Dear friend,

You’d think with the renewal season in full cry and Christmas just over a week away, news would dry up — but quite the contrary – it’s been a busy old week!

Gallagher Re have teamed up with Nymex

(which these days includes the Chicago Mercantile Exchange - CME) and PCS to produce tradable US property damage futures and options. Now that is something we’ve been advocating for quite some time.

If the industry is serious about tapping capital markets, it needs to present them with instruments they are familiar with.

It’s no good telling every Hedge Fund manager that there’s good money to be made in the Cat markets right now if their only way of accessing them directly is to invest in a sidecar with a minimum three-year timeframe.

A lot of these guys want instant action. They want to call their broker and buy and sell in the blink of an eye, not call their travel agent to book a two-week trip to Bermuda (with their whole legal department in tow) every time they want to go long or short!

Well done to Gallaghers for making this coup — I bet the other reinsurance brokers are going incandescent with jealous rage!

Of course, the CBOT Cat contracts flopped back in the early nineties, but the world has changed fundamentally since then— for example Hedge Funds only handled a tiny proportion of assets back then — these days they’re huge.

We have been advocating the development of a futures and options market for quite some time (albeit options based on an insurance pricing index rather than actual damage) — check out an article by our old friend Robert Miller that we ran back in September 2005.

Trading should start in mind-January and we wish them every success.

It’s just a shame that they are too late to scoop innovation of the year at our 2006 awards!