Independent reinsurance broker Carvill reports that trading in its derivative contracts for hurricane risk continues to grow.
The Carvill Hurricane Index trades on the Chicago Mercantile Exchange (CME). As news of Hurricane Bertha, the first real activity of the season, came through last week, Carvill said more CHI contracts were completed, taking the nominal value of derivatives traded to nearly $60 million.
In addition to exchange traded activity, there is also considerable interest in bespoke over the counter (OTC) derivatives and more conventional reinsurance based on CHI, according to Carvill.
Carvill said a key benefit of its CHI over rival indices is its speed of settlement – 36 hours following landfall. The regional nature of CHI contracts also means they are not subject to the seasonally driven price increases that affect other exchange traded products.
John Cavanagh, joint CEO of Carvill, said he expects the demand to continue to grow.
“The large demand that we are seeing reinforces our belief that an exchange traded derivative product for catastrophic hurricane risk is the natural progression to the convergence of the insurance markets and the broader financial community,” Cavanaugh said. “At present the demand is mainly for seasonal aggregate and maximum contracts that operate like cat stop loss and first event policies. If there is more hurricane activity as the season progresses, we are likely to see more demand for event strip contracts which can be traded as a live cat product during the life cycle of a storm.”
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