One of XL Capital's subsidiaries is participating in the little known insurance field of weather risk management.

Element Re has joined a handful of insurers specialising not in catastrophic weather risks, such as hurricanes, tornadoes and floods, but more mundane climatic variations.

Other companies in the field include Entergy Koch Trading in Houston and Mirant in Atlanta.

Enron apparently started the whole segment about five years ago when they were unable to find insurance products to protect one of their utility subsidiaries against temperature variations.

Utility companies, particularly energy companies, experience volatility of earnings due to extreme weather conditions. Colder than usual weather will mean consumers need more energy to warm their homes.

If the company has to buy power off the spot market, where prices are higher, it loses money.

At the other end of the scale, a warmer than usual winter means high thermostats and less energy being used, which also cuts into an energy company's revenue.

Enron was the first to look for a ways to hedge the impact of weather on earnings.

Element Re's chief operating officer, Lynda Clemmons, was formerly a trading vice president at Enron.

Clemmons, recalls that when Enron approached insurance companies about weather risk management, most said they were more comfortable writing polices protecting Enron from catastrophic events, not from loss of revenue.

"They were uncomfortable writing risk on something that was very likely to happen," Clemmons said. So Enron got into the hedging business itself, Clemmons said, setting up a trading floor in its Houston office.

A weather derivative contract sets out certain circumstances which a company hopes to avoid. If those weather conditions occur, the derivative pays out to offset the company's business loss for a given period.

While currently used mainly by US energy companies, weather risk management is starting to be used by event management companies who can, for example, insure open-air concerts and sports events from being washed out by rain.

The segment is also seen as having huge potential for the US agricultural industry, although only time will tell whether farmers prefer paying huge premiums to being at the mercy of mother nature.