text_combined: cme catex forwarded joseph hrgovcic hou ect 04 05 2000 04 06 pm lucy ortiz 04 05 2000 04 02 pm joseph hrgovcic hou ect ect cc subject cme catex spotlight report exchange products seeing slow trading gavin souter 03 20 2000 business insurance page 3 copyright c 2000 crain communications inc rights reserved exchange based insurance products developed recent years somewhat slow get ground although several exchanges offered derivative contracts since mid 1990 cover insurance risks none far posted significant volume trades insurers reinsurers policyholders drawn away traditional insurance markets capacity remains abundant relatively cheap long traditional markets manage weather major natural catastrophes allure exchange based products remain limited observers say also stifling growth exchange based contracts limited number contracts available one expert noted dealers said unable secure suitable hedge laying one contract another although various exchanges good opportunity establish widely used set new risk financing products achieved said morton lane senior managing director capital markets division gerling global financial products new york main problem existing exchanges offer sufficiently diverse array products said way control risks catastrophe options diversified portfolio contracts none exchanges currently offers sufficiently broad range options provide hedge said florida windstorm options example bought hedged way international business machines corp stock options contracts hedged ibm stock mr lane explained exchanges might attractive investors addition natural catastrophe options included options risks said might include example satellite aviation crop indexes mr lane said insurance buyer exchange instruments would represent perfect risk transfer vehicle long quantifiable indexable may represent good surrogate said exchanges could also used create derivatives market counter securitized deals regular issuers catastrophe bonds mr lane said soft insurance market also hindered growth exchange based insurance products said sean f mooney senior vp chief economist guy carpenter co reinsurance brokerage unit marsh inc new york traditional market competitive people looking ways business said least concept exchange based deals generally similar mortgage backed securities huge success since introduced 1970 belief alternative means transferring risks grow difficult predict mr mooney said currently trading taking place typically involves established insurers reinsurers exchanges brought substantial new capacity marketplace said guy carpenter provided index bermuda commodities exchange reinsurance products bce take however suspended last year two years little activity oldest insurance related exchange based derivative products catastrophe options traded chicago board trade began trading options 1996 initially substantial interest options soft traditional market hampered use contracts hedge catastrophe exposures said carlton purty independent broker cbot trades options catastrophe option trades completed cbot far year said last year increased interest contracts hurricane floyd contracts traded mr purty said think major major catastrophe happen really take said contracts offer real protection options dealers keen trade new niche conventional insurance reinsurance markets soft companies turning alternative coverage options mr purty said catastrophe risk exchange located princeton n j radically changed structure since originally announced mid 1996 well positioned expand said frank sweeney chief operating officer catex initially planned computer based facility reinsurers would enable exchange catastrophe risks build balanced portfolios time exchange operational november 1996 clear reinsurers insurers interested catex wanted buy sell conventional reinsurance mr sweeney said although interest risk swapping handful risks posted system none traded mr sweeney said consequently catex become chiefly cash cover exchange said noting risks reinsured exchange include property catastrophe coverage aviation liability coverages catex also trades industry loss warranties coverage triggered actual loss combined industry loss agreed threshold adjustments exchange included making accessible internet november 1998 late last year catex offered users ability set smaller networks allowing form groups whose members business one another since inception catex completed 450 trades totaling 400 million premium 3 billion limits said catex roughly 160 subscribers include reinsurers insurers corporate entities purchase coverage captives mr sweeney said obviously long way go pretty satisfied achieved far mr sweeney said exchange sees increased activity major losses cedents seek buy replacement coverage offset depletions existing cover said example mr sweeney said flurry activity european windstorms december last year last september chicago mercantile exchange entered field insurance related derivatives began offering weather derivatives thus far 420 futures contracts traded said larry grannan senior director product marketing cme contracts designed allow businesses hedge weather related losses example utility may sell less power mild winter would able use futures hedge resultant fall revenues exchange first offered heat based indexes atlanta chicago cincinnati new york january added philadelphia dallas des moines las vegas tucson portland began offering contracts based cold weather currently trades securities dealers eventually contracts likely used extensively utilities insurers mr grannan said addition futures contracts could used hedges counter securitized deals said copyright 2000 dow jones company inc rights reserved