Reask to provide settlement data for Interactive Brokers’ ForecastEx live hurricane contracts

Interactive Brokers’ ForecastEx platform has partnered with Reask, the catastrophe modelling and climate analytics specialist, which will see Reask supply settlement data for its live hurricane contracts, enabling capital providers to enter and exit live catastrophe exposure in real time.

Interactive Brokers’ ForecastEx platform, allows investors to buy ‘yes’ or ‘no’ contracts based on stated outcomes for specific indicators. The platform also hosts prediction markets and Interactive Brokers has previously indicated that it believes these will increasingly be utilised for risk hedging and risk transfer in the future.

Reask also indicated that Tropical Storm Isaias, the first hurricane of the 2026 Atlantic season,  may become the first strong storm that ForecastEx’s hurricane contracts will trade through.

Interactive Brokers’ ForecastEx has listed a new class of tradeable event contracts, referred to as live hurricane contracts, that are tied to wind gusts produced by individual named storms at specific coastal locations. Reask explained that its Metryc product will serve as the settlement basis for these contracts, while the company’s LiveCyc forecasts will be published on the ForecastEx platform as the shared source of fair market value.

“Risk transfer instruments tied to an active, unresolved storm are not new. Industry Loss Warranties (ILWs) and short-dated retrocession have long been used to transfer concentrated hurricane exposure on short notice, as a storm approaches landfall. These instruments generally carry a high basis risk and are typically negotiated bilaterally, through brokers, with pricing determined by direct negotiation rather than by reference to an observable market price,” Reask explained.

“As a result transaction and search costs are relatively high, and no independent price signal exists outside of the negotiated transactions themselves. The new live hurricane contracts on ForecastEx propose to transfer the same category of risk, structured as exchange-traded, continuously priced instruments rather than bilateral “off-line” agreements.”

Reask continued: “Looking back historically, the Chicago Mercantile Exchange (CME) has offered tradeable hurricane contracts based on a storm-wide index. Whilst the CME platform did see modest exchange-traded volume, its scalability was likely limited by the high basis risk associated with a storm wide metric and the reduced storm activity observed from 2008 to 2015 when no major hurricane made landfall in the US (a.k.a. “the hurricane drought”).

“Catastrophe bonds, which have become a stable source of alternative reinsurance capital, do offer liquidity during a live event; however, high volatility and the lack of an objective pricing metric during such events often limits market participants from trading them reliably in real time.”

Reask further explained that the new live hurricane contracts are defined over a fixed set of 163 coastal locations spanning across the US Gulf and Atlantic coasts, the Caribbean, Mexico, Central America, and northern South America.

Each location corresponds to a settlement footprint with a 10 km radius, evaluated at 1 km spatial resolution. While for a given named storm, contracts will list once forecast probabilities of 70 mph or greater gusts at a location exceed a threshold of approximately 5% and remain open through a ladder of gust thresholds ranging from 70 mph to 200 mph in 10 mph increments.

In addition, a separate contract type determines which of the covered locations records the highest wind gust intensity generated during a given event. These contracts maintain continuous trading activity throughout the duration of the storm and settle within several days following the storm’s dissipation.

Reask further clarified that settling a wind-gust contract requires a defined, verifiable peak-gust measurement at a specified location, noting three candidate approaches available to ForecastEx: direct anemometer observation, official post-event reporting, and physics-based modelled reconstruction.

“Direct observation is limited by the documented tendency of surface instruments to fail under the conditions a contract is intended to measure: loss of power, loss of communication, or physical destruction of the instrument are common during major hurricanes, and coastal and airport weather stations frequently go offline during the period of peak winds. Official post-event reports, such as National Hurricane Center (NHC) Tropical Cyclone Reports, address the reliability problem but not the timeliness or standardisation requirements of a tradeable contract as these are typically published months after an event and mostly narrative in form rather than structured, location-indexed data.”

Reask also added that its Metryc product addresses these constraints by reconstructing peak three-second gust wind speed at 1 km resolution for every location affected by a storm, derived from the storm’s observed track and intensity combined with a physical model of wind-field interaction with the underlying terrain.

As a result, this produces a location-indexed, standardised measurement independent of whether a physical instrument was present or functioning at that location and is the same reconstruction methodology that’s widely used as the basis for payout determination in parametric insurance products.

The company’s LiveCyc product also provides a probabilistic forecast of the likelihood that a given wind-gust threshold will be exceeded at a given location, updated on a six-hour cycle as new forecast information becomes available.

Reask stated that this probability can be treated as a fundamental reference value, noting that in the absence of other considerations, a contract’s price should track the underlying probability of the event it resolves.

“In practice, observed market prices are expected to diverge from this fundamental value by a premium reflecting factors outside the probability estimate itself, such as compensation for bearing risk over the remaining duration of the contract, the cost of capital tied up in a position, and the bid-ask spread required to exit a position before settlement. A market price can accordingly be decomposed as the LiveCyc probability plus this premium, with the premium expected to narrow as a storm approaches landfall and forecast uncertainty declines, and to widen during periods of elevated uncertainty, such as when a storm is rapidly intensifying or its track remains highly uncertain,” Reask explained.

The company further added: “We believe that, once trading volumes reach a scale more comparable to existing live catastrophe risk transfer markets, live hurricane contracts could offer reinsurers a genuinely new capability. One where they can enter and exit live catastrophe exposure in real time, in a liquid and efficient market. The same continuous, exchange-traded pricing could in principle extend live catastrophe risk transfer to a broader base of capital providers, giving brokers a new instrument around which to structure bespoke risk transfer products for their clients.”

“However that level of capacity has not yet materialised, and at current trading volumes reinsurers cannot yet lay off a material share of live exposure. The more immediate effect is therefore on price visibility. Because live cat and short-dated retro pricing has historically been determined through bilateral negotiation with no external reference point, a continuously updated, publicly observable price for wind-gust exceedance already provides a benchmark against which bilateral quotes can be evaluated.”

For ILS funds, which usually have to rely on internal estimates to value hard-to-price contracts between major storms or annual renewals, an exchange-traded reference price for the same underlying risk at a defined set of locations and thresholds can provide a partial basis for interim valuation.

“A further implication concerns forecast information content. Because contract prices update continuously in response to new information, and can in principle move faster than the six-hour update cycle of the underlying forecast, resulting prices may at times incorporate information not yet reflected in individual forecast products, including Reask’s own. Over multiple seasons, this raises the possibility that these markets could serve as a supplementary indicator of storm risk, alongside existing forecast sources,” Reask concluded.