GFI Group has brokered the first catastrophe risk trade on the New York Mercantile Exchange, an option on the nationwide catastrophe risk futures contract, with global reinsurer Swiss Re and Bermudian reinsurance company Ascendant as counterparties.
Catastrophe derivatives enable tailored trading and hedging of combinations of risks. The trade was based on the Re-Ex Index calculated by Gallagher Re, a reinsurance intermediary and advisory firm, which includes all natural catastrophes apart from earthquake and terrorism.
'We are always looking to trade cat risk in the best format,' says Albert Selius, head of the insurance-linked securities trading desk at Swiss Re Capital Markets. 'We welcome the Nymex initiative as it provides an alternative platform for natural catastrophe trading in addition to the traditional industry loss warranties market.'
Ascendant president and chief executive Rick Pagnani says: 'We are happy to have participated in the inaugural trade, but, more importantly, we are excited at the prospects for this market. These cat derivative contracts add a new dimension to risk management and give (re)insurers and capital market participants alike with a new way to enhance risk-adjusted returns.'
Adds Nymex chairman Richard Schaeffer said, 'Nymex is excited to develop innovative risk management tools, such as the catastrophe risk options contract. This contract introduces a new industry to the price mitigation services Nymex provides and serves as a complement to its existing product slate.'
GFI Group is an inter-dealer broker specialising in over-the-counter derivatives products and related securities, providing brokerage services, market data and analytics software products to institutional clients in markets for a range of credit, financial, equity and commodity instruments.
'GFI has a record of helping new derivatives markets develop and we are proud to have brokered this first trade on Nymex,' says Ian Clague, the firm's head of commodity broking for the Americas. 'We are seeing financial institutions starting to trade and manage reinsurance and derivatives are making this more standardised and accessible.'
Founded in 1987, GFI employs more than 1,500 people at its headquarters in New York and offices in London, Paris, Hong Kong, Tokyo, Singapore, Sydney, Seoul, Cape Town, Englewood, New Jersey, and Sugar Land, Texas. The group provides services and products to more than 2,000 institutional clients, including investment and commercial banks, corporations, insurance companies and hedge funds, through brands including GFI, Starsupply, GFInet, CreditMatch, Fenics and Amerex.