The evolving trading technology that is CATEX.
Few people will deny that the revolution in electronic trading can bring new efficiencies and cost savings to industries that require huge amounts of information to be shared and reviewed by numerous parties around the world. As a result, the new millennium is witnessing an explosion of exchanges, customised websites and web-based processing tools – with a new product launch announced almost daily to the re/insurance community. The challenge, however, is finding the solution that delivers these efficiencies whilst maintaining the relationships and customs that are a critical part of the business process.
During its six years of operation, CATEX, the global insurance exchange, has remained at the cutting edge of this process, developing and expanding an e-commerce platform that not only streamlines, but also improves and changes the way underwriters, brokers and product buyers interact.
As of February 2001, CATEX has seen over 600 transactions equating to over £600m premium bound using the exchange. All business types have been represented in these transactions and they can broadly be broken down as 60% property, 20% casualty and 20% all other classes. The current deal flow includes treaties, facultative risks and industry loss warranties (ILWs), although the composition of deals ‘live' on the system at any time will vary with renewal cycles and other seasonal factors. Parties involved in these deals have commented they have found new business partners through CATEX, sometimes within companies they already do business with. Further, they have found the distribution of information to parties around the globe more efficient and easy to manage and control. With access to such a wide variety of companies, underwriters and brokers feel that there is sometimes the opportunity to negotiate better terms and pricing for their clients.
New trading technology
Through quarterly meetings with users in both the US and Europe, CATEX is able to canvass user opinion to direct future developments and enhancements. CATEX has two major projects underway at present that will significantly alter and expand the CATEX trading proposition: cross-domain trading technology to support the customisation of a trading environment for each subscriber; and the introduction of a ‘straight-through' clearing and settlement module to complete deal processing.
The CATEX cross-domain trading system recognises the unique usage requirements of each subscribing company and supports that company's ability to maintain long-standing business relationships and partnerships. Each company operating a trader domain within the overall system can customise the trading environment to incorporate its own company brand identity and it can access the enclosed system from its own website. As a result, domain operators can offer business opportunities to their preferred clients or new contacts in the security of their own trading community. This flexible approach ensures that customer relationships built by generations of marketing effort are strengthened, rather than eroded, by the new internet distribution tools.
All company domain sites are linked back to the main CATEX board, enabling traders to move effortlessly between different company domains and the CATEX global market. The accompanying illustration shows how deals posted under several company ‘flags' appear on the screens of CATEX traders. At a time when most companies recognise the need to harness the benefits of e-commerce, these trader domains enable individual companies to bring their core business on-line using efficient, affordable internet tools. No longer limited to its role as a single, horizontal global marketplace, CATEX now operates a community of individual marketplaces as well.
CATEX is currently adding a clearing and settlement system in response to the needs of its subscribers, who have indicated they will conclude more transactions on the CATEX system if they are able to clear and settle these transactions using a convenient on-line facility. The clearing system will support trading in the CATEX global market, as well as the numerous cross-domain systems operated by subscribers from their own websites. This system is fully integrated with the front-end, ‘matching' components of the CATEX trading system and all data elements relevant to the clearing functions automatically ‘drop down' to the back-end clearing operations. The accompanying illustration shows the transaction control panel allowing traders to control deal pricing or piece together syndicated risk placements using fast and efficient server-based tools. The rapid advance of these web-enabled trading solutions will increasingly challenge traditional deal flow management systems that rely solely upon paper, fax or e-mail distribution systems.
The CATEX clearing and settlement system enables the transfer of premium and claim payments among risk-bearers and their brokers. The system contains electronic statement presentment and payment facilities, enabling users to offset two-way fund flows or manage complex, multi-party transactions. CATEX does not handle funds directly; rather it enables any parties trading on CATEX to track payment flows between their traditional banking partners. Significantly, the accounting data automatically compiled in the system's transaction ledger will assist underwriters and brokers in analysing the performance of their current programs as they enter the current renewal cycle. These data streams can also be used to run management information statistics such as underwriting loss or expense ratios or credit analyses of business partners. This system is currently under review and being beta tested by CATEX subscribers to assess its usefulness in supporting trades completed on CATEX.
History of CATEX
First operational in late 1996 to facilitate a limited set of transactions, the CATEX trading system initially envisioned an open market system where all parties had access to all postings. While many transaction types were – and still are – placed into this open market, CATEX has subsequently modified its trading model to support other ‘private' trading arrangements on its system.
At the same time, the publication of transaction reports continues, even as the overall trading model has changed. Details of completed transactions include the basic deal structure and strike price – although the identities of the parties involved are not provided. The database of over 600 completed transactions offers valuable insight into market-wide pricing of different structures and is very useful in monitoring the market.
Additional functionality introduced in the past year allows both open and anonymous posting networks so that users may elect to include, or exclude, their company and user names from deal postings.
Moreover, users can select the particular companies and individuals to view a particular posting. Document repository and management tools allow parties to add essential underwriting information to the system and then restrict its distribution to authorised underwriters or brokers.
All documents and document distributions are fully tracked by the system to provide a complete audit trail. As a result, the functionality is now flexible enough to support virtually any marketing or trading strategy a party may wish to use. The new trading technology, including the cross-domain trading system and the clearing and settlement system, continues this theme of expanding the range of trading options and strategies available to the broader CATEX trading community. This complete flexibility has proved crucial in supporting the complexity and variety of risk structures and distribution channels used by the global insurance industry.