An alternative risk transfer between two parties having risks in the opposite direction. An insurer might swap a windstorm exposure with a building contractor who gets work if windstorm occurs. If it does not occur, the contractor’s excess capacity is compensated from the insurer’s additional profit following favourable claims experience.

Agreement between parties with diverging interest to exchange payment streams based on an underlying rate, index, instrument or asset and a ‘notional amount’. An ice cream manufacturer wants a warm summer while an overseas tour operator expects a cool summer to boost his sales. If the temperature is above the reference temperature, 18°C, the ice cream company pays the tour operator out of their enhanced revenue. No premium changes hands, the upside risk of one party pays the downside risk of the other.