Bright future for weather derivatives, finds survey

RiskNews' sister publication, Energy Risk , has completed its inaugural weather derivatives survey and the results show that traders appear to be confident about the state of their business, despite high-profile exits from the industry in recent years.

Just over 70 risk traders, brokers, data providers and end-users contributed to the survey. One of the key findings of the survey was that almost 90% of those polled believe that the weather risk market is larger than the Weather Risk Management Association (WRMA) would have us believe. Two months ago, the WRMA reported that the total notional value of the market was $4.6 billion from April 2003 to March 2004 - marking a 10% increase over the previous year and an all-time high for the industry. But Energy Risk survey respondents estimate that the market is worth around 45% more. The WRMA's survey relies on figures from 19 companies - all members of the Washington DC-based organisation. But some large weather trading operations, such as Deutsche Bank and Calyon, are not WRMA members, meaning that the true size of the market is hard to determine.

Another finding from the survey was that almost 70% of survey respondents believe that the quality and availability of weather data has improved considerably over the past year.

The full survey can be found in the August issue of Energy Risk, along with a special report dedicated to the global weather risk market.