Dynamic Hedging

Dynamic hedging allows the Protection Buyer to increase or reduce his exposure to US wind in accordance with changing prices and his risk appetite.

Example

A Protection Buyer had bought a contract for 2010 at a loss trigger level (LTL) 0f $20b @ 20% Rate on Line (RoL).

There are then a number of catastrophes and the price of the equivalent 2010 ELF moves to 35% RoL. The Protection Buyer decides to sell the equivalent ELF. The Protection Buyer then carries the associated risk without the ELF. Should the price then fall the Protection Buyer would have the ability to purchase a new ELF reinstating the coverage in order to protect the earnings.