Weather risk market halves in 08/09 – WRMA
London, 4 June: The notional value of transactions in the weather risk market in 2008/9 fell to $15.1 billion, less than half the previous year’s $32 billion, as the economic meltdown took its toll on risk capital, according to an annual survey by the Weather Risk Management Association (WRMA).

The number of trades fell to approximately 601,000, compared with 985,000 the previous year, according to the survey, which runs from 1 April to 31 March.

The exchange-traded market, represented by trades of weather contracts listed by the Chicago Mercantile Exchange, accounted for the vast majority of the market’s value. However, in terms of percentage decline, both the exchange and over-the-counter markets saw similar falls.

“While the assets themselves are not correlated to other financial market indexes, we all share the same pool of capital. When that shrinks, it shrinks for all our products,” said Marty Malinow, WRMA president and CEO of Galileo Weather.

However, Malinow claimed the number of deals with ‘end users’ – the firms with actual exposure to weather that hedge their risks – had increased, though this level of detail is not captured by the survey. “The part of the market where the [biggest] margin comes has grown,” he said.

Despite the overall decline, volumes in Asia and Europe rose, up 252% and 34% respectively. And while temperature-related contracts accounted for more than 95% of trades, contracts for rain-related weather measures showed “significant increases”, according to WRMA.

The survey, conducted by PricewaterhouseCoopers, polled 11 WRMA members – fewer than the 12 in 2008 and the 19-20 in years prior to 2006.