MMC Enterprise Risk sets up weather desk for corporates

Marsh & McLennan (MMC) Enterprise Risk, a sister company of New York-based insurance broker Marsh, is in the process of establishing a weather derivatives desk aimed at enticing corporate end-users into hedging against revenue-threatening weather variations. Partho Ghosh, formerly a weather derivatives manager at Enron in Houston, will run the desk.

MMC will offer consulting services, structuring and syndication for interested corporates, but will not act as a trading counterparty for executing weather hedges. Instead, MMC will outsource the trading side of the business to other weather risk dealers. “Because of this there will be no conflict of interest between ourselves and our clients,” Ghosh told RiskNews. “Unlike other weather traders, we have the advantage of being part of a huge professional services firm with access to a wide variety of potential clients in the corporate world.”

Ghosh added that MMC already has five possible end-user deals on its books, including one with a major retailer.

One of the main criticisms of the weather risk market, worth around $7.5 billion, is that it has failed to attract corporate end-users. But Ghosh said MMC's platform could help change this. “The problem with the market, as it stands, is that everyone talks a lot about potentially interesting deals, but very few firms actually execute contracts. At the end of the day there is a wealth of opportunity that has not been realised,” said Ghosh.

He added that energy firms that trade weather derivatives typically do well in the utility sector but are unlikely to gain the ear of a chief financial officer at a non-energy corporate.”

Ghosh oversaw the first ever weather derivatives contract, for a construction company, while at Enron. Florida-based Grubbs Construction bought a precipitation-linked contract designed to pay out if rainfall levels caused the company to temporarily stop working on its landfill project.

Although Enron once had a 40% share of the weather risk market, Ghosh said the firm’s demise will not adversely affect growth: “There is an ever-increasing demand for weather risk products, and Enron’s exit simply means there is now room for more players in the market. Besides MMC, I am aware of three other dealers who are looking to enter the market.”

In his new role at MMC, Ghosh reports to Jamshid Ehsani, president and chief executive of MMC Enterprise Risk.