Reply to: Weather derivatives

[AtW]

Because then they would have to comply with the regulations for insurers.

So they sell "insurance" but they don't want to comply with regulations applied to insurers?

I wonder if they sell "car accident derivatives" which would also, according to you, would be "insurance"?

[AtW]

Every financial services firm that does business in the UK is regulated by the FSA, by definition.

Ain't they obliged to say so on their websites?

[Freamon]

Why they did not call insurance and instead "weather derivative"? Surely it would have been much easier sale if they just said it is insurance?

Because then they would have to comply with the regulations for insurers. Same reason CDS aren't called insurance, even though they are exactly the same.

[Freamon]

"The hedging scheme is being offered to councils by Gritit, a winter risk-management specialist, in partnership with a Swiss weather derivatives company, Celsius Pro."

Can't see on their sites where they say they are regulated by the FSA:

UK Gritting Services - Gritting Contractors | GRITIT
CelsiusPro Weather Certificates

Can you?

Not that being regulated by FSA means much.

Every financial services firm that does business in the UK is regulated by the FSA, by definition.

[AtW]

Yes.

"The hedging scheme is being offered to councils by Gritit, a winter risk-management specialist, in partnership with a Swiss weather derivatives company, Celsius Pro."

Can't see on their sites where they say they are regulated by the FSA:

UK Gritting Services - Gritting Contractors | GRITIT
CelsiusPro Weather Certificates

Can you?

Not that being regulated by FSA means much.

[AtW]

No, but that doesn't mean it's not insurance. Just because a product has a different name doesn't mean it's not essentially the same thing.

Why they did not call insurance and instead "weather derivative"? Surely it would have been much easier sale if they just said it is insurance?

[Freamon]

Is it called "Insurance from bad weather"?

No, but that doesn't mean it's not insurance. Just because a product has a different name doesn't mean it's not essentially the same thing.

Are those companies that sell them regulated by FSA?

Yes.

Are the any proper large well known companies offering such product calling it "insurance"?

See point #1.

Why councils buying insurance when they should be having in place actual supplies necessary to deal with bad weather in the event that it might happen?

When they actually buy the supplies is a separate issue. They can (and should) have reserves of grit etc stored away, but if they need to use lots of grit because of extreme snowfall, the insurance will pay for the replenishment grit that needs to be bought.

Who guarantees that in the event of harsh weather that provider of "weather derivaties" wont' go bust and councils won't have money and supplies?

This happens with insurance companies too. Massive flooding in England a few years ago caused some smaller insurance companies to go under. Since then, insurance companies have hedged their risk with weather derivatives, so in their case it's just like another form of reinsurance.

[AtW]

Yes it is.

Is it called "Insurance from bad weather"?

Are those companies that sell them regulated by FSA?

Are the any proper large well known companies offering such product calling it "insurance"?

Why councils buying insurance when they should be having in place actual supplies necessary to deal with bad weather in the event that it might happen?

Who guarantees that in the event of harsh weather that provider of "weather derivaties" wont' go bust and councils won't have money and supplies?

[Freamon]

It's not insurance.

Yes it is.

[AtW]

I dont see what the fuss is about. Effectively they are just buying insurance.

It's not insurance and in any case council's job is to be ready for bad winter with actual supplies in place (as in already purchased and secured).

[Freamon]

Gamblers lose out long term though surely, otherwise there would be no 'house'.

Or you could also say that insurance customers, on average, pay very slightly more in premium than they receive in claim settlements.

[Freamon]

I dont see what the fuss is about. Effectively they are just buying insurance.

WHS. If the products in question were referred to as insurance rather than derivatives then AtW wouldn't be exhibiting his usual "moral outrage", even though the underlying instruments would be exactly the same.

[TimberWolf]

Gamblers lose out long term though surely, otherwise there would be no 'house'.

[BrilloPad]

I dont see what the fuss is about. Effectively they are just buying insurance.

[DimPrawn]

WTF you on about man, speak English!

I'm shorting tall hedges this year, but hedging it by going long on short hedges next year. Read it in Gardeners World investment column.