Eurex the first European exchange to offer hurricane catastrophe futures

Eurex, one of the world’s largest derivatives exchanges and the largest clearing house in Europe, have announced today that they are to become the first European exchange to offer hurricane futures for trade and clearance. The hurricane wind damage futures will launch on the 29th June 2009 and demonstrate the continuation of Eurex’s aggressive push into new asset classes.

Peter Reitz, a memberof the Eurex 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.”

The new futures will be available in three regional zones to start with; USA nationwide, Florida and the Gulf Coast states and will be available only in U.S. dollar denominations. The contracts will have a number of trigger levels ranging from $10b to $50b. Contracts will either expire worthless or at $10,000 per contract depending on the actual loss experience from a single hurricane. Data for settlement of the contracts will be sourced from the ISO Property Claims Services.

This offers reinsurers, banks, hedge funds, asset managers and other potential market participants (such as energy companies) within Europe a way to easily access the hurricane futures market and to get deals both traded and cleared under one roof. We hope to see Eurex broaden their product range and it would be fantastic if they could launch a similar set of products for the European windstorm season.