Earth Observation Summit Transportation PanelWeather Risk Management Association Views September 22,

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Earth Observation SummitTransportation
Panel-Weather Risk Management Association
ViewsSeptember 22, 2004

• Brian OHearne
• President, Weather Risk Management Association
• President and CEO, GuaranteedWeather

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WRMA

• Trade association whose members specialize in
  providing solutions to manage exposure to weather
  risks.
• Over 50 members in 14 countries.
• Members offer weather risk management in the form
  of insurance and weather derivatives, to protect
  companies, municipalities and others from
  absorbing the financial burden of unfavorable
  weather patterns.

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GOALS

• Develop standard methods of operation and
  procedures for the weather risk management
  market.
• Facilitate the growth of a strong and vibrant
  weather risk management trading industry.
• Address critical issues that affect the industry.
• Educate consumers whose businesses are affected
  by the weather.

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What is Weather Risk?

• Financial gain or loss due to change in weather
  conditions over a period of hours, days, months
  or years.

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What is Weather Risk Management?

• Risk management tool to stabilize revenues that
  otherwise may be affected by weather
  (temperature, snowfall, rainfall, wind).
• Based on reliable and accurate sources of weather
  data, e.g., National Oceanic Atmospheric
  Administration (NOAA) and other Global
  meteorological centers.

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Benefits of Weather Risk Management

• Stabilize Revenue
• Control Pricing and Volume Risk
• Enhance financial portfolios
• Weather Conditions become an asset rather than a
  liability

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What Industries Use Weather Derivatives?

• Transportation
• Energy and Utility
• Agriculture
• Construction
• Financial institutions
• Entertainment

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Who are our members?

• GuaranteedWeather
• Mitsui Sumitomo Insurance Company
• ABN AMRO
• Chicago Mercantile Exchange
• Constellation Power
• Swiss Re
• Meteo France

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Total Notional Value (in millions of dollars)
5,311
4,339
4,188
2,517
Note CME notional value calculated based on
standard deviation of weather measures. Source
2004 WRMA/Price Waterhouse Coopers annual survey
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Distribution of Inquiries about Weather Risk
Instruments, by Sector of Potential End-User
Reported values weighted by number of trades
reported by respondent. Source 2004 WRMA/Price
Waterhouse Coopers annual survey
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Transportation

• Inland waterway traffic is extremely susceptible
  to river and lake conditions.
• High water and/or flow rates, low water and/or
  flow rates, and extensive ice can limit or cease
  commercial traffic.
• These conditions can be hedged if data of
  suitable geographic and temporal density is
  available.
• Of the above mentioned variables, historical
  river ice data is the least available.
• Remote sensing and universal archival is
  necessary.
• Involves the Army Corps of Engineers daily lock
  reports.

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Inland Waterway River Freeze Hedge

• Early or extended river freeze results in a
  stoppage of commercial traffic.
• Temperature data is correlated with historic
  river ice information and a freezing index is
  developed, such as cumulative freezing degree
  days (FDD).
• Buyer of hedge receives payout if FDD level is
  exceeded before a certain date (early freeze) or
  for an extended period of time.
• Allows transportation company to pass the risk of
  decreased revenues to another party.

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Transportation

• Roadway transportation has a high degree of
  weather risk.
• Most notable is precipitation (snow, rain,
  freezing rain).
• Snowfall measurements along interstates is
  limited.
• DOT weather networks are not universal nor
  interlinked.
• Weather along major transportation routes could
  be hedged more directly if data of suitable
  geographic and temporal density were available.

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Roadway Transportation

• An increase in geographic and temporal density so
  snowfall information could be used to develop a
  route-following snowfall hedge.
• Example I-80, Chicago through New York daily
  snowfall.
• Index created that depicts the amount of daily
  snowfall that occurs along a portion of I-80.
• The index is used to create a definition of a
  non-travel day.
• A hedge is placed on an excessive number of
  seasonal non-travel days.
• May also promote safety as drivers may be less
  likely to push ahead in dangerous conditions.

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AWOS (LAWRS) Adjustments

• AWOS units at smaller airports could provide a
  wealth of additional information that is useful
  for risk management purposes.
• Require 24-hour-a-day observations even if
  airport is closed.
• Develop and implement a reliable automated
  snowfall observation system.
• Report data in the same manner as ASOS and COOP
  data daily max/min temperature and
  precipitation.
• Archive in similar manner as ASOS and COOP data
  for ease in retrieval and use.

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Value of Hedging Weather Risk is Becoming Known

• GuaranteedWeather maintains a database of 15,000
  locations in 28 countries
• GuaranteedWeather has authored numerous case
  studies on weathers impact to various industries
  including
• Case studies and background published in a
  variety of media and publicly available on GWs
  website (www.guaranteedweather.com).

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Guaranteedweather.com

• Website focuses on educating those unfamiliar
  with weather risk as well as offering complex
  case studies and analysis tools for the seasoned
  weather risk management user.
• Regular electronic newsletter subscription
  service available.
• Website content can be segmented by industry
  and/or weather risk category.
• Weather risk in the news tracking feature with
  links to articles.
• Unique weather risk calculator to price various
  weather risk management solutions.

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Weather Information and PricingGuaranteedweather.
com
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Transportation ResourcesGuaranteedweather.com
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Contact Information

• Brian OHearnePresident and CEO, 913-253-1210
  bohearne_at_guaranteedweather.com
• Industry information
• www.wrma.org
• www.guaranteedweather.com/earthob