Speedwell Weather Derivatives (SWD) was established in the earliest days of the European weather derivative market in 1999 and is regulated
by the UK Financial Services Authority. We provide consultancy and risk placement services to the weather derivative and energy markets worldwide.
Our non-regulated business, Speedwell Weather Limited provides weather risk pricing software, weather data and weather forecasts.
In our capacity as an independent consultancy we are able to assist companies in quantifying their weather exposure, then to structure
and ultimately place such risk with the weather derivative risk-taking community.
SWD has completed a number of assignments involving analysing, structuring and placing weather
risk in a range of sectors including energy, renewables, construction, agriculture, retail, tourism and
hospitality. The three stages of a standard consultancy process are outlined below.
Identifying and quantifying weather risk
The process of buying weather protection must begin by understanding how weather affects revenue.
Many companies have a qualitative understanding of how their business is affected by the weather.
This often needs to be translated into a quantitative understanding using historical data or the client’s
own assessment of the impact of adverse weather on future operations. In many industries it is
frequently found that certain few "critical" days are vital to the success of the business and that a brief
period of extreme weather can be responsible for a big impact on earnings.
SWD is able to produce a detailed analysis that provides your company with the information it needs
to better understand its exposure. In its analysis and structuring SWD uses the Speedwell Weather System (SWS),
which is an advanced weather derivative pricing software package used by many weather market trading professionals.
We also use our proprietary database of historical weather data covering over 80,000 sites around the world.
Designing protection
There are a range of weather risk structures that are available to the hedger featuring different
weather triggers (e.g., rainfall and/or temperature) and different pay out profiles. These structures can
be very highly tailored. However, SWD understands how to balance the required complexity with the
need to produce a pragmatic hedge which is palatable to the risk-taking community and which will
therefore elicit a competitive price.
It is our job is to ensure that you have a full understanding of any product prior to purchasing
protection. We can also advise you on the expected cost of the hedge.
Placing a weather derivative hedge transaction
Over its years in the weather market, SWD have cultivated extensive relationships in the weather risk
taking community amongst all types of participants. These include insurance companies, banks, energy companies
and investment funds. We are therefore able to find the best price available for
your weather protection using an understanding of the appetite that each organisation has for
different types of weather risk, and how they themselves place that risk, while respecting any
guidelines issued by the client, for example, in terms of counterparty credit quality. The method of risk
placement also needs to be carefully designed and will depend on the size and complexity of the
hedge.
We discuss with the client the process that we use to place the hedge and work in a transparent
fashion throughout. While the final contract will be with the counterparty that sells the protection, we
will remain available for your questions throughout the life of the contract. We are also able to provide
ongoing weather data and forecasts to allow the hedge to be monitored throughout its life and to
independently determine the final settlement value. As data providers we are frequently cited as the
provider of weather data used for settlement.
We take no positions ourselves in weather derivatives so you are assured of objective advice based
on the imperative of meeting your needs.
Examples of our risk placement and consultancy mandates
- Advising on risk in a portfolio of hydro generation assets in South America and Australia.
- Placement of large European combined temperature/gas price hedge.
- Design and placement of a winter portfolio hedge for a European energy company.
- Analysis / structuring / advising on fair value of a hedge for a wind generator.
- Presenting an independent opinion on the value of a portfolio of weather derivatives for the
auditor of an investment fund acting as a weather derivative market maker.
- Analysis / structuring / giving a pricing opinion on a multi-trigger crop hedge in Australia
- Analysis / structuring / advising on fair value of a wind hedge relating to tower crane operation for
a construction firm.
- Advising / structuring a hedge / advising on fair value of a temperature hedge for a road gritting business.
- Advising / structuring a hedge / advising on fair value of a rainfall hedge for an earth moving business.
- Advising / structuring a marketing hedge for a travel company.
- Analysis / structuring a hedge / advising on fair value of a hedge for a chain of wine bars.
- Advising an energy company on establishing a weather trading operation.
- Advising a bank on creating a weather-linked bond.
Use of weather derivatives in marketing promotions
Although weather derivatives are usually used defensively to address earnings volatility or event risk,
SWD also have experience in the use of weather derivatives in proactive marketing campaigns.
These often involve some sort of weather guarantee to potential customers of products where the
purchasing decision or customer utility is somehow affected by weather.