Margin

IFEX Event Linked Futures (US Tropical Wind) are margined as futures contracts. This means that the pattern of payments and receipts by buyers and sellers is different from that of reinsurance. The buyer of an IFEX ELF pays no premium on making the purchase. But as the value of the contract declines with the pasage of time, the buyer pays out variation margin until the contract has no value on the expiry of the risk period. In effect the premium is paid in stages through variation margin. Of course if a loss equals or exceeds that of a Loss Triger Level, then the buyer will receive variation margin up to the full value of the contract, $10,000, less the price at which the transaction was done. In other words in the event of a claim, the protection buyer makes the recovery net of the premium  

Variation Margin

Variation margin represents payments made as result of the mark to market process which values the contract according to daily price changes. Thus if the price rises the buyer will receve variation margin and the seller will pay it.

Maintenance Margin

Maitenance margin represents the amounts required to be posted by the Clearing Corporation to ensure that both buyers and sellers can meet their commitments. Currently buyers and sellers are required to post margin of $500 per contract. A threat based maintenance margin system will be introduced on June 1st 2008 at the beginning of the North Atlantic hurriucane season. 

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