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General Weather Risk Management Program

Learn about the basics of weather risk management, including the impact of general weather conditions on economic loss and how to mitigate risks. This program outlines a hypothetical example of managing warm weather risk and includes average temperature-based payments and premiums.

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General Weather Risk Management Program

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  1. World Meteorological OrganizationBasics of Weather Risk Management GenevaDecember, 2007

  2. General Weather and Extreme Weather General weather also causes economic loss

  3. Risk from General Weather Adverse General Weather • Temperature • Precipitation • Wind speed • Other measurable weather variables Can affect • Costs • Revenues • Margins of Government, Commercial and NGO entities.

  4. Example General Weather Risk Program Warm Winter means Poor Sales of Gas for Heating

  5. Example General Weather Risk Program Outline Example Program Buyer Natural Gas Distribution Utility Coverage Loss of Revenue resulting from adversely warm winter weather. Weather Risk Average Temperature November-March Weather Station City Airport WBAN _____ Period 1 November 200Q – 31 March 200R Attachment Average Temperature > 43.6ºF Payment US$250,000 for every 0.1ºF above the attachment, to a maximum payment of US$ 7,500,000 Premium US$xxx,xxx

  6. Example General Weather Risk Program Example Program Manages Warm Weather Risk

  7. Example General Weather Risk Program Hypothetical Outcome of Example Program

  8. Management of General Weather Risk General Points: • Based on volumetric relationship between adverse weather and adverse economics • Parametrically structured: based on measurable weather variables (index-insurance or physically based derivative) • Respond to current weather conditions in relation to historical weather data

  9. Disclaimer • Willis Structured Financial Solutions Limited ("WSFSL") is an investment business authorized and regulated by the UK Financial Services Authority.   Willis Securities, Inc. ("WSI"), is a licensed broker dealer authorized and regulated by the NASD and is a member of SIPC. Willis Capital Markets ("WCM") is a trading name of  WSFSL and WSI. Reinsurance products are placed through Willis Re Inc. in the United States and through Willis Limited in the UK. Willis Re, Willis Limited, WSFSL and WSI are Willis Group companies. • These materials have been prepared by WCM for the WCM client or potential client to whom such materials are addressed in connection with an actual or potential mandate or engagement and may not be used or relied upon for any other purpose. These materials are based upon information provided by or on behalf of the company and other potential transaction participants from public sources or other sources.. WCM assumes no responsibility for independent investigation or verification of such information and has relied on such information being complete and accurate in all material respects. To the extent such information includes estimates and forecasts of future financial performance prepared by or reviewed with the company management or obtained from public sources, WCM has assumed that such estimates and forecasts have been reasonably prepared on bases reflecting the best currently available estimates and judgments of company management (or, with respect to estimates and forecasts obtained from public sources, represent reasonable estimates). No representation or warranty, express or implied, is made as to the accuracy or completeness of such information and nothing contained herein is, or shall be relied upon as, a representation, whether as to the past, the present or the future. This communication was designed for use by the WCM client or potential client and is being furnished and should be considered only in connection with other information, oral or written, being provided by WCM in connection herewith. The information contained herein is not intended to provide the sole basis for evaluating, and should not be considered a recommendation with respect to, any transaction or other matter. Nothing in this communication constitutes an offer or solicitation to sell or purchase any securities and is not a commitment by WCM (or any affiliate) to provide or arrange any financing for any transaction or to purchase any security in connection therewith. WCM assumes no obligation to update or otherwise revise these materials. This communication has not been prepared with a view towards public disclosure under any securities laws and may not be reproduced, disseminated, quoted or referred to, in whole or in part, without the prior written consent of WCM. Information contained within this communication may not reflect information known to other employees in any other business areas of Willis Group and its affiliates.

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