Risk Markets And Politics

Thursday, December 14, 2006

NYMEX to launch Property Damage Risk Futures

The New York Mercantile Exchange today announced that it intends to list Property Damage Risk contracts based on Gallagher Re's planned "Re-Ex Index", which will track losses due to catastrophes, defined as events causing more than $25 million in damages by ISO's Property Claims Services®.

The contracts bear a close resemblance to Hedgestreet's hurricane markets, although NYMEX will allow hedging against other types of catastrophes. Larry Tucker of Gallagher Re notes:
Despite the relatively benign hurricane season this year, demand for property damage cover continues to vastly outstrip supply and the way in which reinsurance contracts are currently negotiated, which has remained virtually unchanged for decades, serves only to frustrate that process. Against this backdrop, the market has seen an increasing presence of the capital markets, particularly hedge funds, within the reinsurance space challenging existing methods by providing cover directly such as collateralised reinsurance contracts and cat bonds.
The business method used in trading and the contracts themselves are patent-pending.

[Cross-posted from Midas Oracle]

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