CME, the world’s largest and most diverse financial exchange, announced today that it will expand its weather derivatives product line with a scheduled launch of CME-Carvill Hurricane Index futures and options on futures contracts March 12. The underlying indexes will be calculated by Carvill, a leading independent reinsurance intermediary in specialty reinsurance that tracks and calculates hurricane activity.
“These new CME Hurricane contracts will provide an additional way to help address the needs of the insurance industry and other markets,” said Felix Carabello, CME Director of Alternative Investment Products. “Following the devastating 2005 hurricane season that caused an estimated $79 billion in damage, it became apparent that there was limited capacity to insure customer claims. With these hurricane contracts, insurers and others will be able to transfer their risk to the capital markets and thereby increase their capacity to insure customers.”
In addition to insurers, other customers such as energy companies, pension funds, state governments and utility companies will be able to hedge their risk of hurricanes striking in the United States in five areas defined as the Gulf Coast, Florida, the Southern Atlantic Coast, the Northern Atlantic Coast and the Eastern U.S.
"We are excited about our joint venture with CME," said John Cavanagh, Joint CEO of the Carvill Group. "CME is the clear market leader in weather derivatives and we believe this new product will offer a wider range of catastrophe solutions to our customers. The convergence of the insurance markets and the broader financial community continues at a rapid pace, and our products, particularly in the catastrophe area, are becoming more commoditized in order to appeal to a more diverse range of capital providers. An exchange traded derivative product for catastrophic hurricane risk is a natural progression to this trend."
Dr. Steve Smith, Senior Vice President of ReAdvisory, the analytical arm of Carvill said, "The challenge was to develop an index that met the needs of both the derivative trading community and the insurance market. We needed an index that is easily understood, simple to calculate and based on publicly verifiable data - in short, an index which is transparent. Most importantly for the trading community was the requirement that the index could be calculated and settled within hours of an event taking place.”
Using publicly available data from the National Hurricane Center of the National Weather Service, the Carvill Hurricane Index (CHItm) uses the maximum wind velocity and size (radius) of each official storm to calculate the potential for damage. The front contract expires when a hurricane makes landfall with the expiration pegged to the CHI. The contract tick size is 0.1 CHI point, which is equivalent to $100.
Hurricane futures will trade on CME Globex® from 5:00 p.m. to 3:15 p.m. the following day Chicago time and options on hurricane futures will be available for trading 8:30 a.m. to 3:15 p.m. Chicago time on the CME trading floor.
CME currently lists weather contracts based on aggregate temperatures on 35 cities around the world as well as snowfall and frost indexes. CME introduced weather derivatives in 1999. In 2006, traded CME Weather derivatives had a notional value of $22 billion. For more information on the hurricane contracts, please go to www.CME.com/hurricane.
CME (www.cme.com) is the world’s largest and most diverse financial exchange. As an international marketplace, CME brings together buyers and sellers on the CME Globex® electronic trading platform and on its trading floors. CME offers futures and options on futures in these product areas: interest rates, stock indexes, foreign exchange, agricultural commodities, energy, and alternative investment products such as weather, real estate and economic derivatives. CME is a wholly-owned subsidiary of Chicago Mercantile Exchange Holdings Inc. (NYSE, NASDAQ: CME), which is part of the Russell 1000® Index and the S&P 500® Index.
Statements in this news release that are not historical facts are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any forward-looking statements. More detailed information about factors that may affect our performance may be found in our filings with the Securities and Exchange Commission, including our most recent Quarterly Report on Form 10-Q, which can be obtained at its Web site at www.sec.gov. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
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Carvill is a leading independent reinsurance intermediary in specialty reinsurance. Carvill’s success since its foundation in 1977 has been achieved through an unwavering commitment to independence, integrity and service.
Carvill’s tailored specialty products cover the needs of the clients, and include Medical Malpractice, Directors & Officers, Errors & Omissions liabilities, Major Property Catastrophe, and Financial Products includingRetrocessional business. For further information visit www.Carvill.com.
