Weather covers Customized Contracts WMO meeting Geneva December

Weather covers Customized Contracts WMO meeting, Geneva, December 2007

T A B L E Agriculture Hydro power Wind power Marketing Index Based Reinsurance 2

Agriculture sector example: French vineyards exposure to frost and rainfall

Agriculture sector example: French vineyards exposure to frost and rainfall Weather risk exposure : Due to an excess rainfall and too cold temperature During the flowering Substantial part of production is lost Solution : Double trigger : lack of heat & excess rainfall Payout is a linear function of both indices

Energy sector example: Hydropower’s weakness is drought Weather risk : Correlation between dam’s water level & electricity generation Dam’s water level depends on rainfall Solution : Put against insufficiency of cumulated rainfall Protection against decrease of index Index uses a basket of weighted weather stations when necessary

Energy sector example: Wind farm financing secured by wind guarantee Weather risk exposure : Sales are secured and prices are regulated (demand) Power generation depend on daily average wind speed Wind speed is THE key income factor Solution : Wind Put : protection against insufficiency of wind Modelled production index which depends on wind speed: Wind Power Index Financial leverage to decrease the cost of capital Guaranteed minimum income is a security for creditors

Insurance or energy example: Marketing Smoothing your Heating/Air conditioning bill Weather risk exposures : When summer is too hot (or the winter is too cold) end user electricity bill increases (Air conditioning/Heating demand) Solution : 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 bill Guarantee paid by the client or free and provided by the distributor Development of customer loyalty and marketing differentiation

Reinsurance example: Wind trigger and intensity of damages (1/3) • Weather risk exposure: Property and motor physical damages due to strong storms are strongly correlated to the wind speed • Solution: Annual aggregate excess of loss property treaty 10 weather stations spread all over France Each station has a specific weight Each 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

Reinsurance example: Wind trigger and intensity of damages (2/3) Daily index per station Wi 1 = Min [(Max [(Wmax - Threshold) ; 0]) ; Lim] x weight Index Wi 2 = sum of daily indices for all stations for the period Parameters of the cover are: Amount per index unit (tick) is EUR 2 180 000 Deductible is EUR 17 000 Limit is EUR 17 000 i. e. 7. 8 index units Applicable loss is the lesser of the index ; and the incurred losses

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

Reinsurance example: Wind trigger and frequency of damages (1/3) • Weather risk exposure: Property and motor physical damages due to strong storms are strongly correlated to the wind speed • Solution: January-December SL treaty 45 weather stations spread over 5 European countries Each station has a specific weight Each 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

Reinsurance example: Wind trigger and frequency of damages (2/3) Daily index per station Wi 1 = Min [(Max [(Wmax - Threshold) ; 0]) ; Lim] x weight Index Wi 2 = 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 24 k Deductible is 300 km/h Limit is 300 km/h in excess of deductible i. e. EUR 7. 4 m

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

A dedicated team at your entire disposal: Jean-Christophe Garaix Nicolas Chatelain David Grégori Françoise Bollotte Salah Dhouib E-mail: salah. dhouib@paris-re. com Tel: + (33) 1 56 43 98 31 Fax: + (33) 1 56 43 93 70