Nephila expands its role in weather and ESG-driven investment risks with the launch of Nephila Climate (NCx)
Jan 30, 2018
BERMUDA - Nephila Holdings Ltd, parent company to Nephila Capital Ltd, the first dedicated investment manager specializing in reinsurance and weather-related risk, announced today that it has expanded its weather and ESG-driven business with the launch of a new specialty division, Nephila Climate (NCx). NCx is dedicated to weather risk transfer and climate resilience products. Dr. Richard Oduntan, the head of Nephila’s weather risk investment team, was named CEO of NCx.
The impact on earnings from increasingly volatile weather conditions extends well beyond the energy sector to include retailers, airlines, food and agriculture, and outdoor entertainment. According to Factset, nearly half of the companies in the S&P 500 cited weather as negatively impacting earnings in third quarter earnings calls in 20171.
“NCx stands at the intersection of two trends: steadily increasing interest in weather risk transfer alternatives from companies and intermediaries around the world, and the investment community’s collective push to develop products aligned with impact and sustainable investing goals”, said Dr. Oduntan. “NCx will also satisfy a growing demand from investors for additional non-correlated returns.”
Nephila offers a broad range of investment products including insurance-linked securities, catastrophe bonds, insurance swaps, and private transactions. Barney Schauble, Chairman of Nephila Climate, noted, “We are proud to have been early believers in climate-driven investments, developing the initial market for weather risk transfer and creating an opportunity for investors in a way which makes for a more sustainable economy.”
Nephila spent the last 17 years exploring and investing in non-correlated risks in the weather space. It successfully traded some of the earliest weather-risk instruments (including the Kelvin Ltd weather bond issued in 1999) and launched its flagship weather investment vehicle in 2005. Over the years, Nephila has steadily expanded its expertise in climate-driven investing including serving as a risk capacity provider and advisor to Weatherbill, which later became the Climate Corporation. The team also advised and supported the growth of REsurety, an independent risk transfer intermediary in the wind energy space, which led to the creation of the award-winning Proxy Revenue Swap (PRS), a product that helps renewable energy developers (wind, solar and hydro) secure long-term predictable revenues as an alternative to traditional Power Purchase Agreements (PPA). Microsoft was among the first to use PRS to fix its long-term energy costs in connection with a wind project, the 178-megawatt Bloom Wind project in Kansas.
With long-standing strategic partner Allianz Risk Transfer, Nephila has also been a lead risk capacity provider for many publicly announced weather-linked risk transfer transactions, including when the World Bank led $450 million drought-linked protection for Administración Nacional de Usinas y Trasmisiones Eléctricas (UTE), the Uruguayan state-owned hydro-electric power company, in 2013. Nephila has also actively provided reinsurance capacity in the agricultural sector to protect farmers against crop failure in places such as Africa. This includes providing reinsurance support to the African Risk Capacity (ARC), “a specialized agency of the African Union established to help member states improve their capacities to better plan, prepare and respond to extreme weather events and natural disasters.”
The launch of NCx is the latest expansion of Nephila’s weather and climate-driven investing business in response to the growing demand from both hedgers and investors. NCx will benefit from the larger relationships of Nephila Holdings, but is also seeking external partners who share the same interests and innovative spirit when exploring climate-related investment initiatives. NCx will continue to scale its existing offerings and offer adjacent products for renewable energy, energy markets, agriculture and other sectors. In addition, it will also seek to develop weather-linked credit products to aid the financing of renewable energy projects and also help commercial and government entities manage climate resilience risks due to weather volatility and extreme weather in sectors including logistics and transportation, construction, mining and minerals, food and agriculture, hospitality and retail.