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.

Damage to cargo caused by water condensing from humid air inside a container or the hold of the ship due to a fall in outside temperature.

policies of insurance or reinsurance where the initial premium is subject to variation depending upon claims experience (see also Burning cost).

Most insurance companies issuing investment bonds and unitised funds offer a variety of investments linked to property, equity, managed and fixed-interest funds, and sometimes cash or gilt funds. In return for a fee most will permit the holder to switch his investment from one fund to another. As the money remains invested in the same life policy liability to tax does not arise as happens when shares are sold.