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HAMILTON, Bermuda-A new Bermuda Commodities Exchange is expected to begin trading contracts based on catastrophic insurance risks in April, though some observers question the exchange's viability in light of the current soft market.

Initial members of the exchange, which was authorized by an act of the Bermuda Parliament, are American International Group Inc., reinsurance intermediary Guy Carpenter & Co. and Chase Manhattan Bank, all based in New York.

Additional members are being sought. Members will own the exchange.

The exchange has signed a letter of intent with the Chicago Board of Trade under which the new exchange will offer CBOT members trading privileges and receive services from the CBOT.

Members of the Bermuda exchange will be able to buy and sell contracts based on a new catastrophe index created by Guy Carpenter.

The index measures insured damage to homes in the United States caused by perils such as hurricanes, tornadoes and winter storms.

The index, which is based on the exposure and loss experience of a defined group of insurers, will be updated quarterly by a newly formed Guy Carpenter subsidiary, Hartford, Conn.-based IndexCo L.L.C.

The exchange's products will cover seven geographic areas of the United States for single events and aggregate losses during six-month periods, January to June or July to December. Contracts covering future risk periods also will be offered.

Exchange President Thomas C. Heise, former director of reinsurance and financial planning at AIG, said in a statement:

"We have created a mechanism equally attractive to institutions seeking to hedge or invest in catastrophe risk. The investors, using an index that will provide standardized, detailed information, can add a potentially lucrative new asset class to their portfolios."

But observers question whether the time is right for the exchange given the soft market.

John Berger, president and CEO at F&G Re, the Morristown, N.J.-based subsidiary of USF&G Corp., said that while it is only a matter of time before the capital markets play a more significant role in the insurance business, "I don't think it's really going to take off until insurance companies can really charge the appropriate rates for the cat exposures."

Those with cat exposures now are spending their time trying to get rid of them instead of making money out of them, Mr. Berger said.

David Koegel, senior vp at New York reinsurance intermediary Gill & Roeser Inc., commented that "anything that you call alternative catastrophe management solutions work best in a hard market environment, which we're not in right now."

"It remains to be seen whether the new index overcomes the basis risk obstacle for the end user," Mr. Koegel said. The basis risk is the difference between the losses indicated by the index and an insurer's own losses.

However, "what's refreshing about (the Exchange) to me is you have an integrated unit in insurance, banking and brokerage sectors of the business that have gotten together to do this. That might be the first of its kind," Mr. Koegel said.

Meanwhile, Menlo Park, Calif.-based Risk Management Solutions Inc. separately said it also has developed a new financial index for use by issuers and investors involved in securities trading based on insured catastrophe risk.

The index, which is called the RMS CAT Index, will be available by the start of the U.S. hurricane season in June and is expected to be used as the basis for structuring, pricing and trading both securities and certain traditional reinsurance contracts.

Rod McCormack, general manager of Risk Management Solutions' Capital Markets Group, said the RMS CAT Index, unlike similar indexes, is based on computer modeling, rather than on reported losses.