Kita CORSIA Update – a message from Kita’s CEO
The Kita team decided not to submit a policy for consideration within the first round of Gold Standard's CORSIA insurance eligibility approval process. We encourage you to read further, to understand our decision and next steps.
Following the announcement of Gold Standard’s new approved CORSIA insurance policies, the Kita team anticipates that the market may wish to understand our decision not to submit for the first round of private insurance company approvals for Gold Standard’s CORSIA-specific insurance policies.
Kita CEO and Co-Founder, Natalia Dorfman, outlines our decision and next steps below.
We emphasise that our decision is unrelated to Gold Standard or its advisors, whom we have found to be collaborative and engaged throughout the process.
Please don’t hesitate to get in touch to discuss this further.
IMPORTANT NOTE:
While we are not currently offering a Gold Standard CORSIA policy, we are open to reconsidering this position as the market evolves. Our commitment to enabling finance across the carbon market remains unchanged. Kita continues to provide a comprehensive range of insurance solutions – including Non-Delivery, Political Risk and Non-Payment Insurance – which protect against a broader range of risks than those covered under CORSIA-specific policies. Further details on how these products support project financing can be found in our blog here.
Our decision
We built Kita on the belief that insurance is an enabling force to unlock capital for high-quality carbon projects, which are essential to fight the climate crisis. When deployed with integrity and discipline, insurance is a strong indicator to the market of quality, effective risk management and bankability. As the first carbon insurance specialist, we are proud to see insurance now being widely utilised across the carbon markets and anticipate that this will increasingly act as an enabler for scaling.
We have therefore given a great deal of thought and consideration to our decision not to currently provide Gold Standard’s CORSIA-specific insurance, as we do not wish to cause any adverse market impacts.
Our decision is based around two key criteria:
Readiness of the underlying market structures; and
Aspects of the required insurance coverage
1) Readiness of the underlying market
In our first blog on this topic in May 2024 - Corresponding Adjustments and Political Risk and Insurance - we said, “Insurance companies...may be unlikely to deploy significant amounts of capital into insuring carbon projects unless they feel secure in the strength of the underlying contracts with the host government.”
In that same blog, we provided a “wish-list” of a Project Development Agreement with a host country (i.e. the LoA and any supporting Framework Agreement):
It (LoA or Framework Agreement) constitutes a legally valid, binding and enforceable agreement with the contracting entity(ies) of the host government, under the laws of the host country. This may require legal opinion from local counsel as to the validity and enforceability of its terms;
It (LoA or Framework Agreement) contains clear governing law and dispute resolution provisions, including rights of recourse against the host government via arbitration. It must also clearly set out each party’s obligations and specify the grounds for termination;
Any Framework Agreement refers directly to the LoA and clearly outlines the circumstances under which the host government’s non-compliance with its terms constitutes a material breach of the Agreement;
The LoA contains the appropriate provisions outlining the host country’s Authorisation with respect to the carbon credits generated by the relevant project; and
The LoA aligns with the requirements/guidelines set by the UNFCCC.
Based on our assessment of projects to-date, there are very few LoAs meeting the criteria above. Nor are there many Framework Agreements in place to support the LoAs and fulfil this contractual requirement. More importantly, at this stage in the market, the project developers clearly understand these requirements, however face huge struggles in engaging directly with a host country to achieve them. Arguably, this is not a role most project developers - at their current size and level of capitalisation - are well-placed to play, at least not on an individual company/project basis.
Likewise, we understand the perspective of the host countries, many of which are still determining how they wish to engage with carbon markets. As a result, there are naturally delays for NDCs, LoAs, CAs and other relevant underpinnings.
At Kita, we prioritise disciplined underwriting to help build a scalable and resilient insurance market in the years ahead. We aim to prevent scenarios where significant losses or contractual ambiguities could undermine industry confidence or lead to claims disputes. For this reason, we do not provide insurance for projects whose contractual frameworks or associated risks do not align with our underwriting criteria.
OUR ACTION GOING FORWARD – Since our founding, Kita has focused on playing a market-enabling role – helping to shape the growth of the market in a risk-managed and well-governed manner, to unlock finance and support scalable impact. We believe this focus is more important now than ever. Alongside Kita, we would like to see broader engagement from the financial, legal, advisory and public sector actors in supporting project developers by working with host countries to create market standards for bankable and insurable contractual frameworks that can be implemented consistently across the sector. We recognise this work is already in progress, e.g. via IETA, MIGA and others, and Kita stands ready to contribute wherever possible. Encouragingly, we have observed marked improvements already in contractual structures across wider carbon transactions in recent years, and remain optimistic that similar progress will be achieved quickly for CORSIA.
2) Required structure of the Gold Standard CORSIA-eligible insurance policy
When we first considered our insurance policy for CORSIA, we viewed it as a political risk insurance policy – protecting the project developer and its stakeholders against the risks arising from the adverse actions or inactions of governments. We outlined our thoughts on the applicability of political risk insurance to CORSIA here.
Political Risk Insurance is a long-established and sizeable insurance market that can apply directly to CORSIA-specific risks, enabling greater investment and scale, by cushioning the impact of unpredictable and potentially significant losses related to the revocation of a Corresponding Adjustment (as well as the much wider range of political risk events possible – such as expropriation, export license cancellation, political violence, forced abandonment, etc.).
It is important for the market to note the insurance requirements under Gold Standard for CORSIA differ in scope and intent from those of a traditional political risk policy. The underlying risk is still a political one (i.e. related to host country action), but the insurance required is a very narrow cover, protecting the end user of the carbon credits against the risk of double-counting. [NOTE: For those who seek to understand the requirements of the cover, please do get in touch.]
We understand the perspectives of Gold Standard in this respect, which stem from the requirements of ICAO. As noted above, we have found Gold Standard wholly engaged and collaborative across this process.
There is no inherent problem with the insurance requirements dictating a very specific “carbon insurance” policy rather than a more general “political risk insurance policy applied to the CORSIA markets,” as Kita is highly experienced in creating tailored carbon-related policies. However, after reviewing the policy requirements against the underlying readiness of the market, we have determined that it would be premature to proceed from an underwriting perspective at this stage.
Some key considerations influencing this decision are:
Required coverage for non-discriminatory action of the host country. It is a key tenet of political risk insurance that “discriminatory” actions by the host country are covered by insurance, but “non-discriminatory” actions are not. This is because countries are free to legislate (i.e. it is well within their legal and contractual rights to implement legislative changes applied fairly and evenly across all entities within that country). On the flipside, actions that are targeted unfairly towards either specific companies and/or types of projects would be covered by insurance as “discriminatory”.
Like every insurance company, Kita has aggregate limits across different categories – for example, by country – that determine the total amount of insurance we can underwrite in each area. These limits are an essential part of our risk management framework, ensuring we maintain a balanced portfolio and avoid excessive exposure to potential losses. The requirement for Gold Standard’s CORSIA-specific insurance is to cover non-discriminatory action. This presents a significant concentration risk, as a single government decision could lead to simultaneous claims across every project we insure within that country. While this may not appear problematic at the time a policy is issued, rapid market growth during the policy period could significantly increase our aggregate exposure. To manage our portfolio responsibly and ensure long-term capacity for our clients, we do not think it is prudent to assume this level of aggregate risk at present. Providing such coverage would also affect how we allocate our available capacity across products, potentially reducing our ability to offer other important insurance solutions (such as Non-Delivery Insurance and Non-Payment Insurance), which are critical to enabling the financing of many high-quality projects, both within the CORSIA and wider carbon markets. By maintaining responsible risk limits, we can continue to support these markets in a stable and sustainable way.
Mandate that only project developers can take out the insurance. We do not believe that CORSIA insurance should be required to be taken out by the project developer alone. In practice, project developers may struggle to access these insurance policies for the following reasons: (i) The project developer is small/new and considered high risk; (ii) The project developer is incorporated in a country where insurance penetration is not high or feasible by specialist carbon insurance providers; (iii) The project developer cannot afford the cost of the policy, which includes required uplifts across its life to match market price. Allowing broader insurance structures, such as centralised insurance policies or enabling investors to act as the insured party, would expand market accessibility. Such an approach would provide greater flexibility and enable coverage for a broader range of market participants and transactions, ultimately facilitating deeper engagement and growth within the CORSIA and broader carbon markets.
Lack of standardisation. The insurance eligibility criteria are both specific on the aspects outlined above, and broad in other ways. This means the initial insurance options provided by different insurers are unlikely to be ‘apples for apples’ in terms of scope and coverage. We believe the market would benefit from greater standardisation of insurance policy structures, to reduce the complexity and burden on market participants to understand and compare diverse policy terms. Kita intends to engage proactively within the insurance industry to promote greater alignment on this front moving forward. We do not view it as Gold Standard’s role to lead such standardisation efforts, and this should not be interpreted as a critique of their framework. Rather, this is a role for the insurance industry; the Kita team welcomes ongoing dialogue and feedback from the market on CORSIA insurance requirements, to help inform and advance this alignment.
For our earlier considerations on this topic, please see this blog.
PLEASE NOTE – Project Developers, Lenders and Investors are not protected by the CORSIA policy. CORSIA insurance is specific to the risk of double counting. If you are developing or financing a CORSIA project (or any carbon project) and seek protection, please get in touch. Kita has a comprehensive range of policies that enable early-stage investment into carbon projects, including: Political Risk Insurance; Non-Delivery Insurance; and Non-Payment Insurance.
Conclusion
We recognise this decision might come as a surprise and disappointment to some, and it was not taken lightly.
Based on the considerations outlined above, we have decided to focus our resources on our existing and growing pipeline of projects that rely on our wider specialist insurance solutions. This approach enables us to manage risk responsibly while continuing to protect against loss and support the flow of capital needed to scale high-quality projects.
Therefore, please do not hesitate to get in touch to discuss how Kita’s technology-driven underwriting diligence, comprehensive policies and value-add ongoing monitoring can help protect your investments and projects, whether that be within or outside of the CORSIA market, including:
Non-Delivery Insurance: for the under or non-delivery of future carbon credits.
Political Risk Insurance: protecting against Host Country risks that cause loss, such as expropriation, export license cancellation, forced abandonment, deprivation, political violence, forced divestiture and selective discrimination. Note none of these are required to be covered under the CORSIA policy.
Non-Payment Insurance: to protect against non-payment of expected future revenue streams from carbon projects.
As noted above, please see more detail on how these policies apply to the financing of carbon projects in our blog here.
Moving forward regarding CORSIA, our actions will be as follows:
We will continue to watch the CORSIA market closely, including the development of LoAs and other Government agreements.
We will continue to engage in a market-shaping manner to create greater standardisation across both host country agreements and insurance policy structures.
We will seek feedback from market participants on CORSIA insurance criteria in order to influence our future entry into the market.
Finally, this position reflects our current assessment of market conditions and risk appetite. We will keep this under review as the market develops, and will provide appropriate updates should our approach materially change.
Please do not hesitate to get in touch with me directly, or a member of the Kita team, to discuss further.
Natalia Dorfman, CEO and Co-Founder, Kita