What is an Event Linked Future (ELF)?

1. An ELF is a derivative contract that, to a large degree, replicates the economics of an Industry Loss Warranty (ILW) reinsurance policy.
   
   
2. An ELF is conveniently exchange and screen traded, also cleared and margined which minimises counterparty risk.
   
   
3. IFEX ELFS are traded upon the Chicago Climate Futures Exchange (CCFE), and cleared by The Clearing Corporation.

How does an ELF differ from an Industry Loss Warranty (ILW) Reinsurance Policy?

1. An ELF is a derivative contract not a reinsurance policy.
   
   
2. It is hence a derivative that replicates the economics of an ILW reinsurance policy.
   
   
3. It has no Ultimate Net Loss clause which means that an ELF can be bought by parties without an insurable interest and they can be sold (underwritten) by non-insurers.
   
   
4. Because ELFs are cleared and margined , the cash flow characteristics are different. 

             -  This is because ELF contracts are margined and marked to market twice daily.

             -  This margined and cleared characteristic  makes them largely free of counterparty risk.

      5.  IFEX  ELFs are futures contracts which means that it is possible to trade the 2010 loss period and
          2011 renewals already today.

For a more detailed explanation of the terminology used above and the IFEX chain of security please select from 'IFEX Basics'.