Weather risk management market value drops by half

by Artemis on June 4, 2009

The results of the most recent annual survey by the Weather Risk Management Association and Pricewaterhouse Coopers have been released at the WRMA conference yesterday. Here are some of the highlights of the report which covered the period April 1st to March 31st. Volume of contracts exchanged, both in OTC and exchange traded deals plummeted to 601,000 compared to 985,000 a year earlier. The value of those contracts traded fell by 53% from $32b down to $15b.

A pretty massive drop you’re probably thinking? This is not unexpected though, the weather derivatives market is just mirroring the fall of the global capital markets of the past year. Much of the capital injected into the weather risk markets comes from the same sources as the rest of the capital markets and as such with capital much reduced there is no surprise at the drop at all.

It wasn’t all bad news either in 2008/9. The number of contracts traded in Asia, Europe and Australia have all risen which at least shows an increasing interest in the products from the newer markets. Most of the drop appears to have come from the U.S. where the contraction in available capital has been most apparent.

The WRMA say that the majority of trades for the year were on the Chicago Mercantile Exchange.

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