Forbes- Weather futures specifically tied to Atlantic hurricanes are set to begin trading on the Chicago Mercantile Exchange as soon as the first storm gets brewing. The National Weather Center’shurricane forecasters predict 13 to 17 named storms this year, three to five of them potentially major hurricanes, defined as Category 3 and above on the scale used to measure the storms.
Hurricane futures, which were introduced on the Merc in March, will allow energy traders to hedge risks in their positions and allow speculators to bet on the potential impact Atlantic storms will have. Eventually, reinsurers might be attracted to them as another way to offset risks in their portfolios.
It is another piece of a blossoming derivatives market for storm risks. Last year, insurance brokers underwrote $5 billion in catastrophe-risk bonds, and so far this year, another $2 billion have been underwritten, according to Swiss Reinsurance.
“We are certainly on a record pace,” said Judy Klugman, managing director of insurance-linked securities at Swiss Re Capital Markets, the broker division of Swiss Re.
