Major weather derivatives houses, including Deutsche Bank, Société Générale, Element Re and Swiss Re, met to discuss a standard weather derivatives confirmation for the first time last week. The meeting, hosted by the International Swaps and Derivatives Association, is the first of several with the aim of a standard confirmation being finalized by year-end. There were approximately 30 institutions represented at the meeting, according to Stacey Carey, policy director at ISDA in New York.
The group is revisiting the standard confirm developed by the Weather Risk Management Association (WRMA) and plans to take the standards from a new confirm to draft a definitions booklet, said Adele Raspe, general counsel at Element Re Capital Products in Stamford, Conn., and chair of the committee. In addition, the committee will be seeking a global netting opinion from outside council to make sure that the netting opinion within ISDA's master agreement is applicable to weather derivatives.
Another issue that will be addressed is how credit exposure is calculated for weather derivatives. Raspe explained that the committee's goal is to standardize the margin agreement used with each contract to facilitate market liquidity.
The committee is now seeking comments from attendees on the confirmation developed by WRMA. Diego Wauters, executive director and global head of insurance and weather derivatives at SG in London, said a lawyer from the firm attended the meeting and that SG plans to comment on the WRMA confirm and play an active role.
The creation of a standard confirm would facilitate the market's growth in the same way that the formation of a standard interest-rate swap contract boosted that product, according to Ross McIntyre, director and head of weather risk at Deutsche Bank in London.
