A company that vows to help large and mid-sized corporations manage the financial impact of adverse weather on their cash flow is expected to debut this spring.
Storm Risk Solutions claims to have developed the first standardized method by which companies can measure the fiscal effects of weather uncertainty on their business. The company is promising to provide its clients with access to financial protection, helping them invest for growth rather than reserving for potential weather-related loss.
Storm Risk Solutions was founded by David Riker, known for his role in migrating the insurance business online through his company, eCoverage. Storm Risk Solutions is backed by venture capital fund RRE Ventures.
“Markets and management are the two best predictors of success for our investments”, says RRE co-founder and managing partner, Stuart Ellman. “The overwhelming concern for climate change has created an immediate opportunity for Storm as a corporate utility in a risk market representing greater than $3 trillion in the U.S. alone.”
The New York company reports it is creating standardized indices that will initially allow companies in the energy, construction, aviation, ski, outdoor entertainment and agriculture sectors to analyze and track the impact of seasonal volatility on their business results, then price and execute a weather-indexed OTC derivative to reduce weather-related uncertainty. Just as corporations use interest rate or currency derivatives to mitigate volatility in credit or foreign exchange markets, Storm’s business model and products allow corporations to create a standardized means of measuring, pricing and transferring weather related risk, acording to its announcement.
Storm Risk Solutions expects its average contract to be in the order of $10 million, which it says it will place with leading risk management firms, but it has the ability to write contracts in excess of $50 million.
“Corporations are now facing unprecedented weather-related uncertainty with significant consequences on cash flow,” notes Riker. “We are in active discussion with many of North America’s best-known corporate brands, who’ve told us how troubled they are about the impact adverse weather has on their profit potential and how excited they are that the weather risk management industry has come of age.”
Storm Risk Solutions’ products, offered through its online platform, give corporations two ways of reducing the impact of weather on their income statement:
• Industry-specific benchmark indices, providing historical and forward-looking relevance to the impact of weather on a corporation’s revenue or costs.
• Standardized weather-indexed-OTC derivative contracts with A-rated financial capacity to hedge revenue and supply costs influenced by temperature, wind and precipitation.
“We are also in discussions with leading risk management firms, investment and commercial banks about distribution of our data and origination tools, and look forward to revealing details in the next few months,” said Riker.
Source: Storm Risk Solutions
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