Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Weather risk transfer market is primed for innovation: Swiss Re Corporate Solutions ECM


There’s a lot of room for innovation when it comes to weather risk transfer solutions, and with the energy transition and adoption of renewables providing additional opportunities, Rishu Ranjan of Swiss Re Corporate Solutions is optimistic for the future.

rishu-ranjan-swiss-re-corporate-solutionsRanjan leads the Weather & Environmental Commodities (ECM) team at Swiss Re Corporate Solutions, the commercial insurance arm of the global reinsurer. As the energy transition progresses and climate change accelerates, we spoke with Ranjan about the weather risk market.

It’s a niche risk class that covers a wide range of insurance and reinsurance products including coverages linked to air temperature, precipitation and river flow levels, wind speed, solar irradiation and alike.

Swiss Re was one of the first reinsurers to enter this market and has been underwriting weather risk for more than two decades, and Swiss Re Corporate Solutions addresses the needs of commercial insurance clients in this area.

“There is a huge room for innovation when it comes to weather risk transfer solutions, and our offering has continuously evolved to meet the changing market needs,” said Ranjan. “Our flagship temperature quanto product is one such example. We offer energy price risk protection to our clients when the weather is either too hot or too cold. This is key to the energy market players and currently especially needed and welcome, also considering the societal pressure on these players to transition to renewable and green energy.”

Energy companies are still the predominant buyers of weather covers, but Ranjan noted that Swiss Re Corporate Solutions ECM also now sees demand from other sectors as well to protect against extreme weather risk events.

In terms of the market’s performance, he explained that it is an “attractive risk pool” that “adds diversification” to the book, and it also benefits from the fact it is not impacted by the turbulence of the financial markets as well as the P&C pricing cycle.

“Nevertheless, this is still a volatile risk segment, and one needs to be attentive to the pricing adequacy, portfolio steering and tail risk management. Demand for coverage continues to grow and we have seen various new players enter the market in the last few years. For us, it has remained a profitable risk class as we pay attention not just to the pricing adequacy but to the cycle management as well,” said Ranjan.

But what about the performance of the market in the future, given the uncertain impacts of climate change?

Ranjan highlighted that the majority of weather risk cover provides seasonal, short-term protection where good historical weather data is available. In these cases, he said, the pricing approach is based on the recent weather data and accounts for the changing trend to the extent possible.

“As we know, the weather anomalies are happening more frequently. For example, an extremely cold or warm season that used to happen once every 25 years is now re-occurring every 10-15 years. Additionally, we also see multiple extremes happening within the same season. Overall, our underwriters must consider the global systematic risk scenarios while building their portfolio, and if priced adequately, its performance shall remain positive,” said Ranjan.

For the most part, there are two main risk pools where demand for weather risk originates. The main buyers are energy and agriculture clients where weather is a good proxy for either energy demand or agriculture production.

“As we further transition towards renewables, weather will be a key risk for the energy industry and, consequently we expect that the demand for coverage will continue to grow,” said Ranjan.

“The other area is at the nascent stage of development where demand comes from the non-energy sector impacted by extreme weather events. These clients were primarily exposed to storms or floods in the past, but now their exposure to weather risk goes beyond that. Adverse weather can affect their supply chain, consumer demand, bring business interruption losses, wildfire losses etc,” he continued.

Ultimately, the Swiss Re Corporate Solutions ECM team is very excited about the ongoing energy transition and adoption of renewables.

“This opens a new world of opportunities where our role as insurer will be to facilitate a seamless transition by offering products and solution to meet the challenges of the energy industry.

“We are also optimistic about the geographic expansion of our weather products beyond Europe and the US. We are following the latest development on sustainability topics to consider where we can play an active role in helping clients with our weather risk transfer products,” said Ranjan.

Read all of our interviews with ILS, reinsurance and risk transfer sector professionals here.

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