Weather Contracts Use Grows

Sales of weather risk management contracts have increased dramatically by $35.5 billion over the past year, according to an association survey.

The Weather Risk Management Association (WRMA), an international trade organization of the weather risk management industry, said its annual survey, performed by PricewaterhouseCoopers, found weather risk management contract transactions from April 2005 through March 2006 increased from $9.7 billion to $45.2 billion.

“These numbers are a tremendous validation of our business,” said Brian O'Hearne, president of WRMA and managing director of Swiss Re's Environmental and Commodity Markets in North America.

“The explosive growth we are experiencing is a result of companies realizing the importance of the weather market as well as its interdependence with the commodity markets, particularly energy, and the ability to hedge commodity price risk in the weather market.”

The growth is also attributed to weather contracts listed on the Chicago Mercantile Exchange (CME), which more than quadrupled in the survey period. Trading on the CME grew over the last two years, rising from 4,400 contracts traded in 2002 to more than 1 million.

The WRMA was founded in 1999 by some of the leading companies in the industry.

Since 1997, WRMA has offered companies the opportunity to control their financial exposure to weather conditions.

As a part of its mission, WRMA initiates surveys of the industry and advocates the standardization of contracts and other documentation used for transactions.