Newark, Calif. — A network of hurricane-hardened weather stations to measure wind speeds for a new securities index has been installed in preparation for the 2008 hurricane season, reports Risk Management Solutions (RMS), and WeatherFlow Inc., a Scotts Valley, Calif., provider of weather data. The stations will provide wind speed data for the WindX parametric index, which supports the transfer and trading of catastrophic hurricane risk in the capital markets. WindX is a joint effort between WeatherFlow and RMS, a Newark, Calif., catastrophe risk management company.
"More than 50 stations specifically designed to withstand and accurately record winds up to and exceeding 140 miles an hour have been planted across Florida, with a further eight installed in Houston," says Buck Lyons, CEO of WeatherFlow, which owns and operates a network of more than 350 proprietary weather stations.
Wind speeds are measured in specific locations and entered into the index to signal to the insurance industry and investors whether a wide range of financial structures including over-the-counter derivative contracts, catastrophe bonds and industry loss warranties have triggered.
"The key feature of WindX is its simplicity,” says Peter Nakada, managing director of RMS Consulting. “An insurance-linked security structured on the index will trigger if wind speeds on particular weather stations exceed a certain threshold, making it easy and transparent for both issuers and investors. Some capital market players have been discouraged from investing in insurance-linked securities due to the complexity of understanding potential property losses from catastrophic events. With WindX, they are making a pure bet on wind speeds, which is far more attractive."
State-of-the-art 10-meter concrete weather stations have been installed in vulnerable areas based on likely storm paths and potential for economic loss. The new network complements the current National Oceanic and Atmospheric Administration weather stations and WeatherFlow's existing coastal observing system. At the completion of the first phase of the network in March 2009, the companies predict that approximately 50 more stations will be installed across the U.S. East and Gulf Coasts.
"Until now, there has been no reliable means of measuring wind speeds in specific locations," says Nakada. "We believe WindX will help to mobilize a substantial, fluid, and efficient catastrophe-linked insurance market."
Sources: Risk Management Solutions, WeatherFlow Inc.
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