GC & MMC units team on climate risk transfer, including cat bonds

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Reinsurance broker Guy Carpenter is teaming up with other global Marsh McLennan businesses for a joined-up approach on delivering a holistic range of climate risk focused services and advisory, part of which is risk transfer related and includes catastrophe bonds.

climate-change-tipping-point-ilsThe announcement sees the reinsurance division teaming up with MMC units such as Marsh, Oliver Wyman, and Mercer, to help clients measure and understand climate risk and related threats and then deal with them, through setting climate change related strategies, risk management and of course risk transfer.

The threat of climate change requires a joined-up approach and access to risk capital financing, alongside all of the expertise needed to help organisations understand their risk and plan to address it.

To this end, Guy Carpenter has announced a suite of climate advisory and modeling services, tapping on the rest of the MMC group, to help companies “develop and integrate robust climate change strategies into their overarching Environmental, Social and Governance programs.”

The goal is to assist clients to address physical, transition and liability risk, with part of this being responding to the climate change driven influence on the frequency and severity of natural catastrophe perils, Guy Carpenter said.

Physical climate risk is creating “acute and chronic threats”, the reinsurance broker explained, while at the same time the shift to lower emissions and the road to net zero is spawning transition related risks, and “failure to manage these physical and transition exposures is generating the potential for liability risks.”

To address this dynamic climate risk driven environment, Guy Carpenter said that it has, “Established an integrated range of services designed to address multiple facets of physical and liability risk, while leveraging the power of the other Marsh McLennan businesses to also tackle transition risk.”

Key services offered by the MMC group and with GC’s input include:

  • Physical risk modeling – natural hazard risk assessment and risk modeling, exposure data enhancement, adjustment of catastrophe models
  • Risk governance and regulation – capital modeling and solvency capital requirement calculations, regulatory compliance processes
  • Risk transfer – traditional risk transfer, parametric instruments and catastrophe bonds
  • New institutional arrangements – advice on public risk transfer solutions and public/private partnerships
  • Insurance solutions – risk underwriting for new technologies and infrastructure

Peter Hearn, CEO of Guy Carpenter, commented on the announcement, “The myriad challenges resulting from climate change have initiated action, with early adopters seeking to demonstrate best-in-class responses to these issues. To reach that level, clients must gain clarity around critical areas such as their physical exposure to climate risk, how they manage transition risk, how they address potential liability risk, and how they underwrite towards greener outcomes. By offering this wide spectrum of climate-focused services and collaborating with the wider Marsh McLennan businesses, we can help our clients achieve that clarity.”

Guy Carpenter believes it is, “uniquely positioned to help its clients understand which perils and regions are most at risk due to climate change.”

Key within this is helping clients to understand physical climate related risks and how climate change may be affecting them, then assisting with capital modelling, designing and implementing risk transfer strategies and connecting climate risk with the most efficient and effective sources of risk and reinsurance capital available.

Guy Carpenter will work with other MMC companies to also deliver services related to transition risk modeling, climate investment portfolio modeling, asset-level resilience surveys and scoring, and commercial due diligence.

Dean Klisura, President, Guy Carpenter, commented, “Managing climate risk is becoming an increasingly prominent component of an organization’s overarching Environmental, Social and Governance approach, with the majority of our clients expressing a strong desire to develop robust strategies on this front. As the direct impacts of a shifting climate reverberate through our industry, Guy Carpenter is working to provide our clients with the foundations necessary to build resilience, ensuring that they are in turn able to deliver for their clients during this transformative period for our planet.”

The transition to net zero requires a risk management focused response and in order to transition organisations are going to require financing to offset the threats of a changing climate.

The reinsurance and insurance-linked securities (ILS) market stands well-positioned to become a major player in helping the world adapt and manage its climate related exposures.

Also, being part of a group with investment consulting and advisory for asset owners and holders, also puts brokers in a position to advise on how best to carve out climate related exposure, to transfer it from balance-sheets or portfolios, to other forms of capital, to lower the burden and drag these will create on organisations and companies as they transition towards their climate goals.

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