Heather Phillips reports on the latest developments at CATEX.
CATEX is today the world's largest internet-based, business-to-business exchange for insurance, reinsurance and risk management. The exchange offers global pricing transparency and transaction efficiency for all lines of commercial insurance and reinsurance. Through the use of XML (Extensible Mark-up Language) technology, CATEX facilitates the exchange of information between the buyers and sellers of risk empowering them to make more informed business decisions.
The exchange was established in early 1996 to facilitate the swapping of catastrophe exposures between interested parties. Since inception, CATEX has greatly expanded the operational scope to include all lines of commercial insurance and reinsurance. The risk instruments now being managed through the system include traditional premium indemnity transactions, second event covers, industry loss warranties (ILWs), stop loss and aggregate covers, treaty and facultative covers.
CATEX is a US-based corporation licensed by the New York Insurance Department as a reinsurance intermediary, which acts in a neutral capacity. CATEX does not function in any way as a risk-bearing entity, but merely operates an impartial facility for the trading of risk among its subscribers. As a result, the exchange does not represent any potential transacting party as an agent offering advice or advocating any action concerning the substance or price of the transaction. CATEX remains strictly neutral as to such issues, and restricts itself to organising and operating, in an impartial manner, the mechanism required to facilitate the efficient transfer of risks among its subscribers. As a licensed entity, CATEX is subject to oversight and examination by the New York Superintendent of Insurance, as he or she deems appropriate.
There have been over 1,600 risks posted on the exchange to date and the 350-plus completed transactions represent over $93m of premium supporting $1.7 billion of insured limit. Posted risks have included property/casualty, aviation and aerospace risks, accident and health, marine, energy, political risk, weather, credit, auto liability and others. Additionally the exchange is seeing posting activity throughout the year as subscribers utilise the system's transaction efficiencies to adjust their risk portfolios throughout the underwriting year.
The CATEX community of subscribers is composed of over 150 corporations representing nearly 2,000 individual end users. These intermediaries, reinsurers, Lloyd's syndicates, insurance carriers, and corporate risk managers are located in over 80 cities through the world. The internet based trading exchange provides instant access to these subscribers 24 hours a day 7 days a week.
The latest version of the CATEX trading system, CATEX 2000, went live on 5 December 1999 and has already witnessed postings by over 20 different organisations. The new software brings with it much new functionality and further enhances the effectiveness of the CATEX complex trading system. Subscribers are now able to market deals through the secure internet trading system to both CATEX and non-CATEX subscribers on an individual or multi-deal basis. Further, the CATEX 2000 product suite offers subscribers the ability to develop customised electronic marketing programmes and e-commerce solutions to suit their individual requirements.
Benefits of CATEX
As the only global trading system of its kind in the world, CATEX is uniquely positioned to facilitate the creation of a truly global marketplace for the insurance industry. In its capacity as a neutral “market maker”, CATEX allows global competitors and business partners to work together. The exchange allows parties to operate in anonymity until such time as they are both willing to reveal their identities and exchange detailed underwriting information.
As transactions are completed the core details of these deals are posted to the market board making CATEX a unique source of pricing information for the global insurance market.
Key benefits afforded by the CATEX marketplace are:
Reduced search costs
• CATEX subscribers have access to a global insurance marketplace.
• Users are able to customise the system to define the characteristics of the postings they wish to view. Risk diversification
• CATEX subscribers are able to trade risks in their portfolio 24/7 and actively manage their portfolio in order to diversify exposures as the market or environment changes.
• Subscribers are no longer tied to the traditional renewal cycles - transactions are completed quickly and efficiently throughout the year.Pricing efficiency
• Key details of completed trades, including the pricing details, are posted on the system and available to all subscribers, providing a level of price transparency previously unavailable to the insurance industry. The identity of the parties involved in the transaction and details of the client are never revealed.Document transfer
• Instant electronic transfers of underwriting information to parties around the world. All types of electronic files can be downloaded to the CATEX document repository and viewed by selected subscribers.
• Use of the exchange's market board can lead to the development of new relationships with insurance carriers, risk managers, reinsurers and risk bearers.Product development
• CATEX provides a forum to explore new products or coverage opportunities with the trading community. The flexible posting template allows intermediaries to outline potential structures or products in as much or as little detail as appropriate to solicit market reactions.
• Parties can react in real time to global events. Examples of these covers have included satellite covers offered in the light of a predicted meteor storm and property covers offered in response to an oncoming hurricane.
• CATEX also allows reinsurers and syndicates to preview business that may not normally be seen by their company. It allows for a more proactive approach by markets to respond to listings from all lines of business.
• Markets are able to proactively manage their risk portfolio in real time as market conditions alter. Buy or sell transactions can be explored and executed throughout the underwriting year to maximise their underwriting profit.
New products and opportunities
Probably the two most significant products now offered by CATEX 2000 are:
• A customised direct marketing distribution channel. This functionality allows subscribers to create a private CATEX board to market deals to pre-selected individuals and companies, both existing CATEX subscribers and non-subscribing companies.
Deals posted via a private network will then only appear on the market boards of those pre-selected parties. Thus a private network allows parties to utilise the full functionality of the CATEX trading system but using it for their own direct marketing campaign with a select group of companies who may or may not be CATEX subscribers.
• CATEX 2000 allows the branding and customisation of the CATEX software by individual subscribers to assist in the development of a customised internet based distribution network. All references to CATEX and the CATEX subscriber community are removed as the proprietary network owner creates their internet business solution to communicate with their business partners and clients. A proprietary network will thus establish secure links with trading partners, extending communications to regional and isolated offices, and significantly decreasing the cost of communications between global offices and employees.
The working of a proprietary network will be defined and priced according to individual company requirements and specifications. A direct link to the CATEX global trading system can be included in the development if desired. The proprietary networks can run on in-house servers or off-site through Exodus, the web-hosting partner for CATEX 2000.
An example of a proprietary network is in the area of facultative submission systems. A number of subscribers have commissioned CATEX to develop a version similar to the CATEX software to allow them to receive facultative submissions via the internet. CATEX can provide a secure facility with e-mail and document repository functions that match the company's home page.
Weather derivatives are a hedging instrument for businesses with substantial weather-related risk. Risk managers for natural gas companies and electric utilities are able to use CATEX to market their customised products to meet their special hedging needs. The “weather market” is rapidly growing and it provides great opportunities for insurance companies, investment banks, and hedge funds. The CATEX subscriber base has begun to enter into this arena and these products are being marketed through the CATEX system.
Banks and financial institutions may join CATEX and be afforded a front line view of the global risk trading community. On CATEX these new subscribers may easily enter the world of risk trading and can monitor risk coverage prices as they change day to day and sometimes hour by hour.
For many years banks and financial institutions have believed they possess the skills to evaluate potential risk in both the financial and non-financial arenas. In fact, it was this belief that in part led to the repeal of the Glass-Steagall Act in the United States in November 1999. CATEX now offers banks and financial institutions the opportunity to directly involve themselves, right from their desks, in the world of risk trading.
Heather Phillips is vice president of CATEX.To find out more about the exchange, visit the website at www.CATEX.com to download a complete subscriber package. Alternatively, contact the London office (Lloyd's, box 365) on 0207 327 3356 or the head office (Princeton, NJ) on +1 609 683 0888.