Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Excessweather to offer index & parametric weather & catastrophe covers


A new UK-flagged coverholder, Excessweather, launched this week offering insurance and reinsurance products which pay out based on weather or catastrophe indices and parameters, aiming to capitalise on interest in climate and weather risk protection.

Excessweather wants to target the growing interest in weather and catastrophe covers which pay out with certainty, hence the weather-index and parametric nature of its products. This will allow Excessweather to also tap into the growing market for supplemental insurance among corporates, looking to add a layer of protection for peak weather and catastrophe events.

Excessweather, is led by former QBE Re senior underwriter John Warwick, and chaired by ex-Aviva Investors COO John Hodgson. The firm, a managing agent or coverholder, is said to have a maximum line size of £100m available for clients, with backing from a panel of leading companies and reinsurers on the weather index and also insurance-linked securities (ILS) sector.

Warwick commented on the launch; “Excessweather is the first dedicated UK platform to offer clients this product. We use data from weather stations across the globe to anticipate and price all weather scenarios, including hot, cold, wet, dry, crop and catastrophe (hurricane and also earthquake).”

Reports suggest that Excessweather has at least five reinsurers providing guaranteed capacity for its products, with at least one being a capital markets backed ILS player in ILS Capital Management, the Don Kramer managed Bermudian ILS specialist.

“Our aim over the next few months is to develop a network of brokers and assist them in explaining our products to their clients. We want to open up what has until now been a market open to just the biggest broking players to everyone,” Warwick continued.

Excessweather is also working with CelsiusPro, the Swiss-based specialist in structuring and originating weather derivatives and weather risk management products, who is a shareholder in Excessweather and is providing modelling and analytical skills, alongside broker Aon Benfield.

With the broad range of products that Excessweather plans to offer it is clear that both weather-index based covers and parametric will be available. In fact the hurricane and earthquake covers offered look a lot like a cat-in-a-box type approach, to defining location and severity of events necessary to trigger any payout.

Speed of settlement will be a major selling point for Excessweather’s product range, with price also a factor. Index-based and parametric weather and catastrophe covers are eminently suitable as corporate insurance products, reinsurance for insurers looking to smooth peak exposures and as supplemental coverage either as insurance, reinsurance or even retro. As such, if presented effectively to the market Excessweather could see strong demand for its product range.

CelsiusPro is a good partner to have on board, having a track record of weather risk and derivatives work in providing hedging tools to corporations and some insurers. The weather derivatives angle is also an interesting way that Excessweather can also hedge its own exposures, which will no doubt be part of the firms strategy in time.

Warwick continued; “Weather is a major driver of corporate profit and loss, but until recently, policyholders have only been offered weather as a standard risk, and faced complex disputes about severity and loss values, which take a long time to resolve. Instead, we provide certainty. Paying both premium and claim is a pre-agreed term of the insurance contract, and because the insured event is weather incidence, not the loss, there is no adjusting or dispute. Typically we would pay out within 14 days of a valid loss to a policy.”

The firm already has some potential clients in industries or sectors exposed to weather variation and extremes. Warwick explained; “We are already in advanced talks with a leading worldwide grape grower and wine producer, and have interest from blue-chip UK retailers, whose profits are highly dependent on seasonal shopping, plus we are also talking to a number of brokers and reinsurers.”

These index or parametric weather and catastrophe covers, is sold and marketed well, have the potential to appeal strongly to firms where inclement weather events can make a dent in the balance sheet. “CFOs know exactly what they get for their money. Pricing is fully transparent and the customer can experiment with different weather conditions, rates of payout, and length of contract to create a tailored trade off of cost and risk,” Warwick said.

Warwick clearly has ambitions to disrupt the current market for weather insurance and reinsurance as well as to offer something more broadly to the catastrophe market to help cedents transfer their risks. His ambitions don’t stop there and he also sees an opportunity to get involved at the policy level.

“I’m convinced the certainty Excessweather provides customers will transform the market for weather insurance. There are also obvious implications for public policy. The Government has struggled to respond effectively to recent weather events such as the severe flooding in 2007 and 2012, and media attention has invariably focused on householders, rather than businesses where the impact of flooding has much more serious consequences for the British economy. Our model offers a potential solution and we would welcome the chance to participate in the policy arena,” Warwick said.

The addition of an index or parametric solution to facilities such as Flood Re is something we have called for in previous articles and could really benefit the final policy driven solution. Warwick clearly sees the opportunity for these products to make a difference in areas where insurance has historically found it harder to serve clients. It will be interesting to see how this develops and also to watch others moving into this space, which in the current market is almost assured will happen.

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