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Results of the 2005 PwC Survey

Results of the 2005 PwC Survey. Presentation to Weather Risk Management Association. By John Stell. November 9, 2005. Results of the 2005 PwC Survey. Agenda. 1. Objectives of Survey 2. Survey Design and Implementation 3. Participation 4. Results. Objectives of Survey.

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Results of the 2005 PwC Survey

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  1. Results of the 2005 PwC Survey Presentation to Weather Risk Management Association By John Stell November 9, 2005

  2. Results of the 2005 PwC Survey Agenda 1. Objectives of Survey 2. Survey Design and Implementation 3. Participation 4. Results

  3. Objectives of Survey • Establish size of market between April 2004 and March 2005 • Provide a consistent measure of market developments over time. PwC has conducted the survey since 2001. • Increase awareness of market Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  4. Survey Design and Implementation • Presurvey (sent in early April 2005) • Sent to All WRMA members • Will you participate? 17 companies responded affirmatively in 2005 (19 in 2003 and 2004, 20 in 2002, 19 in 2001) • Survey (sent April 27, 2005) • 5 Pages in total • General information about company • New question on inquiries by end-users • Information on Contracts • Responses confidential • Chicago Mercantile Exchange trades reported directly by CME Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  5. Survey Design and Implementation Survey Page 1 Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  6. Survey Design and Implementation Survey Page 2 Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  7. Survey Design and Implementation Instructions for Reporting Contracts • Begin dates between April 1, 2004 and March 31, 2005 • The notional value for a swap contract is the maximum contingent payment to your company plus the maximum contingent payment to the counterparty. • For trades without maximum contingent payments, one of the following methodologies used: • A notional value agreed to by both parties to the trade. • The maximum potential loss based on the appropriate weather measure over the last 25 years. • Survey respondents instructed not to report CME trades Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  8. Survey Design and Implementation Instructions for Reporting Contracts • CME data collected directly from CME • Notional value of CME trades calculated separately so consistent with survey responses • Notional value based on twice the standard deviation of HDD or CDD by city • Information on standard deviations supplied by EarthSat Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  9. Survey Design and Implementation Weather Measures Weather Events Determining Contingent Payments Weather Measures Depending Exclusively on Temperature Heating-degree-days measured in Fahrenheit Heating-degree-days measured in Celsius Cooling-degree-days measured in Fahrenheit Cooling-degree-days measured in Celsius Other exclusively temperature-based measures Weather Measures Not Depending Exclusively on Temperature Any measure based exclusively on rainfall Any measure based exclusively on snowfall Any measure based exclusively on wind Any other measure, including combinations of the above Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  10. Survey Design and Implementation Geographic Regions Geographic Regions Where Weather Events are Measured Asia Australian Continent Europe North America, West North America, Midwest North America, East North America, South Other Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  11. Participation Survey Participants, 2005 • ABN AMRO • Accord Energy • AXA Re • Constellation Energy • Coriolis Capital • GuaranteedWeather • Hess Energy Trading Company • Merrill Lynch (formerly EKT) • Mitsubishi Securities • Mitsui Sumitomo • Mizuho Corporate Bank • Munich American Capital Markets • Sompo Japan Insurance • Sumitomo Corporation • Swiss Re • Tokio Marine and Nikido Fire Insurance • XL Traders Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  12. Participation Change in Sample 2004 Survey Respondents 19 - Drops from 2004 2 = 2005 Survey Respondents 17 Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  13. Participation Participant Characteristics 2002 2003 2004 2005 SurveySurveySurveySurvey Participation by Main Line of Business Agriculture 1 - - - Banking 4 3 3 3 Energy 10 7 6 4 Insurance 5 5 6 4 Other - 4 4 6 Participants by Location of Respondent Asia 5 6 6 6 Europe 5 5 4 4 North America 10 7 8 7 Other - 1 1 - Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  14. Participation Distribution of Inquiries about Weather Risk Instruments, by Sector of Potential End-User Reported values weighted by number of trades reported by respondent. Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  15. Results Number of Reported Contracts by Survey Participants • The number of trades reported by survey participants was 4,057 in this year’s survey • The total from last year’s survey was 3,162 • All figures exclude CME trades Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  16. Results Number of Trades on the CME • The CME reports 223,139 trades in summer 2004 and winter 2004-5 combined • Tick size lowered to $20 from $100 per contract in March 2004 (HDD contracts) and April 2004 (CDD contracts) • For the 2003-4 period, there were 21,335 trades (106,675 adjusted for change in tick size) • More winter contracts than summer contracts in 2004-5, opposite was true in 2003-4 Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  17. Results Total Notional Value (in millions of U.S. dollars) Note: CME notional value calculated based on standard deviation of weather measures. Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  18. Results Average Notional Value of OTC Contracts(No CME trades, thousands of U.S. dollars) Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  19. Results Distribution of Number of Contracts by Type(No CME trades) Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  20. Results Trades by Type of Contract, Number of Contracts (No CME) Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  21. Results Trades by Type of Contract, Notional Value of Contracts(Including CME) Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  22. Results Distribution of Total Number of Contracts by Region(No CME Trades) Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  23. Results Share of Counterparties Not Participating in Survey (As a share of total number of contracts) Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  24. Results Summary • The total value of trades in the 2004/5 survey reached $8.4 billion, compared to $4.6 billion in the 2003/4 survey • Both the OTC market and the CME experienced significant increases in both the number of trades and the value of those trades • Most of the growth in the number of trades was for contracts based on North American weather measure • HDD remains most common type of trade, but larger share of market now traded on CME • CDD represents a larger share of the total value of trades compared to 2003/4 (including CME), Other Temperature share is lower, other contract types about the same Results of the 2005 PwC Survey – This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

  25. For more information, please contact: John Stell PricewaterhouseCoopers 202-312-7583 John.L.Stell@us.pwc.com © 2005 PricewaterhouseCoopers LLP. All rights reserved. "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, other member firms of PricewaterhouseCoopers International Ltd., each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP.

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