Companies selling products to hedge against inclement weather are seeing heightened customer demand translate into rising interest from investors. And private equity firms stand to profit on the public market.
In the past few weeks, three re-insurance firms—which write policies to protect insurers against catastrophic losses—have filed for IPOs. They are Validus Holdings (NYSE: VR), which intends to raise $200 million; Greenlight Capital Re (Nasdaq: GLRE) for $175 million; and CastlePoint Holdings (Nasdaq: CPHL) for $50 million. Of the three companies, Validus and Greenlight are private equity-backed.
Greenlight Capital’s largest beneficial owner is David Einhorn, co-president of the private equity fund Greenlight Capital, which controls 17 percent. The Grand Cayman-based re-insurance firm launched its underwriting business in April. For the nine months ended Sept. 30, it reported having generated premiums of $12.5 million, and earned a profit of $41 million. The company says it plans to capitalize on periodic shortages of capacity in certain product lines in the property and casualty insurance industry.
Vestar Capital Partners and Aquiline Financial Services each own 16% of Validus. The company, which is based in Bermuda, specializes in short-tail contracts, a type of policy that is typically settled quickly. In its prospectus, Validus says that the high number of natural catastrophes in 2004 and 2005 resulted in a rise in demand for coverage.
Indeed, weather has a staggering impact on the U.S. economy, as up to 30% of the Gross Domestic Product, valued at several trillion dollars, is affected. Weather impacts consumer purchasing behavior, crop growth, fuel costs, transportation and manufacturing production, though only recently has there been significant growth surrounding weather analytics and risk management.
The field looks to be getting more crowded, however as venture-backed startups are getting into the weather market. San Francisco-based WeatherBill was launched last month by former team members from Google Inc. The startup—which has raised $2 million from New Enterprise Associates, Index Ventures and angel investors—provides an online platform for companies to buy coverage to insure against adverse weather. For example, a golf course that might lose $20,000 in potential revenue during an unusually rainy weekend could be covered for as little as $1,000, according to WeatherBill.
“In the past, managing weather risk may have seemed impossible, or too good to be true. Now, weather risk management is a necessity for a successful business-interruption strategy,” says WeatherBill CEO David Friedberg.
On a similar front, New York-based Storm Risk Solutions recently began selling financial products and services for companies to manage weather-related risks. The company raised $1.6 million in early stage funding from seven investors, including RRE Ventures, according to a regulatory filing last month.
“The overwhelming concern for climate change has created an immediate opportunity for Storm as a corporate utility in a risk market,” says RRE Managing Partner and Storm board member Stuart Ellman.