Speedwell Group, a long-time specialist service provider to the weather risk management and parametric risk transfer market, has formalised its tropical cyclone risk related settlement services, providing further options for those looking to structure cat-in-a-box or similar parametric wind insurance, reinsurance or swap deals.
Speedwell said it has received significant demand for a formalised settlement service dedicated to tropical cyclone risk.
The company has been providing settlement services for index-insurance and parametric risk transfer or reinsurance deals for years now, including having acted as settlement agent for some of the largest and most highly-tailored parametric transactions in the market, as well as everyday over-the-counter (OTC) contracts and exchange-listed derivative products.
As a result of its success in this area and the demand seen from clients, Speedwell is moving its tropical cyclone settlement service to be delivered under its Speedwell Settlement Services Ltd. entity, which is a ring-fenced subsidiary, regulated as a Benchmark Administrator by the UK financial authority, the Financial Conduct Authority (FCA).
For some cedents and counterparties, as well perhaps as ILS investors, having a regulated provider of settlement services on a parametric risk transfer transaction will both give confidence as well as tick boxes related to the trusted nature of a provider and how reliable it will be.
As a result, Speedwell is extending its range of parametric products that it supports with settlement services to include cat-in-a-box and intensity index settlement for global tropical cyclones.
David Whitehead, CEO of Speedwell Settlement Services, explained, “With the growth of the parametric space, we have expanded the business beyond weather to now include many parametric variables (tropical cyclone, wildfire, river height…). When we described the tropical products as “formalized” this simply means that we can now approach these projects with off-the-shelf solutions vs. viewing each as a consulting project.
“Expanding into tropical cyclones has been a natural extension of our product lines. We have clients requesting the service, we have a strong understanding of the science (climate observations), and we understand what the market needs.”
Speedwell works with global Tropical Cyclone Warning Centers and the WMO Regional Specialized Meteorological Centers to source data used for parametric trigger design and settlements.
Speedwell processes the datasets required for settlement of a contract, or insurance or reinsurance agreement and analyses it to detect any errors or missing values. If any value cannot be recovered, Speedwell will provide a synthetic observation to replace it.
Speedwell said that it supports both the “standard” cat-in-a-box products, using standardized documentation and methodologies, as well as more customized solutions (both cat-in-a-box and intensity indices) developed by Speedwell or as defined by clients.
Whitehead explained why a robust settlement process is important, “Our focus over the past few years has been to transform how the market views settlement data. The parametric space is no longer the wild west. Indices / datasets used for transactions must meet rigorous criteria, simply put, we view this data (Settlement Data) as a form of financial data.
“Transaction participants should no longer “hope for the best” regarding data accuracy and availability. Our work has culminated in the creation of a set of principles that we describe as “Parametric Compliance Principles”. These principles (based upon the Principles for Financial Benchmarks as published by IOSCO) cover topics such as conflicts of interest, control framework, index reliability / timeliness, quality of the methodology, and accountability.
“Long story short, we feel that we have something to offer the market. The quality of our product should represent an attractive alternative for companies operating in this space.”
Precision is key and Speedwell’s role is to ensure data integrity, reporting it with fidelity while also ensuring any errors are detected and corrected.
Reliability is also key and Speedwell’s role is to ensure that a settlement value is always available, enabling contract certainty for those covered and those providing capacity.
On top of this, Speedwell ensures the timeliness of the data and delivers on transparency through the documentation used, with a Settlement Data Specification at the heart of its offering.
Importantly, Speedwell Settlement Services follows a set of principles when producing indices for parametric transactions, based on the International Organization of Securities Commissions (IOSCO) recommendations in the Principles for Financial Benchmarks publication.
This covers potential issues such as conflicts of interest, control framework, index reliability / timeliness, quality of the methodology, and accountability, with all indices produced by Speedwell and its partners adhering to the principles.
Certainty and reliability is key in provision of data and services around any index or parametric trigger and Speedwell’s formalisation of its tropical cyclone offering should prove interesting to insurance-linked securities (ILS) specialists, as well as insurance and reinsurance firms.