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 April 25, 2002 | 1303 IST

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Firms at World Cup can
get rain insurance

Hideyuki Sano

Any amount of rain is unlikely to keep soccer fans from going to watch a World Cup match, but many local businesses in Japan are worried anyway.

Hence the swelling interest in weather derivatives -- a relatively new financial tool in Japan -- which would protect restaurants, hoteliers and other businesses hoping for a surge in consumer spending during the month-long World Cup finals.

The anxiety is not entirely unfounded, since the event, to take place between May 31 and June 30 in Japan and South Korea, happens to fall on Japan's rainy season.

Daiwa Holdings, Japan's fifth-largest banking group, is one firm looking to take advantage of rattled nerves, and last week began selling weather derivatives targeting three of the 22 towns hosting camp sites for the participating teams in Japan.

"We've only just started selling them but we've had lots of inquiries," said Kazuhiro Kato, a spokesman for Daiwa Holdings.

Daiwa is offering three products, dubbed the "Japan Pack", "England Pack" and "Tunisia Pack" for the teams setting up camp in the towns where the derivatives would apply.

The investment works like this.

For the Japan Pack, for example, Daiwa promises to pay the buyer 500,000 yen ($3,857) for every day that it rains more than 10 millimetres (0.4 inch) in the vicinity of Iwata City between May 28 and June 14, provided it rains at least three days during that period.

The upper payout limit is five million yen, or the equivalent of 10 days of rain. Buyers pay a premium of 720,000 yen ($5,554).

The ultimate risk rests with the insurance companies commissioned by Daiwa.

According to records going back 30 years, in Hamamatsu City near Iwata, it rained an average 18.4 days during the month of June, and more than 10mm for 6.5 days of those days.


Market players say weather derivatives -- used widely in the United States already to protect businesses heavily affected by the weather -- have become increasingly popular in Japan.

"Last year's trade volume was more than 10 times that of the year before, if not 50 times," said a market player at a non-life insurance company.

The exact market size is difficult to measure since all deals are made over-the-counter.

The products have also grown in variety, covering not just rain but also snow, temperatures, strong winds and typhoons.

The inevitable question of necessity, however, hangs over even the products' sellers when it comes to the World Cup.

"It's true the number of spectators at soccer games tends to drop when it rains," a salesman at an insurance company said.

"But come on, we're talking about the World Cup here. I doubt that rain would stop soccer fans from attending."

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