retroactive change in law. 

The alternative to that is a buyer could insulate by funding into an escrow, which gets released at filing, so that, if ultimately they're not able to file because there's a retroactive change in law that applies, they have that escrow set up for that, which is not ideal, obviously, because it's holding up the financing.

Those are the items that we're seeing in terms of just how timing plays into insulating the buyer. 

MO: Sounds like there are a lot of strategies that are available to buyers as they navigate change-in-law considerations. What do you see as your role at Marsh, or the role of insurance more broadly, in mitigating change-in-law risk?

AS: As a broker, we are working on behalf of our clients to get the most narrowly tailored exclusions possible. It's really important to understand the timing of the project, what's the real risk to retroactive change in law? If it's a 2024 credit, we feel much better given it's 2025. We do try to balance the needs of what the insured parties are requesting with what's available in the market, and advising, and sometimes it becomes a pricing conversation. 

Generally, I think the benefit of Marsh is that we're very active in this space. We understand the various assets, which I think is extremely important to understand very pointed exclusions. Because while you have these broad exclusions — every policy has change-of-law, misrepresentation exclusions or fraud exclusions — there are also exclusions that are heavily relevant to the specific asset class. It's important to have a broker who understands the nuances there, because again, our job as a broker is to narrow those exclusions as much as possible and be able to get the underwriter comfortable. That way, the insured parties have the most comprehensive coverage.

MO: We've covered a lot of ground here, particularly on change in law, but as we look ahead to the rest of the year, what advice would you give to tax credit buyers as they're entering the market and exploring opportunities in the space?

AS: I think it's important for buyers to really understand what is available at the market and understand what are the realistic pain points that could attach to the various exclusions that we've talked about, particularly with change of law. Taking kind of a commercial approach to what becomes something of concern and where are we going in terms of making sure that the product is still workable from a commercial perspective, and ensuring that there are other ways to think about things. Oftentimes, the policy is always tied back to the the contractual agreements between the the seller and buyer, so making sure that you're having your counsel really vet those transaction docs to make sure that there are other ways also to pivot and make sure that the policy dovetails into the transaction docs, I think is very important. 

I think also participants really need to think about project selection. As I mentioned, asset classes matter. Understanding what you're buying into is important. It's also important to making sure that you get a policy that is readily available and that the insurance market will provide favorable terms to. So, understanding is it a portfolio? Is it more of a utility scale? What is being contemplated in terms of who's assisting with that project, in terms of documentation and third-party advice, and understanding the tax credit type selection. So again, that goes down to, what are the real risks? What are the commercial concerns? And sponsor selection is important, especially as we go forward, because you want to have parties that have demonstrated that everybody's meeting their timelines with respect to EPCs, etc. So I think that that becomes very important, especially in the current environment.

MO: Is there anything we haven't covered in the discussion so far that you would think tax credit buyers should be aware of?

AS: I think we've had a pretty fulsome discussion. I think, again, it just comes down to really keeping apprised of what's going on in terms of what's coming out of the Senate and responses to that. Always having open dialogs with brokers is always helpful, too, because we're always available to have those discussions preliminarily. So if there's different strategies that are being thought of or contemplated, or any nuances specific to a transaction that they're entering into, we can always be a sounding board for what we've seen in the market, because we do see a lot. 

So I think it's being proactive, getting the information from your advisors, your brokers. We can always source the underwriting community, as well. There's so many participants in this space, so we're always willing to have those conversations and get creative in finding solutions for those items that arise and keep the buyers up at night. 

MO: Are there any resources or upcoming events that you think listeners of our discussion today would find valuable?

AS: There's a lot out there. There are so many conferences that are specific to renewable energy. Really diving into the big law, big appraisers. Your Crux platform has been great. We try to release information as it comes in. So just keep in touch with your network. There's plenty of information out there.

MO: Great. Thank you so much again, Alisha, this has been fantastic.

AS: Thank you.