Are weather derivatives covered by IAS 39 or are they insurance contracts?

Contracts that require payment only if a particular level of the underlying climatic, geological or other physical variables adversely affects the contract holder are insurance contracts and as such are outside the scope of IAS 39.

However contracts that require a payment based on a climatic, geological or other physical variable that is not specific to a party to the contract are commonly described as weather derivatives and by virtue of IFRS 4 these contracts are not insurance contract. Hence the weather derivatives are within the scope of IAS 39.

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