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Weather coversCustomized Contracts

WMO meeting, Geneva, December 2007

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Agriculture

Hydro power

Wind power

Marketing

Index Based Reinsurance

TABLE

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Agriculture sector example: French vineyards exposure to frost and rainfall

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Agriculture sector example: French vineyards exposure to frost and rainfall

Due to an excess rainfall and too cold temperatureDuring the floweringSubstantial part of production is lost

Weather risk exposure :

Solution :

Double trigger : lack of heat & excess rainfallPayout is a linear function of both indices

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Energy sector example: Hydropower’s weakness is drought

Correlation between dam’s water level & electricity generationDam’s water level depends on rainfall

Weather risk :

Solution :

Put against insufficiency of cumulated rainfallProtection against decrease of indexIndex uses a basket of weighted weather stationswhen necessary

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Energy sector example: Wind farm financing secured by wind guarantee

Weather risk exposure :

Solution :Wind Put : protection against insufficiency of windModelled production index which depends on wind speed: Wind Power Index Financial leverage to decrease the cost of capitalGuaranteed minimum income is a security for creditors

Sales are secured and prices are regulated (demand) Power generation depend on daily average wind speedWind speed is THE key income factor

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Insurance or energy example: Marketing Smoothing your Heating/Air conditioning bill

Weather risk exposures :

Solution :

When summer is too hot (or the winter is too cold) end user electricity bill increases (Air conditioning/Heating demand)

Monthly or seasonal digital protection against a high average daily max Temp. (ex €100 if Av. Temp > 30°C)Client pay off: credit on the next billGuarantee paid by the client or free and provided by the distributorDevelopment of customer loyalty and marketing differentiation

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Reinsurance example: Wind trigger and intensity of damages (1/3)

•Weather risk exposure:

•Solution:

Property and motor physical damages due to strong storms are strongly correlated to the wind speed

Annual aggregate excess of loss property treaty10 weather stations spread all over France Each station has a specific weightEach station has a specific wind speed threshold high enough to capture only strong storms (e.g. 120 Km/h)Each station has a specific wind speed limit high enough from the threshold (e.g. 160 km/h) as to capture storms severity

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Reinsurance example: Wind trigger and intensity of damages (2/3)

Daily index per station

Wi1 = Min [(Max [(Wmax - Threshold) ; 0]) ; Lim] x weightIndex Wi2 = sum of daily indices for all stations for the period Parameters of the cover are:

Amount per index unit (tick) is EUR 2 180 000Deductible is EUR 17 000 000Limit is EUR 17 000 000 i.e. 7.8 index units

Applicable loss is the lesser of the index ; and the incurred losses

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Reinsurance example: Wind trigger and intensity of damages (3/3)

Wind speed index at a basket of 10 stations (EUR Km/h)Mean = 2,8 ; SD = 3,7

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10000000

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20000000

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40000000

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Reinsurance example: Wind trigger and frequency of damages (1/3)

•Weather risk exposure:

•Solution:

Property and motor physical damages due to strong storms are strongly correlated to the wind speed

January-December SL treaty45 weather stations spread over 5 European countries Each station has a specific weightEach station has a specific wind speed threshold high enough to capture storms (e.g. 110 Km/h)Each station has a specific wind speed limit close to the threshold (e.g. 115 km/h) as to capture storms frequency only

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Reinsurance example: Wind trigger and frequency of damages (2/3)

Daily index per stationWi1 = Min [(Max [(Wmax - Threshold) ; 0]) ; Lim] x weight

Index

Wi2 = sum of daily indices for all stations for the period in km/h

Parameters of the cover are: Amount per index unit (tick) is EUR 24kDeductible is 300 km/hLimit is 300 km/h in excess of deductible i.e. EUR 7.4m

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Reinsurance example: Wind trigger and frequency of damages (3/3)

Seasonal Wind speed index (Km/h) at 45 stationsMean = 155 ; SD = 188

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E-mail: salah.dhouib@paris-re.com

Tel: + (33) 1 56 43 98 31

Fax: + (33) 1 56 43 93 70

Nicolas Chatelain

Françoise Bollotte

Salah Dhouib

David Grégori

Jean-Christophe Garaix

A dedicated team at your entire disposal:

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