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European End User Business

European End User Business . Marcel Stäheli Environmental & Commodity Markets Prepared for WRMA Annual Meeting Toulouse, 3-5 October 2006. CME drives market growth but …. in millions. Source: WRMA. … what happens in the European OTC market?. Two main factors. Increasing awareness

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European End User Business

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  1. European End User Business Marcel Stäheli Environmental & Commodity Markets Prepared for WRMA Annual Meeting Toulouse, 3-5 October 2006

  2. CME drives market growth but … in millions Source: WRMA … what happens in the European OTC market?

  3. Two main factors • Increasing awareness • More volatile weather

  4. Increasing awareness Weather business split by industry sectors Source: WRMA • Tourism • Agro Chemicals • Winter Services • etc.

  5. More volatile European weather a, Long-term (1864–2003) station data with respect to 1961–90 means. b, Climate change simulations CTRL (1961–90, blue symbols) and SCEN (2071–90, red symbols) with respect to CTRL means. By the end of the century, every second summer might be as warm and dry as 2003 Source: Schär et al., Nature 2004

  6. Example Tourism Swiss Snow Road Sils, Switzerland, has had little natural snowfall in 2002. The solution: a strip of snow is made for cross-country skiers. • Multi-year revenue protection for Christmas and main winter (ski) holidays based on critical days • Marketing campaign related to ski conditions • Private companies and municipalities as counterparties • Derivative and insurance structures • Ski conditions described by up to 3 criteria (snow, temperature, and wind)

  7. Example Hydro Verzasca dam, Switzerland, • Multi-year revenue protection for run-of-river power plants in Central Europe • Demand for structures covering lack of water in reservoirs possibly in combination with emission certificates • Volume and revenue (volume x price) protections • Indices ranging from rainfall, river flow, dam levels or combination thereof to actual capacity produced (MWh)

  8. Example Agro German farmers were harvesting more dust than wheat in summer 2003 • Drought is farmer’s most dreaded exposure, but EU agro market usually provides hail only. The following demand patterns can be observed: • Farmer associations would consider index-based drought covers for their members • Agro insurance companies in France / Italy, Ukraine, Switzerland and Bulgaria are already offering / in the process of developing index-based drought covers • Large agro chemical companies use weather products for: • To differentiate themselves from competitors, they are offering its input products (seed, fertilizer etc.) with embedded weather products that reimburses farmers’ loss of packets due to drought • Dry spring weather effects their revenues of pesticide products (snail poison etc.) which can be hedged with critical dryness indices

  9. Conclusion • Volatile weather increases awareness of industry sectors for OTC solutions • Swiss Re has the risk appetite and execution capabilities to meet demand for broad range of bespoke transactions

  10. Swiss Re’s Products & Experience Products Duration: Indexes1): Instruments: Services: Product Range - days to years - Temperature - Precipitation - Wind - Sunshine - NDVI, EVI2) - multi-triggers - Swaps - Options - Quantos - Compound Options - Re-insurance Risk analysis & structuring in cooperation with end users Experience (since 1998 worldwide) - days to 5 years - HDD, CDD, Tmax, Tmin, avg. temp - lack/excess of rain/snow, river flow - wind speed, wave height - snow fall, humidity - temp and precipitation - more than 3,300 options since 1998 - average market share of 30%3) - tailored indexes for energy, tourism and agricultural sector 1) Also in combination with power price, gas price, propane price, heating oil price and exchange traded agro commodity prices  Quantos 2) Vegetation Indexes (measuring density of plant growth) 3) In the OTC market based on notional values as published by Weather Risk Management Association in June 2006

  11. Contact Information Marcel Stäheli Head Non-US Weather Trading Environmental & Commodity Markets Swiss Reinsurance Company Mythenquai 50/60 CH-8022 Zurich Phone +41 (0)43 285 4370 Fax +41 (0)43 282 4370 E-mail M_Staeheli@swissre.com

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