Eurex to expand offering with launch of catastrophe derivatives

Hurricane futures will be introduced on 29 June 2009/ New offering to facilitate needs of current OTC market

The international derivatives exchange Eurex today announced that it will launch wind damage futures (hurricane futures) with binary payouts on 29 June 2009. The introduction represents another milestone in Eurex’s strategy to expand into new asset classes as it extends its offering with these products into catastrophe derivatives. The new contracts have been designed in close cooperation with market participants.

Hurricane futures will provide users, e.g. asset managers, hedge funds, banks and (re)-insurance companies, with a straightforward opportunity to trade or hedge against insured losses related to specific storm events. Hurricane insured losses are largely uncorrelated to financial market returns.

Peter Reitz, member of the Eurex Executive Board, said: “We are very pleased to be the first European exchange to offer hurricane futures to our customers. The current financial crisis has led to a re-evaluation of counterparty risk, creating demand for centrally cleared hurricane contracts to complement currently bilaterally executed ISDA documented hurricane swaps. Our new offering will foster this need by offering central clearing services through Eurex Clearing which brings effective risk management to the market and mitigates counterparty risks. Further we bring in the traditional benefits of listed futures such as standardization and anonymity as well as Eurex’s global distribution capability.”

Futures will be initially available for three regional areas: USA nationwide, Florida and the Gulf coast states and will be denominated in US dollar. Additionally, they will have several trigger levels, ranging from 10 to 50 billion US dollars. Due to the nature of the underlying, the new binary contracts will expire either worthless or at 10,000 US dollar per contract – depending on the estimated insurance loss caused by a single hurricane. The minimum tick size will be 10 US dollar. Trading hours will be from 10 am until 10 pm CET. For the calculation of insured losses Eurex will use data provided by ISO PCS, the only internationally recognized estimation agent for catastrophe insurance claims in the US.

To facilitate market needs, the block trade size will be one contract, allowing an easy transfer of risk to the central counterparty, Eurex Clearing. To promote liquidity and flow, Eurex is also preparing an incentive scheme for qualified brokers.