The New York Mercantile Exchange (NYMEX) has agreed with Gallagher Re to list Property Damage Risk contracts for trading.
NYMEX will clear the contracts, which will enable real-time electronic trading of property damage risk exposures and will be settled by Gallagher Re's Re-Ex Index.
Property Claims Services will supply the Re-Ex Index with data.
The new facility has been designed to create a liquid market environment for the trading of property damage risk and thereby increase the market's capacity with a new derivative instrument.
Larry Tucker, managing partner of Gallagher Re's UK based operations and leader of the project team said: “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.
“These Property Damage Risk contracts have been designed to bring the transparency, immediacy and liquidity of the capital markets to the insurance sector; providing effective ways of protecting against property catastrophe risk and providing the supplier with a more efficient mechanism in the form of ISDA-based contracts. At the same time, the contracts will provide participants with the opportunity to trade a new asset class which has little or no correlation to other exchange traded position or asset classes.”
James E. Newsome, NYMEX president and chief executive, said: “NYMEX has a proven track record of bringing new risk management products to the marketplace. We see the Property Damage Risk futures as a complement to the energy complex which will provide an additional avenue for our customers to hedge their risk from an ever-changing climate. NYMEX is equally excited about the potential to create a viable and innovative trading medium for these products”
