New Weather Station Network Will Measure Wind Speeds in Florida, Supply Data to Insurance-Related Index

The network has been installed in advance of the 2008 hurricane season, according to Risk Management Solutions and WeatherFlow, a provider of weather data. The stations will measure wind speeds and supply data for the WindX parametric index, which supports the transfer and trading of catastrophic hurricane risk in the capital markets.

According to Buck Lyons, CEO of WeatherFlow, the network in Florida consists of more than 50 stations designed to withstand and accurately record winds surpassing 140 miles an hour. The stations, consisting of 10 meters of concrete, have been installed in vulnerable areas based on likely storm paths and risk for economic loss. Eight other stations have been installed in Houston.

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.  

Simplicity is the key to the WindX parametric index, according to 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,” Nakada explained. “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.”

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, about 50 more stations will be installed along both the East Coast and Gulf Coast.