# Weather derivatives



## drillinto (27 April 2007)

The first Global Warming Index

http://www.forbes.com/business/feeds/afx/2007/04/24/afx3644233.html


----------



## drillinto (9 May 2007)

A good link for those of you interested in weather derivatives

http://www.bom.gov.au/silo/


----------



## drillinto (14 May 2007)

Hurricane Hedging(USA)

https://www.intrade.com/aav2/tradin...elect=69267&updateList=true&showExpired=false


----------



## drillinto (15 May 2007)

A pertinent comment on the previous post is offered by Bespoke Investment Group (May 2007)

Hurricane Hedging (USA / 2007)

Last weekend we highlighted the prediction market contracts for year-end oil prices and the odds of a recession in 2007.  

Another group of contracts we found interesting on Tradesports track the 2007 hurricane season.  The contracts are based on whether a category 3 hurricane or stronger will make landfall on certain states.  At right [see previous post] we highlight where contracts are currently trading for each state.  If one were to buy the Florida contract at 57.5 and a category 3 or stronger hit the state this year, the contract would expire at 100.  While category 3s have been more common in recent years, we're not sure if the historical odds for one hitting Florida are greater than 50%.  The current odds look fairly high across the board -- NY, Deleware and New Jersey are even at 10%.  

Remember, these are for a category 3 to make landfall.  We've all heard or read the predictions for a very active hurricane season this year, but by the looks of these contracts, individuals may be too scared.


----------



## drillinto (16 May 2007)

Trading Global Warming ?


UBS to launch first Global Warming index

By Paul J Davies 
Financial Times, April 2007 

The first Global Warming index is to be launched this week by UBS, allowing businesses most affected by the uncertainty of climate change – from ice-cream salesmen to makers of winter coats – to hedge their profits against it in a simple and transparent fashion.

Retail and institutional investors will also be able to buy exposure to, or short sell, the index in much the same way they would with the FTSE or Dow Jones stock indices. If temperatures rise, so will the value of the index.

Ilija Murisic, executive director of hybrid derivatives trading at UBS, said the impact of global warming had brought explosive growth in the weather derivatives market.

A recent report from PwC said the volume of weather derivatives traded on the Chicago Mercantile Exchange(CME) jumped from $9.7bn in 2004-5 to more than $45bn in 2005-6.

“Global warming has created much more volatility in temperatures and weather conditions, which has led to increased liquidity in the weather derivatives market,” Mr Murisic said. 

“The weather derivatives market is very segmented and quite arcane but has good liquidity. We want to create an index where people can simply invest, like they can with a stock index.”

The index is based on weather derivative contracts for winter and summer traded on the CME. These “heating degree day” and “cooling degree day” contracts measure the difference between average daily temperatures and a given base in a number of cities around the world.

The UBS index will initially be based on 15 US cities, including New York, Chicago, Atlanta and Las Vegas, because these are the ones most actively traded on the CME. However, Mr Murisic said that, as the market continued to grow, cities in other regions such as London, Tokyo and Paris were likely to be added.

UBS hopes the index will turn the complex business of investing in the world’s weather into a popular asset class, one that is entirely uncorrelated with returns in other assets such as stocks or bonds.


[ Remarkable jump on the volume of weather derivatives traded at the CME ]


----------



## drillinto (9 June 2007)

Even weather has a price

http://www.redding.com/news/2007/jun/08/even-weather-has-a-price/


----------



## drillinto (14 June 2007)

Bad weather fails to stop resources boom

http://www.dailyreckoning.com.au/resources-boom-3/2007/06/14/


----------



## drillinto (12 July 2007)

Will climate advocacy pay off for shareholders ?

http://energy.seekingalpha.com/article/40446?source=d_email&u=64370


----------



## drillinto (29 July 2007)

Watch U.S. to chart Australia dollar's path

http://www.bloomberg.com/apps/news?pid=20601081&sid=ailUJIFom3a8&refer=australia#


----------



## drillinto (30 July 2007)

To Invent New Bets

http://online.wsj.com/article/SB118366011112358238.html?mod=googlenews_wsj


----------



## drillinto (31 July 2007)

Lessons for investors: stay out of the deep end

http://www.iht.com/articles/2007/07/29/business/morgenson.php


----------



## drillinto (1 August 2007)

IMF: Global Growth seen at 5.2% in 2007

http://www.imf.org/external/pubs/ft/survey/so/2007/NEW0725A.htm


----------



## drillinto (3 August 2007)

Making Money From Weather Data

http://paul.kedrosky.com/archives/2007/08/01/making_money_fr_5.html


----------



## drillinto (4 August 2007)

Hedge funds bet the weather

http://www.bloomberg.com/apps/news?pid=20601085&sid=aK9BWCFSRPnM&refer=europe


----------



## drillinto (5 August 2007)

Debate is looming over ownership of open interest


Natasha de TerÃ¡n - Financial News
03 Aug 2007 

A definitive legal answer to the question may be needed

“Who owns the open interest” is the sort of geeky question that occupies derivatives experts’ minds from time to time. It has never been legally answered but it may be soon.

 Open interest is the aggregate amount of unliquidated derivatives positions held at a clearing house and backed by broker or general clearing members’ funds, or the sum of economic interest in derivatives contracts.

The possible owners of open interest include exchanges that list the contracts, clearing houses that manage the associated risks, or traders whose capital backs them.

In the normal course of business, no one queries the ownership question – they just get on with work. But every time an exchange or clearing house upsets its core constituencies – brokers, GCMs or end users – by, say, raising margin requirements, increasing clearing fees or failing to deliver on a promised functionality, the issue comes to the fore.

The question also gains in importance when an exchange seeks to migrate its clearing from one venue to another.

Such was the case a few years ago when the Chicago Board of Trade said it would shift its open interest from the Board of Trade Clearing Corporation to the Chicago Mercantile Exchange. The move was controversial because it coincided with – and was a thinly veiled attempt to thwart – Eurex’s attempted entry to the US market. But although there were vociferous objections at the time, the move went unchallenged by GCMs and regulators.

As a result of the CBOT’s open interest move, CBOT and CME members have made savings through reduced margin requirements; exchange users benefited through increased margin offsets; Eurex US failed to gain traction and the two Chicago exchanges went from strength to strength. More recently the two exchanges merged.

Admittedly, Eurex US might have failed even if the CBOT’s open interest had remained at BOTCC, the Swiss-German exchange’s chosen US clearing house. And the two Chicago exchanges could equally well have enjoyed dramatic rises in business and profitability and buried their longstanding differences in a multi-billion dollar merger without the new clearing arrangement.

But the knock-on effects of the CBOT’s move have been mixed and many market participants regret not having opposed it more forcefully at the time.

The Intercontinental Exchange is preparing a similar course. Thanks to its flotation in 2005 and its purchase last year of the New York Board of Trade, the ICE has its US clearing house and public shareholders anxious to see profit growth.

This has led the ICE to pursue plans to repatriate its European clearing by setting up ICE Clear, a UK clearing house. The exchange plans to migrate its open interest from LCH.Clearnet to ICE Clear.

ICE executives have spoken openly about the move, which is scheduled for the second and third quarters of next year. The question is to what extent the market will support the move.

At the recent Futures and Options Association conference in London, there was a strong sense of antagonism towards the move from several GCM officials. LCH.Clearnet, which stands to lose valuable fees, is also undoubtedly unhappy with the idea.

Other observers are worried because they believe such a shift will only cement the exchange’s power and further shareholder interests at the expense of users and clearing members.

Other constituencies may object but, as yet, there has been little noise except from a third group. Over-the counter brokers are beginning to flex their muscles against the proposed move. Their objections go deeper but at present they are centered on the nascent OTC emissions market, in which ICE has staked a sizeable but controversial claim.

The history behind ICE’s involvement in the European emissions market is curious. A group of London-based brokers credit themselves with having kick-started the European Union OTC emissions market in 2004 and early 2005. Initially, there were no listed futures or any clearing mechanism for the OTC emissions credits they arranged.

But the European Climate Exchange entered the market in 2005, teaming up with the International Petroleum Exchange, now part of ICE, which lists the European Climate Exchange’s futures contracts and with LCH, which clears them.

Around the same time, LCH began offering cleared services for the OTC segment of the market run by brokers, with the stipulation that such trades had to be sent to the clearing house through the IPE/ECX.

What this meant was that any cleared OTC emissions trades would sit within the same clearing pool as the ECX’s exchange-traded emissions positions and be offset against them.

In other words, a single pool of open interest had been created for the emissions market. That was all well and good, indeed it was welcomed by end-users who took up the service with alacrity. But the brokers were less pleased. The way they saw it, the ECX had been handed a pool of open interest – worse, the open interest came from trades they had generated.

Having had its ear bent by the brokers, LCH subsequently set up a separate liquidity pool for OTC trades. But this did not take off, either because it was not widely marketed, or because the new pool had to compete with the existing one – and the ECX/IPE pool contained all the open interest.

The brokers have had little choice but to sit back and regret the set-up. But with the ICE gearing up to move all its open interest – including OTC emissions trades – they are preparing to step up their fight.

As yet it is unclear how this scrap will play out but the battleground will not be limited to the diminutive emissions market.


----------



## drillinto (5 August 2007)

Brief introduction to weather derivatives

http://www.investopedia.com/articles/optioninvestor/05/052505.asp


----------



## drillinto (6 August 2007)

Festival's secret for good weather


READINGTON - USA (AP / July 26) -- Organizers think they've found the secret to good weather for this weekend's Quick Chek New Jersey Festival of Ballooning -- a virgin.

According to an imported superstition, good weather can be assured through a ceremony involving a virgin, some knives and fresh, whole onions and peppers.

And, no, Victoria Brumfield won't be sacrificed.

Festival organizer Howard Freeman said a colleague heard about it in Singapore several years ago. For the past two years, it has worked in Readington. Partly because of the superstition, Freeman no longer buys weather insurance for the event, which is expected to draw 175,000 people.

Brumfield, 28, has worked with Freeman in the past and is a devout Mormon, proud of her adherence to the church's rules, including not drinking, smoking, gambling or cursing -- and no sex before marriage.

She became the festival's official virgin last year after her younger sister, who had that role in 2005, moved to California.

It's a mixture of "fun and embarrassment," she told the Star-Ledger of Newark for Thursday's newspapers.

Here's how she does it: She drives a golf cart to the four corners of the festival site, picks up some grass, mumbles some random words, then penetrates the produce with a knife before jamming it and the knives into the ground.

The ritual was scheduled for Thursday afternoon.

The pressure is on this weekend. The National Weather Service says there's a chance of rain each of the three days of the festival, which was scheduled to start Friday.

How long can she go on doing the virtuous job?

"I might be eligible for a few more years," Brumfield said. "I'm waiting until I'm married and no one has asked yet."

It has not worked everywhere. Freeman says he used a different virgin for a festival he put on last year in Massachusetts. The driving rain broke, but strong winds kept the balloons on the ground.

Freeman said it seemed that that virgin had a loose definition of "virginity."


----------



## drillinto (7 August 2007)

Merrill Lynch Launches First Temperature-Linked Certificate
WebWire - 7/27/2007 

LONDON,”” Merrill Lynch today announced the launch of a new two-year euro-denominated certificate that offers an annual return based upon the average temperature in Roma-Ciampino, Italy. The investment product is 100 percent principal-protected and offers a temperature-contingent coupon of up to 16 percent annually. The certificate will be issued as part of the Merrill Lynch Certificate Programme and will be publicly offered into the Italian region via an appointed distributor. 

Fine temperatures at the Rome Ciampino Airport 

Andrea Podesta, managing director and head of EMEA Debt Wholesale Distribution at Merrill Lynch, said, "The launch of this new certificate is a first for the retail market. It reaffirms our commitment to providing leading tailored innovative solutions and products to our clients as well as strengthening our position as a global leader in the weather risk management market." 

Merrill Lynch, through its global commodities group, has been a market leader in weather derivatives trading since 1997 and is involved in approximately 20 percent of all global over-the-counter transactions. 

Jens Boening, head of EMEA Weather Derivatives Structuring, Merrill Lynch, said: "This innovative product takes the weather risk market to the next level and enables investors to get easy access to this alternative ’asset class.’ At the same time it enables agricultural, commercial and retail clients in Italy, who have recently suffered from rising temperatures, to mitigate the risk of above average heat."


----------



## drillinto (9 August 2007)

What is Weather Risk Management? 

The business of weather has two facets:

The management of the financial consequences adverse weather for those with natural exposure to weather. 

Commercial trading of weather risk, both in its own right and in conjunction with a variety of commodities. 

1. Management of Weather Risk: 
Weather challenges a wide spectrum of businesses: utilities, transportation, construction, municipalities, school districts, food processors, retail sales and real estate are simply a start to a long list of sectors whose revenues, costs and financial performance are sensitive to weather. Cold winters result in high heating bills which pressure the budgets of school districts and erode the margins of real estate property operators. Adverse financial impacts result from adverse weather. The weather risk market makes it possible to manage the adverse financial impact of weather through risk transfer instruments based on the weather element – temperature, rain, snow, wind, etc. – which affects revenues, costs or margins. In its simplest form an enterprise affected by weather pays a premium to a risk taker who assumes the risk, defined in terms of a weather element, posed by adverse weather. In exchange for the premium the risk taker, under certain pre-defined circumstances, will pay the buyer an amount of money which corresponds to the loss or cost increase caused by the weather. 

Example: 
Extremely cold weather increases heating costs for a university. 
University budgets heating costs to conform to a winter with a daily average temperature of 40 ºF. University also maintains a modest contingency fund for unforeseen expenses. 
University reviews its use of heat and gas consumption and, on the basis of the review, negotiates with a weather risk taker to pay a set amount of $XX,000 per degree should the coming winter’s average temperature fall below 37.5 ºF. 
The winter’s actual average temperature was 34.2 ºF. 
The risk taker pays the buyer an amount equal to $XX,000 * (37.5 ºF-34.2 ºF). 
The university uses this payment to defray the unexpectedly high heating costs, thereby limiting the impact of the extra heating costs on the contingency fund in the budget. 
If the winter’s average daily temperature is above 37.5 ºF the risk taker retains the premium. The University’s expenditure for heat has been less than the amount which critically affected its budget. 
Actual structures may have more features, as you will see from the case studies to be found elsewhere in this section of the website. Some structures can become quite complicated: multiyear with variegated payout schemes and financially engineered premium provisions. There also are a myriad of sophisticated ways of discussing the benefits of weather risk management, e.g. establishing a floor for adverse variances or outsourcing contingent capital required to meet the weather risk. In essence, however complexly structured and however sophisticatedly evaluated, all weather risk management structures perform in the same way as the example above of the university seeking to limit the downside consequences of cold weather to its operating expenses. 

In summary, adverse weather creates adverse financial conditions, which can be managed by financial instruments or insurance policies built around the weather element to which the buyer is exposed. The outcome of purchasing the risk transfer instrument is to limit the adverse impact of weather on the buyer’s economics and to finance the consequences of adverse weather conditions when and if they take place. Insurers, banks, financial houses, specialist companies and exchanges make their business in assuming weather risks from those with natural exposures, often through brokers and other intermediaries. 

2. Trading of Weather Risk
A wide range of capital providers make markets in weather risk per se. The existence of this market makes it possible for risk takers in the risk management market to manage their portfolios of weather risk business and for market participants to find value in the dynamics of the market itself. A risk taker who has, for example, accumulated weather exposures around Chicago, may be able to sell a portion of these exposures to a counterparty who is looking for Chicago exposures or to exchange a portion of these exposures for weather exposures in South Africa, Belgium or Japan in order to diversify its business. Beyond this level of trading is the identification of anomalies within the weather space itself – e.g. aberrant behavior of climatological regions which normally are statistically correlated – which provide the opportunity to create value from the trading of weather risk. This trading activity creates value, increases diversity, restructures weather risk as it exists in the market and facilitates market efficiency within the realm of the weather risk business generally. 

Over the last two years the cross trading of weather and commodities has grown significantly, adding a new component to the trading of weather. The two markets compliment and supplement each other in a variety of circumstances. For example, risk takers may develop exposures in the upper mid west to low precipitation (e.g. drought insurance) which may be managed in part by the purchase of calls on wheat prices given that drought usually results in lower than expected supply which usually drives up prices. Commodity traders can stand this thought process on its head to manage their price positions. There are a variety of such combinations in which the two markets interact. Additionally, it is possible to combine weather risk and weather-related commodity risk in bundled or triggered structures which will respond, for example, if winter weather is both exceptionally cold and the spot price of natural gas is unusually high. The combination of weather and related commodity risk adds depth and breadth to the weather market and is the source of innovative products being offered in the native risk management arena. The scope of this trading extends to areas beyond energy and agricultural commodities into stocks and also into new risk areas, particularly environmental risks such as emissions and carbon.



Source: www.wrma.org


----------



## drillinto (9 August 2007)

The Weather Makers 
The Past and Future Impact of Climate Change

Tim Flannery     

Bibliography, Index 
384 pages, 230 x 152 mm 
Publisher: Text Publishing 
Publication date: 2005 

Paperback - ISBN: 1920885846 - AU $32.95 
Description  | Contents  | Related Titles  | Related Categories 

Description
The last 10,000 years have been humanity's day in the sun: we planted the first crops, domesticated animals, and built the first civilisations - and all of this happened not once but many times independently in different parts of the world. But all that is about to change. 

Our civilisation is facing its greatest threat - an unprecedented heating of our planet that looks set to destroy the first global civilisation humanity has ever developed. Ironically, the very substance that allowed humans to develop that civilisation - fossil fuels - is the cause of the looming catastrophe. 

In this groundbreaking and essential new book Tim Flannery argues passionately for the need to address - now - the implications of a global change that is damaging all life on earth and endangering our very survival. 

The Weather Makers is accessible for every interested Australian. In addition to explaining the background story of global warming, it provides a clear outline of what each of us can do to avoid catastrophe. 

Contents

Foreword
The slow awakening
Part 1 – Gaia’s tools
Gaia
The great aerial ocean
The gaseous greenhouse
The sages and the onion skin
Time’s gateways
Born in the deep freeze
Miking the long summer
Digging up the dead

Part 2 – One in ten thousand
The unravelling world
Peril at the poles
2050: The great stumpy reef
A warning from the golden toad
Liquid gold: changes in rainfall
An energetic onion skin
Playing at Canute

Part 3 – The science of prediction
Model worlds
The commitment, and approaching extreme danger
Levelling the mountains
How can they keep on moving?
Boiling the abyss
The pack of jokers
Civilisation: out with a wimper?

Part 4 – People in greenhouses
A close-run thing
The road to Kyoto
Cost, cost, cost
People in greenhouses shouldn’t tell lies
Engineering solutions?
Last steps on the stairway to Heaven?

Part 5 – The solution
Bright as sunlight, light as wind
Nuclear lazarus?
Of hybrids, minicats and contrails
The last act of God?
2084: The carbon dictatorship?
Time’s up
Over to you

Postscript
Climate change checklist
Green power
References
Index 

Related Titles
Climate Change - Turning Up the Heat

Related Categories
Natural History : General
Environment : Issues, Policy & Sustainability
Environment : Meteorology & Climate

Printed from CSIRO PUBLISHING - Books & CDs http://www.publish.csiro.au/nid/18/pid/5172.htm


----------



## drillinto (10 August 2007)

In Hurricane Forecasting, Science is Far From Exact

By CARL BIALIK | The Numbers Guy | Wall Street Journal | June 2005

Hurricane season has officially begun in the U.S. -- and so has the annual guessing game, played out in the media, of just how many of the violent storms we'll see this year.

Each spring, climatologists take a stab at predicting how many hurricanes will threaten the Caribbean and Southeastern U.S. between June 1 and November 30. Routinely covered as heavily as Punxsutawney Phil's pronouncements, the forecasts were especially awaited this year with memories of 2004's hurricane devastation still fresh. Six hurricanes made landfall in the U.S. last year, causing more than $20 billion in damage by some estimates.

In recent weeks, CNN, MSNBC and CBS -- and dozens of newspapers around the country -- all reported forecasts by Colorado State professor William Gray, the pioneer of long-range hurricane predicting, of eight hurricanes this year (revised up from seven in April). Other forecasts from the National Oceanic and Atmospheric Administration, Florida State University and University College London project between six and eight hurricanes.

The Numbers Guy examines numbers and statistics in the news, business, politics and health. Some numbers are flat-out wrong, misleading or biased. Others are valid and useful, helping us to make informed decisions. As the Numbers Guy, I will try to sort through which numbers to trust, question or discard altogether. But my examination of forecasters' records over the past six years -- the period in which all four groups have been publicizing their predictions before the hurricane season begins -- shows that none do much better than a simple five-year average, a number that can be derived without expertise in climatology or statistics (more on this in a moment). Furthermore, despite all the press they generate, these forecasts aren't very useful to insurance companies, emergency planners and others who you might think would crave them. Researchers are recognizing this and moving away from the headline numbers to more complex forecasts that attempt to better capture hurricane season's impact.

First, it's important to understand what these numbers mean. The projections count all storms that form in the Atlantic basin -- the Atlantic Ocean north of the equator, the Caribbean and the Gulf of Mexico -- and that rise to the hurricane definition set by NOAA's National Hurricane Center: winds of 64 knots (73.6 miles per hour) that are sustained over a one-minute average period. The projections include storms that never touch ground.

To predict the future, hurricane forecasters look to the past. They analyze various weather parameters to see which have correlated best with hurricane activity. These include water temperature, wind speed and the size of the El Niño effect. Forecasters I spoke with said they create statistical models that best fit the historical data, and then turn the resulting crystal ball toward the future. This method could be replicated by a statistician who knows nothing about meteorology -- the models don't ask why a certain temperature creates a certain effect, they merely say that in the past it has been likely to do so. (Dr. Gray says he adjusts his results based on other climatological factors not included in his statistical model, like long-term changes in ocean conditions.)

Historical weather data are surprisingly detailed, researchers told me. Some forecasters go back to 1944, when pilots began flying into storms to measure them. (Since the 1960s, such data have been supplemented by satellites.) Newspaper accounts and other sources can help forecasters look back even further. Charles Watson, a University of Central Florida professor who predicts the probability that hurricanes will touch down in cities around the country, says that shippers and insurers had an incentive to create state-of-the-art measurements: "When there's money involved, people pay attention."

Researchers' methods may be complex and rigorous, but their results over the past six years -- at least for the total number of hurricanes -- haven't been much better than an educated guess. To evaluate the forecasts, I measured the average error for each one -- the difference each year between predicted hurricanes and the actual number. (Thanks to Iowa State statistics professor Philip Dixon and National Center for Atmospheric Research scientist Barbara Brown for advising me on this evaluation, and reader Paul Haskins for suggesting it.) I looked at forecasts made in May or earlier, before the start of hurricane season -- some researchers continue to update their predictions later in the year. It turns out that all four forecasts have missed by between 1.3 and 1.5 hurricanes each year. But a more simplistic method, a five-year moving average of hurricane counts, does just as well, missing by an average of 1.4 hurricanes each year. (To arrive at a five-year moving average, you simply add the counts for the previous five years and divide by five. For instance, to get a prediction for the number of hurricanes in 2000, I averaged the actual counts from 1995 through 1999. For 2001, I used counts from 1996 through 2000. I did this for each of the six years I evaluated.)

Even if forecasters improve their ability to predict hurricane counts, they may not be accomplishing a whole lot. There's little correlation between the number of hurricanes and the number that hit land in the U.S. (see NOAA's hurricane count and list of hurricanes that touched ground). There were at least eight hurricanes in each of 1990, 2000 and 2001, but none hit land. Each year between 1991 and 1993, there were four hurricanes and one hit land each year. Last year's devastating season featured nine hurricanes and six landfalls. Even the number of landfalls doesn't tell all; 1992's lone strike was named Andrew, and it caused roughly $20 billion in damages. Also, the forecasts don't say anything about when the storms will hit.

As a result, it's hard to find industry groups or government agencies who base planning decisions on the forecasts. Ayana McIntosh-Lee, a spokeswoman for BP Plc, said the energy company relies more on three-to-five-day forecasts for decisions about personnel on its offshore drilling operations. Same goes for the U.S. Navy's Second Fleet, Lieutenant Mike Kafka told me: "While we view long-range forecasts with interest, they do not play a large role in our decision to move assets." Coast Guard spokesman Ron Mench said, "We wait until there is actually an active storm."

Carolyn Gorman, vice president of the trade group Insurance Information Institute, told me insurers used to fund hurricane forecasting by researchers, including Dr. Gray. (She said insurers have "a lot of respect" for Dr. Gray's work.) But the companies have since pulled back. The forecasts come out too late for insurers to act on them: "They don't come out with anything like enough lead time to adjust insurance rates," she said. Even reinsurers can't benefit much because most of their contracts are signed by Jan. 1, says Richard Murnane, program manager at the Bermuda-based Risk Prediction Initiative, an insurance-industry-funded research group.

The forecasters are de-emphasizing the total hurricane count and instead working on projecting other, more-useful measures, like the number of landfalls and something called the accumulated cyclone energy index, which provides a measure of total storm intensity and duration. A Narragansett, R.I., company called Accurate Environmental Forecasting Inc. and Dr. Watson's team at Central Florida focus on the likelihood of storms touching down in various regions. (The most endangered cities have just a 10% chance of being struck by a hurricane this year, according to the forecasts. Central Florida stands at 4.9%.)

Ben Nelson, state meteorologist with the Florida Division of Emergency Management in Tallahassee, says the landfall predictions aren't yet good enough. "That part of the science hasn't been accurate enough for us to base protective actions on them, months in advance," he says. However, like other emergency managers, he values the yearly media hoopla around hurricane forecasts: "Above all, the forecasts that Dr. Gray put out each year raise public awareness. We're supportive of anything that raises public awareness before the hurricane season begins."

Those may not be stirring words for scientists, who are in the business of describing the physical world, not crafting public-awareness campaigns. And the support of emergency managers can be contingent: Dr. Watson points out that officials don't much care for forecasts of below-average activity, which have less public-relations value.

With memories of last year's grim season fresh and the 2005 outlooks particularly foreboding, this summer will be something of a proving ground for the researchers. This year, their forecasts are mostly in line -- ranging from six to eight hurricanes. "That would give you confidence we all have it right," says Christopher Landsea, an NOAA meteorologist. "Either that," he laughs, "or we'll all going to bomb."

[Note: The text was slightly shortened to comply with ASF requirements]


----------



## drillinto (11 August 2007)

Hurricanes: Food For Thought

http://www.americanscientist.org/template/InterviewTypeDetail/assetid/55734


----------



## drillinto (12 August 2007)

COMMENTARY  

Hurricanes and Hot Air
By WILLIAM M. GRAY
WSJ, July 26, 2007

Though the 2007 hurricane season is off to a slow start, my colleague Phil Klotzbach and I will be updating our seasonal Atlantic Basin Hurricane Activity Forecast on Aug 3. We still anticipate another active season -- an above-average number of major hurricanes with maximum sustained winds in excess of 110 mph.

Since 1995, the Atlantic basin has experienced a significant increase in major hurricanes, with 47 major storms in the last 12 years. During the prior 25-year period, 1970 to 1994, there were only 38 major hurricanes, or, on an annual basis, slightly less than 40% as many. On a long period normalized basis, major hurricanes account for about 80% to 85% of all U.S. tropical cyclone-related destruction.

Some scientists, journalists and activists see a direct link between the post-1995 upswing in Atlantic hurricanes and global warming brought on by human-induced greenhouse gas increases. This belief, however, is unsupported by long-term Atlantic and global observations.

Consider, for example, the intensity of U.S. land-falling hurricanes over time -- keeping in mind that the periods must be long enough to reveal long-term trends. During the most recent 50-year period, 1957 to 2006, 83 hurricanes hit the United States, 34 of them major. In contrast, during the 50-year period from 1900 to 1949, 101 hurricanes (22% more) made U.S. landfall, including 39 (or 15% more) major hurricanes.

The hypothesis that increasing carbon dioxide in the atmosphere increases the number of hurricanes fails by an even wider margin when we compare two other multi-decade periods: 1925-1965 and 1966-2006. In the 41 years from 1925-1965, there were 39 U.S. land-falling major hurricanes. In the 1966-2006 period there were 22 such storms -- only 56% as many. Even though global mean temperatures have risen by an estimated 0.4 Celsius and CO2 by 20%, the number of major hurricanes hitting the U.S. declined.

If global warming isn't the cause of the increased Atlantic hurricane activity seen over the past dozen years, what is?

My Colorado State University colleagues and I attribute the increase in hurricane activity to the speed-up of water circulating in the Atlantic Ocean. This circulation began to strengthen in 1995 -- at exactly the same time that Atlantic hurricane activity showed a large upswing.

Here's how it works. Though most people don't realize it, the Atlantic Ocean is land-locked except on its far southern boundary. Due to significantly higher amounts of surface evaporation than precipitation, the Atlantic has the highest salinity of any of the global oceans. Saline water has a higher density than does fresh water. The Atlantic's higher salinity causes it to have a continuous northward flow of upper-ocean water that moves into the Atlantic's polar regions, where it cools and sinks due to its high density. After sinking to deep levels, the water then moves southward, and returns to the Atlantic's southern fringes, where it mixes again. This south-to-north upper-level water motion, and compensating north-to-south deep-level water motion, is called the thermohaline circulation (THC).

The strength of the Atlantic's THC shows distinct variations over time, due to naturally occurring salinity variations. When the THC is strong, the upper-ocean water becomes warmer than normal; atmospheric circulation changes occur; and more hurricanes form. The opposite occurs when the THC is weaker than average.

Since 1995, the Atlantic's THC has been significantly stronger than average. It was also stronger than average during the 1940s to early 1960s -- another period with a spike in major hurricane activity. It was distinctly weaker than average in the two quarter-century periods of 1970-1994 and 1900-1925, when there was less hurricane activity.

A number of my colleagues and I have discussed the physics of Atlantic THC variations in our seasonal hurricane forecasts and in various conference talks for many years. Those who are convinced that greenhouse gas increases provide the only plausible explanation for the recent increases in hurricane activity are either unaware of our work, or don't want to consider any alternative.

One reason may be that the advocates of warming tend to be climate modelers with little observational experience. Many of the modelers are not fully aware of how the real atmosphere and ocean function. They rely more on theory than on observation.

The warming theorists -- most of whom, no doubt, earnestly believe that human activity has triggered nature's wrath -- have the ears of the news media. But there is another plausible explanation, supported by decades of physical observation. The spate of recent destructive hurricanes may have little or nothing to do with greenhouse gases and climate change, and everything to do with the Atlantic Ocean's currents.

Mr. Gray, professor emeritus in the Department of Atmospheric Science at Colorado State University and a research fellow at the Independent Institute, has been issuing Atlantic basin seasonal hurricane forecasts for the past 24 years.


----------



## drillinto (21 August 2007)

How can you predict where a hurricane will hit ?

http://news.bbc.co.uk/2/hi/americas/6955364.stm


----------



## drillinto (19 September 2007)

Insurance changes with the climate
Angela Macdonald-Smith
The Age
September 19, 2007

INSURED losses from natural catastrophes due to climate change are expected to rise 37 per cent in the next decade, resulting in the need for alternative ways to manage risk, according to Allianz SE, Europe's biggest insurer.

Annual insured losses from catastrophes such as floods and hurricanes could jump to $49 billion a year in 2010-2019, up from $36 billion a year in 2000-2006, and less than $6 billion before 1989, Munich-based Allianz said in a report released yesterday in Sydney. Total losses in any one year might be as much as $480 billion, said Clement Booth, a member of the management board.

The United Nations concluded earlier this year that climate change was probably caused by people and would increase floods and droughts, change growing seasons and harm wildlife.

Lloyd's of London chairman Peter Levene said in January climate change was the "number one" issue for the world's biggest insurance market because of the unpredictability and cost of potential weather-related claims.

"Insured damages from natural catastrophes at projected future levels will put pressure on catastrophe risk markets," Mr Booth said. "The insurance industry needs to continue to develop alternative approaches to risk transfer such as catastrophe bonds and risk partnerships between insurers and governments."

In 2005, hurricane Katrina caused more than $US41.1 billion of insured losses in New Orleans and along the US Gulf coast, destroying oil and gas platforms, pipelines and refineries and flooding houses and buildings. Total damage was $US170 billion.

Total damage from natural catastrophes might average $96 billion to $144 billion a year next decade, while losses in any particular year might be triple the average and have reached almost four times the trend average, based on past cases, Allianz said.

Private insurers would not be able to cover all the risks that would arise from a warming planet and would need to link with governments in alliances such as government reinsurance plans to provide catastrophe insurance in high-risk areas, Allianz said.

BLOOMBERG


----------



## drillinto (8 March 2008)

Weather Derivatives in Australia

http://www.ruralskills.com.au/gtht/pages/2.5.html


----------



## drillinto (22 March 2008)

Floods put reinsurers under the weather
20 Mar 2008, The Economic Times (Mumbai, India)

Reinsurers are feeling the heat of global warming, with the number of flood-related claims increasing. As temperatures rise globally, the water cycle is getting speeded up, resulting in heavier and more frequent rainfall and an increase in the number of severe floods. 

According to world’s largest reinsurer Swiss Re, the increased losses mean that charges for flood cover is underpriced. In a recent report on natural disasters, Swiss Re said that the above-average frequency of floods has not been adequately factored into the current model. 

Reinsurers, insurance associations and risk consultants have been following a ‘probabilistic flood model’, which takes into account a historic observation period. However, with fast-changing climatic conditions leading to irregular trends in natural catastrophes, the model is losing significance. 

The report points out that insured flood losses worldwide have risen at an annual rate of 12% (or 7% when adjusted for inflation) since 1970. In 2007, Swiss Re saw 53 instances of major floods across the world, leading to insured losses of $6 billion. The figure is only second to that of storm-related losses, which stood at $14 billion for the year. The frequency of storms going up, of course, is another attribute of global warming. 

Europe reported the highest insured catastrophe losses in 2007, accounting to 45% of the world’s total, at $12 billion. It is particularly surprising because Europe normally accounts for just 19% of the losses since 1970, says the report. North America, which normally accounts for two-thirds of the world’s insured losses, contributed just over a third of the losses at 31%. 

This, according to the report, was mainly due to lower hurricane losses. Asia accounted for a majority catastrophes at over 43%. However, it accounted for just 13% of the world’s insured losses, probably due to the lower penetration of insurance products in the affected regions. 

The report goes on to cite ‘obvious explanations’ for the rise-in-loss trend like the increase in insured values and higher vulnerability to floods in cases of underground garages, underground electricity supply, etc. But it pinpoints the increase in temperature caused by climate change as a cause of the increase in large flood events. 

According to research quoted in the report, warm air can store more water vapour than cold air. The link between air temperature and absolute air humidity is exponential, resulting in an increase in the extremity of rain and hail storms. 

Financially, to cope with the cost of catastrophe losses, insurers in Europe and the US have started making use of advanced financial market instruments like insurance-linked securities (ILS) and insurance-linked warranties (ILW). 

Though these exchange-traded derivatives are still in their infancy, they are gaining popularity. According to the report, the outstanding number of ILS-bonds was $15 billion at the end of 2007 ”” an annual growth of over 35% compared with $0.7 billion in 1997.


----------



## Awesomandy (23 March 2008)

Just wondering... Is it possible to trade in these derivatives? And is there one that is related to the amount of snowfalls? I'm asking because, back in my high school days when I went to the snow every year, I created a simple snowfall forecasting model that could predict snowfalls for up to 3 weeks in advance, and over the years, it has proved to be ~80% correct.


----------



## drillinto (23 March 2008)

Awesomandy said:


> Just wondering... Is it possible to trade in these derivatives? And is there one that is related to the amount of snowfalls? I'm asking because, back in my high school days when I went to the snow every year, I created a simple snowfall forecasting model that could predict snowfalls for up to 3 weeks in advance, and over the years, it has proved to be ~80% correct.




I trust this information on snowfall insurance will also interest you:
http://www.guaranteedweather.com/content_page.aspx?content_id=1


----------



## doctorj (19 March 2009)

Apologies for digging up an old thread. 

Thanks for this information, some of it has proven very helpful.  Decent information on weather derivatives is quite hard to find.


----------

