Resilience Economics Ltd. has been launched today by Cedent Ltd., as a new corporate finance advisory specialist focused on climate risk solutions, with an initial $500 million of capacity backing provided by strategic partner Nephila Capital Ltd.
This joint-venture aims to bring together climate and weather risk capital solutions with technology and advanced data science, to help the world’s institutions and governments better manage and transfer their climate related risks.
With the backing of the world’s largest insurance-linked securities (ILS) manager, Nephila Capital, the venture will have access to expertise in creating and structuring risk transfer and reinsurance solutions, as well as access to the most efficient capacity.
Cedent Ltd. is an investment management firm focused on the international insurance sector, with deep technology expertise the firm aims to drive Resilience Economics in the direction of data driven climate risk underwriting solutions, leveraging advanced data science to structure its climate risk capital and transfer solutions.
Resilience Economics will target sectors outside of energy that have climate risk exposure and need an advisory partner to help them quantify and manage that risk.
Solutions offered by the venture will reach across climate insurance and reinsurance, climate derivatives, climate risk financing swaps, contingent credit facilities, and credit guarantees. All of these risk transfer and capital management tools can help institutions with their enterprise risk management, capital strengthening, credit enhancement, managing cashflow volatility, liquidity requirements, and strengthen their corporate governance as well.
Data shows that the U.S. economy can vary up or down by $240 billion annually because of the impacts of day-to-day (non-catastrophic) weather variability, but Resilience Economics estimates that only $3 billion of this risk is currently transferred into the insurance or reinsurance industry. Hence the size of this opportunity is significant.
“We believe good advice around quantification and transfer of weather and climate risk is the critical key to unlocking the market potential and we are eager to support Resilience Economics and its clients in developing protection that responds to their specific exposures,” explained Barney Schauble, Managing Partner at Nephila.
Michael Coles of Cedent added, “More than 1,000 CEOs and CFO’s of public companies disclosed that adverse weather directly drove poor financial results on earnings calls with stakeholders so far this year. 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.”
Resilience Economics has signed up a very experienced weather risk management market executive to its fledgling board, naming Lynda Clemmons as a participant in its International Advisory Board.
Clemmons was a pioneer in the weather derivative, reinsurance and risk management market in the late 1990’s, having worked with Enron, XL Weather & Energy, Vyapar Capital Markets and others. Currently Clemmons is a senior executive VP, Sustainable Solutions at NRG Energy.
“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,” Clemmons commented on her appointment.
As a venture, Resilience Economics is set to target an area of risk that is underserved in traditional insurance and reinsurance, while the use of technology alongside ILS backed capacity and capital market techniques will mean its solutions can be delivered efficiently and effectively.
This also means the opportunity is significant for Nephila Capital to put more of its risk capital to work in emerging areas, solving problems at the front-end of the value-chain for corporates, institutions and sovereign entities, while adding another unique angle to its investor offering.
Resilience Economics will look to take the climate risk discussion to the CFO level, where organisations and institutions will be receptive to solutions that can help to remove volatility caused by the weather out of their businesses. This is a significant opportunity to help smooth earnings and remove balance-sheet volatility for clients, through capital market hedging and risk transfer solutions.