Tokio Marine adds to 'cherry blossom' derivatives

Japan's Tokio Marine and Fire Insurance has added an extra hedge to its 'cherry blossom' derivatives contracts linked to the country’s spring temperatures, said an official at the insurance firm in Tokyo.

The derivatives contract, first launched last year to hedge against a late spring season, will now offer covers for both late and early spring seasons after an earlier-than-expected spring in 2002 left buyers unhedged.

The contracts allow the leisure industry to hedge their exposure to the risk of cooler or warmer spring temperatures and the early or late blossoming of the country's cherry blossom trees, said the official.

“During the first of April, most Japanese enjoy watching cherry blossom [and] all across the nation they go to parks and restaurants outside," he said. "So if there’s a certain change in the weather, the leisure and restaurant business will be affected very much."

A typical contract pays out if the temperature exceeds a predetermined temperature for more than a pre-specified number of days during the contract's life between March and April. The premium price for an average contract is around ¥1,500,000 ($12,580), with a payout of ¥450,000 for each day the temperature breaches the strike beyond the pre-specified number of days.