Speedwell seeks to automate weather risk transfer pricing

Automating the pricing process for parametric weather risk transfer or weather hedging contracts is an ambitious goal, but Speedwell Weather feels it has achieved that with the latest release of its now 15-year-old weather derivative pricing and risk management software, which it has connected to its weatherXchange platform.

Speedwell Weather, a provider of weather data, forecasting information, analytics, software and consultancy to the weather derivatives and weather risk management market, has launched SWS version 12, the latest version of its weather derivative pricing and risk management software that was first released in 2002.

A number of new features are offered with the latest SWS software, which will please weather derivative traders, structurers and those seeking to hedge their weather risks including ILS or reinsurance firms, but perhaps the most interesting development is integration with Speedwell’s parametric weather risk transfer platform weatherXchange.

weatherXchange was launched earlier this year, and offers users an online technology based weather trading platform, allowing protection buyers and sellers to meet and transact parametric or index-based weather risk transfer contracts.

With the launch of SWS version 12, the system now offers an optional fully integrated Automated Pricing Service (APS), which is configurable by users and allows for the automation of the process of responding to pricing requests received via the weatherXchange platform.

Michael Moreno, Co-CEO of Speedwell Weather, explained; “SWS users have already seen the benefits of existing weatherXchange integration with SWS Vs 11 which simplified responding to pricing requests from the weatherXchange Platform. The APS takes this a stage further by fully removing the need for human oversight in the pricing of certain types and sizes of trades.”

Other features in SWS v12 are: support for pricing and portfolio risk management of gas-settled quantos, which is a derivative product; new scripts designed to support “the most exotic weather structures”; additional integration with the weatherXchange data API and the Gridded weather Data API.

Moreno said; “In the same spirit of further enabling the market, we are introducing support for quantos with a combination of energy data, climatology curves and software tools to make this type of complex but important energy-market hedge accessible to the wider market.”

The integration with weatherXchange could help to stimulate more deal-flow in the parametric and index-linked weather derivatives and risk transfer space, by providing simpler access to pricing and structures, as well as a way to find counterparties more easily.

It’s also a great example of technology being leveraged for risk transfer, not strictly InsurTech as weather risk transfer can just as easily be a derivative product as insurance, but certainly a sign that technology can drive more efficient risk transfer and hedging processes, as well as provide more efficient access to risk capital sources.

Some of the risk capital sources sitting behind the weatherXchange platform are insurance-linked investment managers, as well as global reinsurance firms.

“By automating the pricing process our aim is to continue to grow the number of opportunities to which our clients can positively respond,” Moreno commented.