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HAMILTON, Bermuda-A new Bermuda Commodities Exchange, originally set to begin trading contracts based on catastrophe insurance risks in April, now is scheduled to begin next month, its president says.

Exchange President Thomas C. Heise said the delay is the result of a move to expand the scope of the exchange's membership (BI, March 17). The list of potential members "has expanded dramatically since last March" to "include a lot of companies in foreign jurisdictions" outside Bermuda that expressed interest in the exchange, said Mr. Heise. "Initially, we were going to keep it very local to start with," said Mr. Heise, who noted an offering soliciting members has just been sent out.

The exchange hopes to have up to 100 members when it begins trading next month, said Mr. Heise, who would not provide additional details about the offering.

Initial members of the exchange, which was authorized by a 1996 act of the Bermuda Parliament, are expected to include affiliates of American International Group Inc., reinsurance intermediary Guy Carpenter & Co. Inc. and Chase Manhattan Bank, all based in New York. Additional members are expected to be primarily insurers, reinsurers, commercial and investment banks and other financial institutions.

The Exchange initially will offer options covering six-month periods, January through June and July through December, for several regions: Florida, Northeast, Southeast, Gulf Area, Midwest and National. The contracts will cover damage from a single event or aggregate damage over the covered period.

Under Bermuda Commodities Exchange procedures, an option buyer, or'holder," will pay a premium to a seller, or "writer." The writer will be liable for payment of a specified amount if losses in the particular region and time period from catastrophes-including hurricanes, tornadoes and windstorms-exceed a specified loss-to-value ratio. There may be fluctuations in prices of particular options contracts as trading takes place during the risk period.

The options will be based on a loss-to-value index compiled and updated by IndexCo. L.L.C., a Guy Carpenter affiliate in Hartford, Conn. The index is designed to measure the amount of insured damage to homes in the United States from atmospheric perils.

The exchange has signed a letter of intent with the Chicago Board of Trade under which it also will offer CBOT members trading privileges and receive services from the CBOT, but no final contract between the exchanges has been signed. The CBOT already offers trading in catastrophe insurance options.

"We've been negotiating with them now for five or six months," said Mr. Heise. "I'm still hopeful that we will be able to reach an agreement."

Observers have questioned whether in light of the soft market this is an appropriate time to start the Bermuda exchange. However, Mr. Heise pointed to the tremendous investor interest generated by the $477 million catastrophe bond issue that will provide United Services Automobile Assn. with a high-level reinsurance layer for East Cost hurricane risks (BI, June 23).

That deal "clearly demonstrates the eagerness of investors to buy cat risk even at today's current soft market prices," said Mr. Heise