The Office of General Counsel has issued the following informal opinion on February 15, 2000, representing the position of the New York State Insurance Department

Weather Financial Instruments (derivatives, hedges, etc.)

Question Presented:

Do weather derivatives constitute insurance under the New York Insurance Law?


Weather derivatives do not constitute insurance under New York Insurance Law.


An insurance licensee in New York who is involved in the market for weather insurance policies sought an opinion on the above question regarding the status of financial instruments which they see as competing with weather insurance policies issued by insurers.


New York Insurance Law Section 1101(a) defines "insurance contract", as follows:

In this article: (1) ‘Insurance contract’ means any agreement or other transaction whereby one party, the ‘insurer’, is obligated to confer benefit of pecuniary value upon another party, the ‘insured’ or ‘beneficiary’, dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.

(2) ‘Fortuitous event’ means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.

Weather derivatives do not constitute insurance contracts under Section 1101(a) of the New York Insurance Law because the terms of the instrument do not provide that, in addition to or as part of the triggering event, payment to the purchaser is dependent upon that party suffering a loss. Under such instruments, the issuer is obligated to pay the purchaser whether or not that purchaser suffers a loss. Neither the amount of the payment nor the trigger itself in the weather derivative bears a relationship to the purchaser’s loss. Absent such obligations, the instrument is not an insurance contract.

However, it should be noted that there may be unique circumstances, not mentioned here, where the character of the specific financial instrument and/or the interest and obligations of the parties are such that the transaction would be an insurance contract.

For further information you may contact Deputy General Counsel Audrey M. Samers at the New York City office.