Allianz offers alternative solution for weather protection

Sydney, 4 April 2011

The global appetite for weather risk protection has risen sharply following a string of recent weather-related catastrophes in Australia, New Zealand and elsewhere, and is expected to continue to grow, according to the Allianz Group.

Holger Schaefer, General Manager of Allianz Global Corporate and Specialty (AGCS) Pacific – a division of Allianz Australia Insurance Limited – hosted several client and broker events in Sydney and Melbourne recently on the topic of weather risk protection.

Speaking at those events, international representatives from the specialist underwriting group, Allianz Risk Transfer (ART), said a recent spike in severe weather events has increased business demand globally for weather risk protection.

"The Queensland floods, Cyclone Yasi and other extreme weather events around the world have led to a definite increase in interest from companies seeking to protect their businesses against the financial impact of weatherrelated events," ART's Managing Director, Karsten Berlage, said.

According to Karsten, Weather Derivatives and Weather Index Insurance are methods of risk transfer that enable a business's weather risk to be transferred off its balance sheets to the insurance or capital markets.

"It works by predetermining a 'trigger event' based on weather risk, such as extreme temperature, rainfall, wind, frost, hail and snowfall, then tailoring the contract's payout to most closely reflect that company's financial exposure to the event," he said. "In some cases, that includes incorporating a price or revenue element to the payout calculation.".

ART's Head of Insurance Linked Markets, Richard Boyd, added that over 70 per cent of companies in the world are potentially exposed to some form of weather risk.

"Weather-related events can have a severe impact on a business's costs, operations, pricing and profits," Richard said.

"Do shareholders expect the business to retain that risk, or is it something that should be transferred away, thereby allowing management to concentrate on running their primary business without the added volatility of weather influences?"

While weather risk insurance has historically been a common risk solution for energy companies, Richard noted that there is a marked growth in the demand for such protection across other industries worldwide.

"It is definitely an area of risk protection that is continuing to grow and diversify in line with client demand," he said. "In Australia, for example, we've received a lot of interest from agriculture, mining, and transport businesses who want to protect themselves against events like severe rain and flood."

Richard said ART's Weather Index Insurance offering complements traditional property insurance by providing insured businesses with an added security in the event of a weather- related trigger event.

In some cases, weather-related events are excluded from traditional insurance products, the price of traditional insurance may be prohibitive or ambiguity may exist around whether an event is covered or not, Richard said.

"Weather Index Protection is very explicit and provides a very quick payout as there is an independent and pre-defined method for determining a claim payout," he added.

"As one of the few companies in the world to offer Weather Index Protection, Allianz, partnering with dedicated weather and catastrophe risk investment fund, Nephila Capital, gives clients highly flexible and customised solutions for transferring weather risk and reducing business exposure to such risks."

AGCS Pacific's General Manager, Holger Schaefer, said ART's weather risk offering was of particular interest to Australia and New Zealand brokers and clients who have been affected by recent weather-related disasters.

"AGCS Pacific has experienced one of the most challenging periods in its history, with an unprecedented number of catastrophes occurring in Australia and New Zealand in 2011. Many of these events occurred due to severe weather events such as floods, cyclones and storms," Holger said.

"Alternative ways in which businesses can structure and manage weather risks is a topic fast gaining momentum among our brokers and clients," he added.

"Richard and Karsten's visit to Australia provided valuable insight for our brokers and clients about weather risk trends in the Pacific and how businesses can structure and manage these risks," he concluded.

Allianz Risk Transfer Group is the centre of competence for alternative risk transfer business within the Allianz Group and is a wholly-owned subsidiary of Allianz Global Corporate and Specialty AG.

Allianz Australia - General Insurance Company of the Year 2009*

The Allianz Australia Group operates in Australia and New Zealand. It includes one of Australia's largest general insurers, a leading private workers' compensation insurer, and a life insurer.

Allianz Australia delivers a wide range of personal, commercial and corporate insurance products and services. It is proud to be of service to more than 2 million policy holders and over 50% of Australia's top 200 BRW listed companies have some form of insurance cover with the group.

Allianz Australia offers a wide range of insurance products and services including car insurance, home insurance and Life insurance.

Allianz Australia has approximately 3300 staff and is a wholly-owned subsidiary of the worldwide Allianz Group, one of the world's largest financial services companies.

The Allianz Group's commitment to social, environmental and economic sustainability has been acknowledged internationally by the Dow Jones Sustainability Index, which recognised the Allianz Group as the most sustainable primary insurance company in the world since 2006.

*Australian and New Zealand Insurance Industry Awards