Charting a sustainable path to net zero.

The COG Re mission

To provide the insurance industry with a stable and reliable mechanism for a sustainable and transparent transition to carbon net zero.

What is COG Re?

COG Re will be set up as a traditional specialty and reinsurance company. It will protect assets by providing compensation for an event or loss in exchange for upfront premium payments. This type of company can be utilized as part of a risk management framework for both insurers and companies to minimise their exposure to both man-made and natural perils.

COG Re will provide global capacity for coal, oil and gas related risks with the ambition to become the exclusive carrier of such exposures over time, enabling the market to transparently run-off and exit such risks by 2050.

Why is COG Re needed?

Background

The Paris Agreement on Climate Change is an international treaty to limit the maximum temperature rise to 1.5 degrees Celsius above pre-industrial levels by the year 2100.

Alongside the wider financial services sector, the insurance industry can play a critical role in achieving this goal by steering and controlling insurance coverage and investments in the respective segments of the global economy. The coverage of coal, oil and gas contributes USD 20bn of premiums to the insurance industry annually

With this background, Insurance Market Leaders are setting their own objectives and targets for Environmental, Social and Governance (ESG) and have found industry wide acceptance and hegemony in the Net Zero Insurance Alliance (NZIA). Traditional insurance and reinsurance carriers are now actively exiting this segment. Many other primary and reinsurance companies have also committed only to renew existing contracts and to write no further carbon-based risks leading to a significant insurance coverage gap.

This insurance coverage gap is further exacerbated by:

Energy supply and security concerns in Europe arising from the Ukraine conflict requiring insurance coverage for further assets.
Extensive and uncompromising lobbying by non-governmental organizations against insurance of carbon related assets reducing the available insurance coverage
Long term energy planning in Asia leading to further coal fired power station commissioning in the medium-term requiring insurance coverage for further assets

Despite the desire of insurers and reinsurers to exit the coverage of carbon associated assets, there will need to be a long transition of the reduction in carbon usage initially to 2030 and then to 2050 as energy generation from renewable resources is insufficient to meet the required demand. This raises the possibility of a significant coverage gap and creates scenarios of uninsured environmental events, such as a major oil spillage. A lack of capacity is already visible, leading to a hardening of the market and a rise in premium rates.

Closing the coverage gap

COG Re provides a vehicle for the insurance and reinsurance industry to transfer these risks, enabling them to meet their investor community commitments. COG Re will then work actively with the insured party to help manage down, and off-set carbon extraction and emissions to meet and exceed 2030 and 2050 deadline targets.

COG Re targets primarily insurers and secondarily reinsurers and assume CO2 related risks via reinsurance or retrocession allowing COG Re’s clients to be free of CO2 related risks for their net accounts. CO2 related risks are initially coal, oil and gas risks in connection with extraction, refinement, distribution and emission creating consumption.

Cedants of COG Re continue to serve as first line underwriting experts who underwrites risks and handles claims. However, COG Re provides per risk and aggregate capacity to de-risk cedant’s balance sheets in exchange for an appropriate risk premium. COG Re also directly underwrites CO2 related risks from the 2024 renewal season to separate these risks completely from the original primary and reinsurers.

To unlock COG Re’s capacity cedants supply COG Re with their fully transparent net-zero strategy and proof of adherence to this strategy on an annual basis or make use of COG Re’s advisory services to such a strategy and plan.

The COG Re approach

COG Re is the solution to this transitional coverage gap and will focus on supporting the insurance coverage of coal, oil and gas related risks for those businesses who intend to meet the long-term net carbon neutral timelines.

COG Re will provide facultative (individual specific risks or insured objects) and reinsurance capacity based on an underwriting framework which includes the following core values:

COG Re and its cedants will write risks only which adhere to superior risk standards
Original insured and cedants will adhere to a fully transparent annualized net-zero path-way by 2050
COG Re can provide additional advisory services including tools, techniques and plans to reach net zero emissions for those insured and cedents
COG Re will gradually decrease available insurance capacity over time for coal, oil and gas related risks

COG Re will facilitate the incentive to decarbonize by way of reducing insurance capacity for environmentally negative risks over a longer transitional period but within the timelines stipulated within the Paris Agreement.

Target risk profile

COG Re will underwrite prudently only considering suitable assets that meet the risk profile, capacity and risk adjusted returns of COG Re which are explained below.

COG Re will underwrite risks associated with the following assets:

Extraction – coal mines, oil and gas rigs
Conversion – oil refineries, coking plants
Transportation – pipelines, coal shipping, oil and gas tankers
Consumption – coal, oil and gas fired power generation

COG Re will only underwrite facultative insurance and reinsurance contracts. These contracts allow for the underlying exposure of the individual risk to be considered in isolation and provides additional flexibility within the terms and conditions of which COG Re would assess that these meet the enhanced superior risk standards that is required to accept the underlying risk.

Coal has seen a significant reduction in direct and reinsurance underwriting capacity, yet the Asia Pacific region continues to have a reliance on coal for power generation which will need time and investment to switch to renewable sources.

COG Re will consider the indicative portfolio across three dimensions considering:

COG Re will not accept all available risks and will build up the portfolio with a view to diversification of these risks at an early stage.

The number of new projects mostly relating to coal for extraction, conversion and consumption within Southeast Asia and China, is expected to grow. Given the reduction in capacity from multi-national insurers headquartered in the US and Europe this will provide COG Re with the opportunity for growth. This gives the portfolio a more Asian focus aligned with COG Re’s domicile preference.

COG Re will actively manage and optimize the portfolio mix. It will be aligned with other reinsurers including a heavy weighting towards Property. Diversification would be achieved by a spread of geographic location to avoid concentration due to natural perils. COG Re will also consider accepting some risks in relation to transportation and in general avoid risks relating to Casualty and Liability.

Cedants of COG Re continue to serve as first line underwriting experts who assess the risk and handle the initial claims. COG Re will also directly underwrite carbon-related risks from the 2024 renewal season to separate these risks completely from the original primary and reinsurers.

The COG Re combined portfolio would target a ratio of expected claims to premiums received of 45%. There would in addition be commissions required to be settled with the brokers of 20% given the assistance in acquiring the business and Management Expenses of less than 5%.

Supporting carbon reduction

COG Re will actively engage with insurers and clients on their strategy to reduce carbon-related emission and to support them in meeting net-zero objectives by 2030 and 2050.

COG Re will gather accessible key environmental data points as part of the underwriting process. This data will be assessed in a ranking model provided and maintained by IncubEx.

IncubEx was founded in 2016 by a team of former key Climate Exchange executives and industry veterans from both the insurance and carbon markets. Based in London and Chicago IncubEx is a unique environmental product and business development firm and in 2021, acquired Insurwave, an insurtech platform that connects insurance buyers, brokers and insurers to share risk data more effectively between participants.

IncubEx’s purpose is to continue to drive transparency and product innovation in the environmental space. By launching Climate Risk innovations IncubEx will connect insurance markets and their clients with solutions needed to enhance their journey to net zero.
Platform innovation: Through an independent platform (TVCM) clients are able to access the voluntary offset market providing price transparency and
Cog Re: IncubEx will bring expertise in the Carbon and Speciality Re-insurance markets to connect domestic insurers and their clients with green portfolios meeting their scope 1,2 and 3 emissions – all integrated with the Reinsurance underwriting or claims process.
Calculation: The calculation of emissions will be facilitated through access to standard tools, calculated by clients and offsets aligned to pre-agreed preferences, type and class of business or industry, geographies and requirements.

IncubEx has a range of partners who can offer climate strategy or stress testing for clients requiring e2e consulting, the carbon market and environmental advisory company. If the cedent’s or insured party’s ranking and ESG plans fall short of a credible 2050 carbon net-zero target, they must commit to an IncubEx reduction, planning and offset step before going on risk with COG Re.

In partnership with IncubEx, COG Re will continue to work actively with the cedant and insured party by monitoring plan development, reassessing their ranking in the model and providing advice and guidance on how industry ESG trends and expectations continue to evolve.

Who we are

COG Re will be incorporated in Labuan and licensed to underwrite insurance and reinsurance contracts. This will enable licensing to be achieved within rapidly for and underwriting launch in March 2023 supporting the geographical focus of the portfolio. COG Re will then establish a Bermuda entity during 2023 and 2024 for 1 July 2024 half year renewals.

At the outset, COG Re will adhere to Labuan regulatory and capital standards but will maintain prudent capital and solvency levels over and above this, as required to maintain adequate provisions against the assumed risks as determined by COG Re’s actuarial and risk function.

COG Re will as part of their risk management approach select suitable retrocessionaires to mitigate the risk of adverse deterioration in losses or significant single losses to maintain the overall capital position.

The capital commitments required will be provided by both third-party capital through investment and by premiums that support the protection of assets. COG Re can offer flexibility through structured reinsurance back to the underlying clients to support the NZIA.

Investors

For an investor prospectus please contact COG Re at invest@cogreinsurance.com