Tax Credit Insurance Q1 2026 Market Update

Executive Summary:

• The tax insurance market (the “Market”) remains highly cautious regarding “step-ups” in project valuations. Most underwriters will fully insure projects only where step-ups are approximately 25% or less above the project’s cost. This conservative underwriting approach is drawing scrutiny from developers, particularly where strong third-party support exists for higher valuations.
• Section 48E ITCs remain both insurable and financeable. Despite ongoing uncertainty surrounding the Foreign Entity of Concern (“FEOC”) rules and the absence of additional formal guidance, the Market continues to provide tax insurance for these projects, generally excluding FEOC-related risk. Projects claiming Section 48E ITCs continue to secure tax equity and preferred equity financing.
• CAC recently conducted a Market survey to assess current underwriting sentiment regarding Key findings include the following:
  • Appetite for FEOC-related coverage remains limited pending issuance of additional formal guidance, especially with respect to the “effective control” rules;
  • Underwriters expect robust third-party memoranda or legal opinions addressing FEOC compliance;
  • Some underwriters are willing to review FEOC analyses once further guidance is released but are not committing to provide affirmative coverage prior to such release.
• Market capacity is rebounding as new capital providers enter the tax credit insurance space and previously constrained insurers expand their deployment of capital.
• Pricing is beginning to normalize toward pre-Q4 2025 levels. As new capacity enters the Market, and demand moderates after capacity constraints put upward pressure on pricing in late 2025, pricing in Q1 2026 is Early indications reflect increasingly competitive quote dynamics compared to year-end conditions. Underwriter bandwidth has improved as year-end transactions close and pipelines normalize. Q1 and Q2 remain optimal periods to seek proposals for tax credit insurance, as the early-year window typically offers greater underwriter bandwidth and more competitive pricing for securing coverage.

• Premium deposit structures have evolved. Most underwriters now require a 20% premium deposit at binding (versus the historical 10% deposit), with the remaining balance due by a fixed outside date, rather than solely upon satisfaction of a transaction milestone (e.g., COD, PIS, etc.). This shift reflects broader underwriting discipline around capacity allocation and payment timing.

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