Weather Solutions Unpredictable weather risk can inflict losses on many companies. Swiss Re offers its clients tailor-made risk solutions in the form of weather insurance or weather derivatives to protect their profit statement against such risk. What is weather risk? Weather risk is the uncertainty in earnings and cash flows due to weather volatility. Utility and energy companies, for example, can experience volume-related revenue shortfalls due to a cool summer or a mild winter. Other industries which can be impacted by weather-related earnings volatility include agriculture, chemical, food & beverage, construction, retail, transportation, entertainment & recreation, insurance, etc. Weather risk gains wider acceptance The weather market arose in the US in 1997 as a result of the liberalisation of the energy and power sector. One year later the market expanded to Europe and Asia. Since then it has grown substantially in terms of market size and number of transactions. Apart from the proceeding liberalisation in the energy sector, shareholders, financial analysts and rating agencies are becoming increasingly aware that weather has an impact on corporate earnings in many industry sectors. As a result more and more companies engaged in modern risk management are quantifying and mitigating the financial impact on their weather-sensitive cash-flows. Swiss Re’s response Within the range of potential Weather Solutions we focus on those that align Swiss Re’s competitive advantage with our clients’ interest. Solutions provided are characterised by the following elements: Product Focus and Competitive Advantage Tailored meteorological indices to reduce our client’s basis risk Multi-year contracts to reduce our client’s opportunity costs Out-of-the-money (high excess) risk transfer solutions At-the-money solutions based on capital markets (swaps) or insurance (finite) products Ability to deliver material solutions Significant net risk taking capacity per deal Strong capital base and superior credit rating “AA-” by Standard & Poor’s, “Aa2” by Moody’s and “A+” by A.M. Best. Swiss Re’s Experience More than 3,300 weather solutions since 1998 Average market share of 25% - 30%1) Temperature-based solutions (heating & cooling degree days, critical days etc.) Precipitation-based solutions (rainfall, river flow, hydro power production etc.) Multi-trigger solutions Duration from 3 months to 5 years Blended coverage (risk financing combined with risk transfer) Re-insurance solutions Derivative solutions 1) Based on notional values as published by Weather Risk Management Association How do you benefit from our Weather Solutions? Off-loading weather risk to Swiss Re allows our clients to benefit from the diversification effect of our world-wide risk portfolio. As a result our clients benefit from both reduced opportunity costs and reduced total cost of risk bearing capital. Swiss Re Swiss Reinsurance Company, Zurich Environmental & Commodity Markets Tel.: +41 43 285 4370 Fax: +41 43 282 4370 Electricity Price and Outage Solutions (ELPRO) (.pdf 114 KB) Financial solutions for weather risk (.pdf 103 KB)