| NEW YORK
NEW YORK Aug 28 A swift business is being done
in Gustav-linked derivatives as energy companies and insurers
scramble to cover themselves and others speculate the tropical
storm will become a hurricane and wind its way into the Gulf of
Mexico in coming days.
Insurance brokerage Carvill is among the companies to sell
catastrophe, or cat, derivatives to plug gaps in reinsurance
capacity that can follow disasters, such as Hurricane Katrina.
Of particular interest to energy companies are so-called
cat-in-the-box products, which cover a specific geographic area
that is home to many offshore oil and gas rigs.
"We have energy companies buying to protect rigs in the
Gulf with the cat-in-the-box product ... while (coastal
contracts) cover the landfall of the storm, and are being
bought by insurers, reinsurers and hedge funds," Patrick
Gonnelli, president of Carvill Capital Markets, said in a phone
Katrina, which made landfall three years ago on Friday, was
the costliest storm on record, with insurers paying out some
$50 billion in claims from damage on the Gulf Coast.
On Thursday, Gustav was forecast to strengthen into a
hurricane in coming days as it neared the Gulf of Mexico, home
to a quarter of U.S. crude oil production and 15 percent of its
natural gas output.
Gonnelli said others are buying derivatives "on pure
speculation because it (Gustav) looks like it is going to go
into the Gulf."
Demand for Carvill's single-named storm contracts comes
days after the CME Group's (CME.O) Chicago Mercantile Exchange
began trading this type of hurricane option, citing high
Named-storm contracts are only valid for the life of the
storm, in this case Gustav, and each is tied to a specific
level on the Carvill Hurricane Index. A payment is triggered if
the storm reaches the level the customer bought at.
For many buyers, besides being a quick and additional
source of reinsurance coverage, another benefit is the quick
settlement time, usually within days. This is in contrast to
traditional insurance contracts that may take months or years
to settle, depending on the type of coverage.
(Editing by Braden Reddall)