MSI GuaranteedWeather, LLC
MSI GuaranteedWeather, LLC – founded as a stand-alone entity in 2003, analyzes, identifies and provides custom solutions for weather-related business risks. These solutions allow users to mitigate the adverse effects of weather on business revenues and expenses. Businesses active in the energy, agriculture, construction, entertainment, food/beverage, and transportation industries are frequent users of these types of weather risk management tools although most any business that has revenues (or expenses) impacted by the weather are potential users.
Ownership
The company is a wholly owned subsidiary of Mitsui Sumitomo Insurance Co., Ltd..
Weather Risk Management Solution
A weather risk management solution is a financial instrument, or weather derivative, and is based on future weather. These financial instruments are contracts that bind the seller to pay the buyer a financial settlement in the event of adverse weather conditions during a defined period of time. Weather derivatives act like insurance yet are not insurance; there is no claims process or requirement to prove damages. Contracts can be written in any country that has suitable weather data, including but not limited to the United States, Japan, Germany, the United Kingdom, Canada, Korea, The Netherlands, Spain, Australia, Sweden, and Norway.
Regulation
Within the United States, the sale and trading of derivatives is predominantly regulated by the Commodity Futures Trading Commission. Weather risk management derivatives can be purchased and sold on an exchange (the Chicago Mercantile Exchange in this case) or OTC (over the counter). More specifically, the Commodity Exchange Act limits the sale or purchase of derivatives to only those who meet certain eligibility requirements. Thus, there is a limited number of individuals and/or organizations that can and do buy/sell weather risk management derivatives. While the weather risk management derivative trading community is largely made up of hedge funds, banks, utility companies, insurance companies and commodity trading operations; there are a large number of “end user” purchasers of such products. For example, a municipality may wish to purchase a derivative that compensates it in the event of excessive snowfall during the winter months—an effort to hedge against excessive snow removal costs.