IFEX Event Linked Futures

PRESS RELEASE - January 10 2008

IFEX Event Linked Futures

Trading Update – Proof of Concept

IFEX started trading US Tropical Wind Event Linked Futures in late 2007 on the Chicago Climate Futures Exchange (CCFE). IFEX is a new London based insurance derivatives exchange which is part of the AIM quoted Climate Exchange PLC group.

IFEX Event Linked Futures – US Tropical Wind

IFEX Event Linked Futures (ELFs) are exchange traded binary futures contracts which are based on Industry Loss Warranty reinsurance contracts triggered by pre-determined losses to the insurance industry in excess of specified amounts.

IFEX ELFs trade annual 2008 and 2009 US Tropical Wind First Event contracts. There are five Loss Trigger Levels: $10bn, $20bn, $30bn, $40bn and $50bn. IFEX ILW futures follow the pattern of the reinsurance market in being event based. The performance of the contracts is ensured by a margining system provided by The Clearing Corporation. Insurance industry loss data is supplied by Property Claims Services (PCS).

IFEX Event Linked Futures (ELFs) are exchange traded binary futures contracts which are modelled on Industry Loss Warranty reinsurance contracts triggered by pre-determined losses to the insurance industry in excess of specified amounts.

IFEX ELFs are contracts for difference and NOT reinsurance contracts. ELFs have similar economic characteristics as ILW reinsurance policies

Trading to Date – Proof of Concept

Since trading began at the end of September ELFs have traded more than 3,100 contracts the equivalent of $31m of limit.

• ELF have attracted significant interest from a number of hedge funds and other investors and traders
• Market making agreements have been signed with Deutsche Bank.
• Participants include leading institutional investors and reinsurance market participants.

Uses of IFEX ELFs

• Hedging of cat bond and ILW portfolios.
• Hedging cat exposed equities – insurers and reinsurers
• Using forward year contracts (2009) to hedge cat insurance price risk – hedging the price of renewals both as writer and buyer
• Increasing or decreasing exposure to US Tropical Wind
• As supplements to inwards and outwards reinsurance programmes.
• Exploitation of mis-pricing compared to technical rates

A New Era in Reinsurance

Neil Eckert, CEO of the Climate Exchange PLC group, said:

“The launch of IFEX’s initial contracts provides easy access to the catastrophe insurance asset class, but it also creates a new type of trading including the ability trade insurance price risk.”