Wall Street Offers Solace to Insurers After Hurricane Season, if They Placed Their Bets – ABC News

Hurricane Irene, Ward 3 trees down, Aug 28

Image by DDOTDC via Flickr

Insurers and utilities who face major losses related to Hurricane Irene may find some help, not from the federal government, but Wall Street. Insurance and utility companies, which stand to lose from the billions of dollars in damage from Hurricane Irene, can bet how much damage will incur during hurricane season through financial products. And if their bids are accurate, they could receive a payout.

Commodity traders began investing weather derivatives in 1999 when they were introduced by the Chicago Mercantile Exchange CME, which has the world’s largest options and futures contracts outstanding.

The CME developed hurricane futures and options contracts in 2007 following the damaging 2005 hurricane season, which included Hurricane Katrina.

Hurricane contracts are analogous to insurance premiums for insurers, utility and energy companies, state governments, and other market participants, to hedge against potential hurricane risks, said Paul Peterson, director of CME’s commodity research and product development.

Hurricane Irene’s damage could reach $7 to $13 billion in losses through 10 East Coast states despite it making landfall only in North Carolina and New Jersey in the continental U.S.

via Wall Street Offers Solace to Insurers After Hurricane Season, if They Placed Their Bets – ABC News.

Strange Random Hurricane Quote:

“The first rule of hurricane coverage is that every broadcast must begin with palm trees bending in the wind.” – Carl Hiaasen

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Posted on September 1, 2011, in Article and tagged , , , , , , , , . Bookmark the permalink. Leave a comment.

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