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PwC

Weather Risk Management Association. 2006 Survey Results June 2006. PwC. Agenda. 1. Overview of Survey 2. Survey Design and Implementation 3. Participation 4. Results. Overview. Objectives of Survey. Establish size of market between April 2005 and March 2006

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  1. Weather Risk Management Association 2006 Survey Results June 2006 PwC

  2. Agenda 1. Overview of Survey 2. Survey Design and Implementation 3. Participation 4. Results

  3. Overview Objectives of Survey • Establish size of market between April 2005 and March 2006 • Provide a consistent measure of market developments over time. • PwC has conducted the survey since 2001. • Increase awareness of market 2006 Survey Results

  4. Overview Summary of Results • Significant Growth in CME, which increased by a factor of 8 (measured by notional value) • Decline in OTC Market by approximately half since last year • A higher percentage of OTC trades were with counterparties that did not participate in the survey. 2006 Survey Results

  5. Survey Design and Implementation Survey Design and Implementation • Pre-survey (sent in early April 2005) • Sent to All WRMA members • Will you participate? 17 companies responded affirmatively in 2006 (17 in 2005, 19 to 20 in previous years) Survey (sent April 21, 2005) • 5 Pages in total • General information about company • Inquiries by end-users • Information on Contracts • Responses confidential • Chicago Mercantile Exchange trades reported directly by CME 2006 Survey Results

  6. Survey Design and Implementation Survey Page 1 2006 Survey Results

  7. Survey Design and Implementation Survey Page 2 2006 Survey Results

  8. Survey Design and Implementation Instructions for Reporting Contracts • Begin dates between April 1, 2005 and March 31, 2006 • The notional value for a swap contract is the maximum contingent payment to your company plus the maximum contingent payment to the counterparty. • For trades without maximum contingent payments, one of the following methodologies used: • A notional value agreed to by both parties to the trade. • The maximum potential loss based on the appropriate weather measure over the last 25 years. • Survey respondents instructed not to report CME trades 2006 Survey Results

  9. Survey Design and Implementation Chicago Mercantile Exchange Contracts • CME data collected directly from CME • Beginning this year, we report the notional value of CME trades as calculated by CME • In prior surveys, PwC performed an independent calculation of notional value in an attempt to make the CME values conceptually closer to the OTC notional values • This methodology underestimated notional values for seasonal contracts • Historical values have been restated in PwC report for consistency 2006 Survey Results

  10. Survey Design and Implementation Weather Measures Weather Events Determining Contingent Payments Weather Measures Depending Exclusively on Temperature Heating-degree-days measured in Fahrenheit Heating-degree-days measured in Celsius Cooling-degree-days measured in Fahrenheit Cooling-degree-days measured in Celsius Other exclusively temperature-based measures Weather Measures Not Depending Exclusively on Temperature Any measure based exclusively on rainfall Any measure based exclusively on snowfall Any measure based exclusively on wind Any other measure, including combinations of the above 2006 Survey Results

  11. Survey Design and Implementation Geographic Regions Geographic Regions Where Weather Events are Measured Asia Australian Continent Europe North America, West North America, Midwest North America, East North America, South Other 2006 Survey Results

  12. Participation Survey Participants, 2005 • ABN Amro • Accord Energy Ltd • AXA Re • British Gas Trading Ltd • Coriolis Capital Limited • Galileo Weather • GuaranteedWeather • Hess Energy Trading LLC • Merrill Lynch Commodities, Inc. • Mitsubishi UFJ Securities Co.,Ltd. • Mitsui Sumitomo Insurance Co., Ltd. • Mizuho Corporate Bank.,Ltd. • Nephila Capital • Swiss Re • Tokio Marine and Fire Insurance • Vattenfall AB • XL Weather & Energy 2006 Survey Results

  13. Participation Change in Sample • 2005 Survey Respondents 17 • - Drops from 2005 4 • + New participants 4 • = 2006 Survey Respondents 17 2006 Survey Results

  14. Participation Participant Characteristics • 2002 2003 2004 2005 2006 • SurveySurveySurveySurveySurvey • Participation by Main Line of Business • Agriculture 1 - - - - • Banking 4 3 3 3 4 • Energy 10 7 6 4 5 • Insurance 5 5 6 4 5 • Other - 4 4 6 3 • Participants by Location of Respondent • Asia 5 6 6 6 4 • Europe 5 5 4 4 6 • North America 10 7 8 7 7 • Other - 1 1 - - 2006 Survey Results

  15. Participation Distribution of Inquiries about Weather Risk Instruments, by Sector of Potential End-User 2005 Survey 2006 Survey Reported values weighted by number of trades reported by respondent. 2006 Survey Results

  16. Results Number of Reported Contracts by Survey Participants • The number of trades reported by survey participants was 2,180 in this year’s survey • The total from last year’s survey was 4,057 • All figures exclude CME trades 2006 Survey Results

  17. Results Number of Trades on the CME • The CME reports 1,041,439 trades in summer 2005 and winter 2005-6 combined • 2005-6 CME trades are up over 300% compared to 223,139 trades in 2004-5 period • Slightly more contracts sold in October to March period, similar to prior years, but differential smaller • Data before March 2004 adjusted to reflect change in tick size 2006 Survey Results

  18. Results Total Notional Value of weather risk contracts: 2000/1-2005/6(in millions of U.S. dollars) $45,244 $9,697 $4,709 $4,339 $2,517 $4,188 Note: CME Notional Values for all years have been revised to reflect CME-reported values. 2006 Survey Results

  19. Results Average Notional Value of CME Contracts: 2004/5 – 2005/6(Thousands of U.S. dollars) 2006 Survey Results

  20. Results CME Seasonal Contracts as a Share of Total CME Contracts(Number of Seasonal CME Contracts / Total CME Contracts) 2006 Survey Results

  21. Results Average Notional Value of OTC Contracts: 2000/1 – 2005/6(ExcludesCME trades, thousands of U.S. dollars) 2006 Survey Results

  22. Results Distribution of Number of Contracts by Type: 2000/1 – 2005/6(Excludes CME trades) 2006 Survey Results

  23. Results Trades by Type of Contract, Number of Contracts: 2004/5 - 2005/6 (Excludes CME) 2006 Survey Results

  24. Results Trades by Type of Contract, Notional Value of Contracts: 2004/5 – 2005/6(Including CME) 2006 Survey Results

  25. Results OTC Trades by Type of Contract, Notional Value of OTC Contracts: 2004/5 – 2005/6(Excluding CME) 2006 Survey Results

  26. Results Distribution of Total Number of Contracts by Region: 2000/1 – 2005/6(Excluding CME Trades) 2006 Survey Results

  27. Results Percent of Counterparties Not Participating in Survey: 2000/1 – 2005/6 (As a share of total number of contracts) 2006 Survey Results

  28. Results Summary • The total value of trades in the 2005/6 survey reached $45.2 billion, compared to $9.7 billion in the 2004/5 survey • The CME experienced significant increases in both the number of trades (increasing by a factor of 4) and the value of those trades (increasing by a factor of 8) • Increased purchases of seasonal contracts on the CME contributed to significant increase in notional value • Declines in the OTC market offset some of this increase, but relative to the size of the market, these declines were small • HDD remains most common type of trade 2006 Survey Results

  29. © 2006 PricewaterhouseCoopers LLP. All rights reserved. "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, other member firms of PricewaterhouseCoopers International Ltd., each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP. PwC For more information, please contact: John Stell PricewaterhouseCoopers 202-312-7583 John.L.Stell@us.pwc.com

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