Data is “the lifeblood” of the weather risk management business, says Martin Malinow, president of Sompo Global Weather. The company based its 2016 expansion into the construction sector on that very idea, offering innovative weather risk solutions based on data that takes granularity to a whole new level.
“To grow, we needed to look outside of the energy vertical,” Malinow explains. And the transition has been easier for a firm that can “speak the energy language” when working with contractors building pipelines or wind farms, he says.
A major 2016 transaction saw Sompo insure a pipeline contractor in the south-east US to protect the construction of a 450-mile crude oil pipeline from schedule risk due to extreme rainfall. Sompo Global Weather (known as Endurance Global Weather until it was bought by Japanese insurer Sompo Holdings in late March 2017) will pay out in the case of certain rain events to help manage the cost of construction delays, says Malinow.
Sompo uses gridded data to model and settle such transactions. The team’s techniques provide greater granularity than traditional ground stations, particularly in more remote locations that could be 10 or 20 miles from a station, reducing basis risk. “Beyond construction, this [approach] has helped us with renewable energy transactions, such as remote wind and solar projects, and agricultural-based protection,” Malinow says.
In 2016, Sompo also introduced a new investment vehicle, Hawkeye, to boost its transactional capacity ahead of what was forecast to be the third warm winter in a row. “Our analysis showed there would be unprecedented demand for warm weather protection […] going into the 2016–17 winter season,” Malinow explains. Sompo sought to augment its own balance sheet capital with additional capacity for energy clients that were looking for $20 million–$30 million in protection, and in some cases more. Via Blue Capital, a third-party investment manager owned by Sompo, it created Hawkeye. It offers non-correlated exposure to Sompo’s temperature-linked weather book to Blue Capital’s investors in the insurance-linked securities space, who typically focus on catastrophe risk such as hurricanes and earthquakes.
While he could not provide figures for publication, Malinow said the product satisfied its goal, raising “a significant amount of capital” and “moving the needle” for Sompo, allowing it to increase its transaction footprint in the weather risk market.