http://www.forbes.com/business/newswire/2003/06/05/
rtr991685.html
Global weather derivatives market grows threefold Reuters, 06.05.03, 10:01 AM ET
FRANKFURT, June 5 (Reuters) - Global trading of weather derivatives has trebled in the year to April 2003 partly due to a rising number of European firms aiming to hedge against changes in temperatures and rainfall, a report said on Thursday.
At least 11,756 contracts worth $4.2 billion were signed worldwide between April 1 2002 and March 31 this year, a joint survey by the U.S.-based Weather Risk Management Association (WRMA) and consultancy PriceWaterHouseCoopers showed.
'The study reveals increasing interest in the market, particularly in Europe where a number of new players have moved in,' said Hans Esser, head of FinanzTrainer.com, the first German consultancy to specialise in weather derivatives deals.
The number of contracts signed in Europe surged by 90 percent to 1,480 year-on-year, the data showed.
More active trading at the U.S.-based Chicago Mercantile Exchange also boosted overall volumes, but the vast majority of deals were still arranged in the over-the-counter (OTC) market, said Esser, whose firm is one of four German WRMA members.
Others include the world's fifth largest reinsurer, Germany's Hannover Re.
'All in all there has been hedging against weather risk of a total value of almost $16 billion worldwide in less than six years,' Esser told Reuters.
Weather derivatives allow companies ranging from regional utilities to air-conditioned airports and icecream makers to hedge against risky changes in temperature, rainfall, snow and wind that could hit their profits.
'Initially, risk management with weather derivatives was mainly for gas suppliers, whose sales significantly depend on winter temperatures,' Esser said.
'If the actual temperature fell short or was above the average temperature by one degree this generally meant a five-percent rise or fall in sales for gas suppliers,' he said.
A lion's share of the contracts signed in the survey-period still were temperature-related, but hedging against rainfall, snow and wind was seeing more demand, said the consultant.
'Some 85 percent was temperature-related...but almost 500 of all contracts signed hedged against rainfall,' said Esser.
In 2003, he expects the market to show slow, but steady growth, partly depending on the pace of the European energy market liberalisation, which generated risk management know-how.
Reuters News Service
