Mitsui Sumitomo to use NASA satellites for weather derivative sales

by Artemis on December 8, 2016

Japanese insurance group Mitsui Sumitomo Insurance has announced a partnership with NASA to utilise satellite data to enable it to sell weather derivative and other parametric weather insurance products more broadly around the globe.

Weather risk temperature cat bondMitsui Sumitomo has a dedicated weather risk transfer sales unit in MSI GuaranteedWeather, LLC, a Kansas based weather derivative and risk transfer specialist that emerged out of the old weather trading team of Aquila Energy and was subsequently acquired by Mitsui Sumitomo in 2007.

MSI GuaranteedWeather already offers weather derivatives and other weather index or parametric insurance and risk transfer products around the world, but the announcement of the partnership with NASA for satellite observation data is expected to help the group sell weather derivative based risk transfer products more broadly and more sensitized to specific client or corporate buyers needs.

By using NASA data the weather derivative and index insurance products can be more broadly sold, with NASA satellites providing the weather and climate observation data needed to cover regions where there are no fixed weather stations.

Mitsui Sumitomo aims to sell this product globally, having developed an underwriting system that uses remote sensing data from satellites and weather derivatives underpinning the transaction, backed by reinsurance capital.

With the insurance-linked securities (ILS) market a keen provider of reinsurance capital to back weather risk transfer, any push to expand the use of parametric weather products by Mitsui Sumitomo will find ample support from ILS fund managers in search of diversification.

Mitsui Sumitomo hopes that the product could help corporations operating in regions exposed to weather variability or severe weather, where weather data is not readily available. Equally, the insurer hopes the product will help to enable companies to move into regions of the world impacted by rainfall, drought and other climate factors, as now they can acquire risk transfer to hedge their weather risks.

Using NASA data Mitsui Sumitomo aims to tailor the weather coverage to the buyers needs, both geographically and based on perils they are exposed to and they see this as a way to support corporate buyers expansion into emerging and weather exposed regions. MSI GuaranteedWeather expertise will be leveraged to arrange and sell these products.

Weather risk transfer, derivatives and parametric products to insure against and transfer weather or catastrophe risks off balance sheet are becoming increasingly prevalent, after 20 years of slow and steady adoption.

As large insurance groups seek to sell more of these products, the need for reinsurance capital will grow making ILS funds a likely beneficiary of some of the risks given their appetite and ability to structure products based on parametrics of weather and catastrophe conditions.

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