Weather Risk Management Association 2006 Survey Results June 2006

Weather Risk Management Association

2006 Survey ResultsJune 2006

Agenda

1. Overview of Survey2. Survey Design and Implementation3. Participation4. Results

Slide 32006 Survey ResultsPricewaterhouseCoopers

June 2006

Objectives of Survey

• Establish size of market between April 2005 and March 2006• Provide a consistent measure of market developments over

time. – PwC has conducted the survey since 2001.

• Increase awareness of market

Overview


June 2006

Summary of Results

• Significant Growth in CME, which increased by a factor of 8 (measured by notional value)

• Decline in OTC Market by approximately half since last year• A higher percentage of OTC trades were with counterparties

that did not participate in the survey.

Overview


June 2006

Pre-survey (sent in early April 2005)• Sent to All WRMA members• Will you participate? 17 companies responded affirmatively in

2006 (17 in 2005, 19 to 20 in previous years)

Survey (sent April 21, 2005)• 5 Pages in total • General information about company

- Inquiries by end-users- Information on Contracts

• Responses confidential• Chicago Mercantile Exchange trades reported directly by CME

Survey Design and Implementation



June 2006

Survey Page 1


Part I. General Information

1 Company name

2 Name of person responding to survey ("respondent")

3 Title of respondent

4 Telephone number of respondent

5 Email address of respondent

6 Please check the box identifying your company's primary line of business.

Agriculture Energy Other

Banking Insurance

7 We are interested in the types of end-users expressing interest in the weather risk management market.Please provide a breakdown of where your primary market (end-user) deals (all inquiries, not just closeddeals) originate by the following sectors (percent of trades or inquiries):

Share of TotalAgriculture % Transportation %

Construction % Retail %

Energy % Other %


June 2006

Survey Page 2


1 2 3 4 5 6 7

No.

ContractBegin Date(mm/dd/yy)

ContractEnd Date

(mm/dd/yy)

WeatherMeasure

(enter codefrom Table A)

Geographic Region where Weather Event Measured (enter code from

Table B)

Payment per degree day

(enter NA if payment not based on degree

days) ($US)

Maximum Contingent Payment

(Notional Value; see instructions for

swaps)($US)

Counterparty listed inTable C?(Y or N)

123456789

10

Table 1Weather Risk Management Contracts Bought or Sold That Have Begin Dates After March 31, 2005 and Before April 1, 2006


June 2006

Instructions for Reporting Contracts

• Begin dates between April 1, 2005 and March 31, 2006

• The notional value for a swap contract is the maximum contingent payment to your company plus the maximum contingent payment to the counterparty.

• For trades without maximum contingent payments, one of the following methodologies used:

- A notional value agreed to by both parties to the trade.

- The maximum potential loss based on the appropriate weather measure over the last 25 years.

• Survey respondents instructed not to report CME trades



June 2006

Chicago Mercantile Exchange Contracts

• CME data collected directly from CME

• Beginning this year, we report the notional value of CME trades as calculated by CME

– In prior surveys, PwC performed an independent calculation of notional value in an attempt to make the CME values conceptually closer to the OTC notional values

– This methodology underestimated notional values for seasonal contracts

– Historical values have been restated in PwC report for consistency



June 2006

Weather Measures


Weather Events Determining Contingent Payments

Weather Measures Depending Exclusively on Temperature

Heating-degree-days measured in FahrenheitHeating-degree-days measured in CelsiusCooling-degree-days measured in FahrenheitCooling-degree-days measured in CelsiusOther exclusively temperature-based measures

Weather Measures Not Depending Exclusively on Temperature

Any measure based exclusively on rainfallAny measure based exclusively on snowfallAny measure based exclusively on windAny other measure, including combinations of the above


June 2006

Geographic Regions


Geographic Regions Where Weather Events are Measured

AsiaAustralian Continent

EuropeNorth America, West

North America, MidwestNorth America, East

North America, SouthOther


June 2006

Survey Participants, 2005

ABN AmroAccord Energy LtdAXA ReBritish Gas Trading LtdCoriolis Capital LimitedGalileo WeatherGuaranteedWeatherHess Energy Trading LLCMerrill Lynch Commodities, Inc.Mitsubishi UFJ Securities Co.,Ltd.Mitsui Sumitomo Insurance Co., Ltd.Mizuho Corporate Bank.,Ltd.Nephila CapitalSwiss ReTokio Marine and Fire InsuranceVattenfall ABXL Weather & Energy

Participation


June 2006

Change in Sample

2005 Survey Respondents 17

- Drops from 2005 4

+ New participants 4

= 2006 Survey Respondents 17

Participation


June 2006

Participant Characteristics

2002 2003 2004 2005 2006Survey Survey Survey Survey Survey

Participation by Main Line of Business

Agriculture 1 - - - -Banking 4 3 3 3 4Energy 10 7 6 4 5Insurance 5 5 6 4 5Other - 4 4 6 3

Participants by Location of Respondent

Asia 5 6 6 6 4Europe 5 5 4 4 6North America 10 7 8 7 7Other - 1 1 - -

Participation


June 2006

Distribution of Inquiries about Weather Risk Instruments, by Sector of Potential End-User

69%

7% 5% 4%

2%

13%Energy

Agriculture

Retail

Construction

Transportation

Other

Participation

Reported values weighted by number of trades reported by respondent.

46%

12%

7%

5%4%

26%

2005 Survey 2006 Survey


June 2006

Number of Reported Contracts by Survey Participants

The number of trades reported by survey participants was 2,180 in this year’s survey

The total from last year’s survey was 4,057

All figures exclude CME trades

Results

Survey Summer Winter

2000/1 1,126 1,633

2001/2 868 3,069

2002/3 2,412 2,105

2003/4 1,175 1,987

2004/5 1,928 2,129

2005/6 1,036 1,144

0

1,000

2,000

3,000

4,000

5,000

2000/1 2001/2 2002/3 2003/4 2004/5 2005/6

Summer Winter


June 2006

Number of Trades on the CME

The CME reports 1,041,439 trades in summer 2005 and winter 2005-6 combined

2005-6 CME trades are up over 300% compared to 223,139 trades in 2004-5 period

Results

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2002/3 2003/4 2004/5 2005/6

Summer Winter

Slightly more contracts sold in October to March period, similar to prior years, but differential smaller

Data before March 2004 adjusted to reflect change in tick size


June 2006

Total Notional Value of weather risk contracts: 2000/1-2005/6(in millions of U.S. dollars)

Results

Note: CME Notional Values for all years have been revised to reflect CME-reported values.

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

2000/1 2001/2 2002/3 2003/4 2004/5 2005/6

CME Winter

CME Summer

OTC Winter

OTC Summer

$2,517 $4,339 $4,188 $4,709

$9,697

$45,244


June 2006

Average Notional Value of CME Contracts: 2004/5 – 2005/6(Thousands of U.S. dollars)

Results

0

5

10

15

20

25

30

35

40

45

2004/5 2005/6


June 2006

CME Seasonal Contracts as a Share of Total CME Contracts(Number of Seasonal CME Contracts / Total CME Contracts)

Results

0%

10%

20%

30%

40%

50%

60%

2003/4 2004/5 2005/6


June 2006

Average Notional Value of OTC Contracts: 2000/1 – 2005/6(Excludes CME trades, thousands of U.S. dollars)

Results

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2000/1 2001/2 2002/3 2003/4 2004/5 2005/6

Summer Winter


June 2006

Distribution of Number of Contracts by Type: 2000/1 – 2005/6(Excludes CME trades)

Results

0%

20%

40%

60%

80%

100%

2000/1 2001/2 2002/3 2003/4 2004/5 2005/6

Other

Rain

Other Temp

CDD

HDD


June 2006

Trades by Type of Contract, Number of Contracts: 2004/5 - 2005/6 (Excludes CME)

2004/5

41%

36%

11%

12%

HDD CDD Oth Temp Other

Results

2005/6

30%

24%18%

28%



June 2006

Trades by Type of Contract, Notional Value of Contracts: 2004/5 – 2005/6(Including CME)

2004/5

66%

26%

6% 2%


Results

2005/6

79%

18%

2%

1%



June 2006

OTC Trades by Type of Contract, Notional Value of OTC Contracts: 2004/5 – 2005/6(Excluding CME)

2004/5

29%

52%

15%4%


Results

2005/6

29%

14%47%

10%



June 2006

Distribution of Total Number of Contracts by Region: 2000/1 – 2005/6(Excluding CME Trades)

Results

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2000/1 2001/2 2002/3 2003/4 2004/5 2005/6

Other

Europe

Asia

NA South

NA East

NA Mwest

NA West


June 2006

Percent of Counterparties Not Participating in Survey: 2000/1 – 2005/6 (As a share of total number of contracts)

Results

6074

62 6476

61

0

10

20

30

40

50

60

70

80

90

2000/1 2001/2 2002/3 2003/4 2004/5 2005/6

Per

cen

t o

f T

ota

l


June 2006

Summary

• The total value of trades in the 2005/6 survey reached $45.2 billion, compared to $9.7 billion in the 2004/5 survey

• The CME experienced significant increases in both the number of trades (increasing by a factor of 4) and the value of those trades (increasing by a factor of 8)

• Increased purchases of seasonal contracts on the CME contributed to significant increase in notional value

• Declines in the OTC market offset some of this increase, but relative to the size of the market, these declines were small

• HDD remains most common type of trade

Results

© 2006 PricewaterhouseCoopers LLP. All rights reserved. "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, other member firms of PricewaterhouseCoopers International Ltd., each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP.

For more information, please contact:

John [email protected]

Documents

Weather Risk Management Association 2006 Survey Results June 2006