InformationWeek
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November 17, 1997
Insurers Launch Web Site To Trade Storm Options
Bermuda exchange challenges Chicago
The new options are linked to an index that measures how much money insurance companies are expected to pay U.S. homeowners on storm-related claims. The exchange has about 20 members, including insurers American International Group and Mid Ocean Reinsurance and banking heavyweights Goldman Sachs Group and Bankers Trust.
"The idea is to bring the capital markets into the game of reinsurance," says Tim Mardon, VP of Tempest Reinsurance Co. in Bermuda.
The "virtual trading pit" poses a challenge to a traditional market started last year by the Chicago Board
of Trade for trading options linked to another disaster index. The Bermuda exchange's backers opted for the Internet because that let them base the exchange in Bermuda, a global insurance hub where regulation and taxes are less burdensome than elsewhere, but still provide access to investors worldwide.
The disaster options are more complicated than most other securities because they have various maturity dates and custom features that are listed on the Web site whenever a trader posts a bid or an offer.
On the Web, "the market knows exactly what you want when you make your bid," says David Mocklow, a director at Chicago-based Aon Capital Markets, a member of the Bermuda and Chicago exchanges.
Because the options are so customized, the Bermuda exchange rejected software systems used by other securities markets. "The characteristics of the product made every other trading system of no value to us," says Thomas Heise, president of the exchange, which hired Context Integration in San Francisco to dev
elop a custom application using the Net Dynamics 4.0 development environment, Netscape Enterprise Server 3.0, and Sybase SQL Server 11.
group of insurance companies and Wall Street firms last week launched the first Web-based securities market. The Bermuda Commodities Exchange will trade options that let insurers hedge their risk of losses from natural disasters such as tornadoes and hurricanes.
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