RMS, Weatherflow Launch Parametric Capital Market Index

Risk Management Solutions (RMS) has teamed up with WeatherFlow Inc., a provider of private weather data, to launch the “WindX(tm) parametric index” (www.windxnetwork.com).” The two companies timed the introduction of their new service to coincide with the fast approaching 2007 Atlantic basin hurricane season, which most forecasters, including RMS, have predicted will be quite active.

The WindX(tm) solution is “based on location-specific wind speed values which trigger a wide range of financial structures including over-the-counter derivative contracts, catastrophe bonds, and industry loss warranties,” the announcement explained. “WindX(tm) values will be driven by wind measurements from WeatherFlow’s network of hurricane-hardened weather stations.”

WeatherFlow is expanding its coastal weather observation system by adding weather stations specifically designed to survive and accurately record hurricane winds. The first phase of the expansion involves installing over 100 weather stations in vulnerable areas, based on likely storm paths and potential for economic loss. More than a dozen stations are in place for transactions structured prior to the 2007 hurricane season. Installations will continue over this season, and the first phase will be complete prior to the 2008 season. RMS will provide its windfield model for interpolating among stations, and will ensure the network design meets the needs of insurers, reinsurers, and investors.

The announcement also notes that WeatherPredict Consulting Inc., a wholly-owned subsidiary of Bermuda-based RenaissanceRe, has also been involved as an advisor for the WindX(tm) team, providing its expertise on customer and market needs.

RenRe President Bill Riker indicated that the “WindX(tm) parametric index will for the first time allow insureds, insurers, and reinsurers to separate hurricane hazard risk from the more uncertain property vulnerability risk. We believe hurricane and other pure hazard risk is more understandable and thus more attractive to emerging capital markets players accepting catastrophic risk.”

Peter Nakada, Managing Director of RMS Consulting said the new service “will address a longstanding problem in the catastrophe-linked securities market – how to design an index that provides investors with simplicity and transparency, yet provides insurers or reinsurers the ability to tailor the index to their risk profiles.”

“This development addresses a national problem and is exactly what policyholders, market participants, and regulators need in order to finalize the marriage of the insurance and capital markets,” noted John Brynjolfsson, PIMCO Managing Director and head of the firm’s Event-Linked Bond effort. “Capital market investors buying event-linked securities demand the type of scientific credibility, transparency, and objectivity that the WindX(tm) parametrix index and the RMS organization bring to the risk transfer equation.”

“The market has been anticipating real structural change in the way catastrophe risk is transferred to the capital markets for years. We think the WindX(tm) solution will be a key catalyst towards the realization of a large, fluid and efficient catastrophe-linked securities market,” added Nakada.