Weather Derivatives

Over two-thirds of the world's economy is impacted by meteorological conditions. As climate change progresses, unpredictable weather events such as exceptionally mild winters, cool summers, and periods of sustained high or low wind are becoming more frequent.

Our tailored weather-related risk management solutions help companies in all industries that are affected by non-catastrophic weather. With weather derivatives, you receive financial compensation in the event of adverse or suboptimal weather conditions. This also applies if no damage occurs. Plus, there is no need for a lengthy claims settlement process.

Using weather derivatives is the frictionless, practical way to target weather-related risks as part of the overall risk management strategy.

• Predefined parameters – A  “weather index” is defined to represent the underlying weather risk exposure. The weather index can be based on various meteorological variables, such as temperature, wind speed, precipitation, streamflow, solar irradiation, etc. Weather derivatives can be structured to offset a specific portion of the overall weather risk exposure, e.g., protection against a 1-in-4 year event versus a 1-in-10 year event.
• Individual structuring – There are various risk management tools/strategies available, including all “standard” derivative products (Swaps, Calls, Puts, Collars, etc.). Dual Trigger products are also available. Generally, these would incorporate a commodity price component along with the weather-based component.
• Payout – Like a regular (price-based) derivative, a weather derivative payout is triggered if the specified weather index is above (or below) the pre-determined threshold. Example: You will be paid X euros for every degree Celsius that the temperature is above threshold Y.