Insurance investment firm Cedent Ltd. announced yesterday that it is partnering with Nephila Capital to bring $500 million for climate risk capital solutions, targeting risk managers beyond the energy sector.
Specifically, Cedent announced the formation of a corporate advisory firm focused on climate risk. The firm, known as Resilience Economics Ltd., will offer new and innovative climate risk solutions, backed with an initial $500 million from Nephila as a strategic partner.
“We founded Resilience Economics on the premise that clients would be best served by a corporate advisor who leverages advanced data science on climate risk to provide innovative capital solutions,” the new entity’s website says.
Potential capital solutions are varied, including climate insurance, climate derivatives, climate risk financing swaps, contingent credit facilities, and credit guarantees.
The focus will be on expanding into sectors outside of energy that have climate exposure and need an advisory partner to help them quantify and manage that risk. The solutions are geared towards enterprise risk management, capital strengthening, managing cash flow volatility, enhancing credit, providing additional liquidity requirements, and strengthening corporate governance.
In a statement, Michael Coles of Cedent noted that more than 1,000 public company disclosures from CEOs and CFOs on earnings calls this year have revealed that that adverse weather directly drove poor financial results. “A few decades ago, businesses did not transfer the risk of fluctuations in currencies, interest rates, or commodity prices but eventually stakeholders deemed risk retention unacceptable once risk transfer markets developed. Climate risk retention may soon be deemed unacceptable and if so, climate capital solutions will be the new imperative,” he asserted.
Resilience Economics estimates that climate risk transferred into the insurance industry today stands at just $3 billion. “We believe good advice around quantification and transfer of weather and climate risk is the critical key to unlocking the market potential,” said Barney Schauble, Managing Partner at Nephila, without putting a specific figure on the possible size of the market. The focus will be on expanding into sectors outside of energy that have climate exposure and need an advisory partner to help them quantify and manage that risk.
In the same announcement, Cedent announced that Lynda Clemmons would join the firms’ International Advisory Board. Clemmons, who is a senior executive VP, Sustainable Solutions at NRG Energy, was a leading pioneer of the weather derivative market in 1997.
Commenting on her appointment, she stated: “Fast-forward 20 years and the abundance and granularity of data capture means we have new possibilities for structuring innovative transactions. The value of these capital solutions is now available to every industry, not just the energy sector. I am excited to build Resilience Economics as the go-to advisor on climate risk financial matters.”
Resilience Economics is headquartered in Bermuda.
Cedent Ltd. is an investment management firm focused on the international insurance sector. Founded by Michael Coles in 2016, Cedent is an actively engaged investor, taking a very long-term, consolidated approach to investing with emphasis on leveraging its industry intellectual capital.
Nephila, a well-known investment manager dedicated to insurance risk, specializes in catastrophe and weather risk transfer solutions. As of Oct. 1 2017, Nephila manages approximately $10 billion on behalf of institutional investors around the world.
Source: Cedent Ltd.