on which investors can hedge and invest in catastrophe insurance risk, broke ground yesterday with its first trades.

Already the opening of the exchange has sparked interest in the US. A data company in the industry sees a secondary business in providing advice to insurance clients about the options contracts on offer here.

AIG Insurance Commodities Trading Ltd., Guy Carpenter Advisors, Inc., Clement S. Dwyer Jr. & Aaron B. Stern, and Stockton Reinsurance Investments Ltd. made the first trades on the exchange.

July 1998 Southeast single event 400 at a price of $250, and July 1998 Florida single event 150 at a price of $680 options were traded yesterday. The options are offered in $5,000 lots. These were probably traded as a courtesy among members to open the exchange. Exchange president Tom Heise won't reveal volumes. He expects volume will occur in spurts such as during hurricane or tornado season, or during insurance contract renewal periods such as in January.

What the July 1998 Southeast option trade means is the investor has lodged $5,000 with the Bermuda Commodities Clearing House, the entity which guarantees the money between the two trading parties.

The seller of the option, an insurer, paid the investor a premium of $250 per contract. That's a five percent return on the $5,000 for the investor if he doesn't lose the whole thing. The investor will get the $5,000 back if the indes doesn't reach 400.

The loss could happen if from July 1 to December 31, 1998 the Guy Carpenter Catastrophe Index for the Southeast region hits a level of 400 or higher. It would do so if a hurricane hit the region and caused about $34 billion in insured damage. Not a likely event, but in the realm of chance, it's still a bet. The index is designed to estimate the amount of insured damage to homes in the US from hurricanes and other atmospheric perils based on a loss-to-value ratio. Trading parties on the BCOE determine a price, time and index strike value when bartering options. By way of comparison Hurricane Andrew, the most damaging US catastrophe to date, caused about $16.5 billion in losses to the industry. Still insurers are getting nervous about predictions of a $50 to $100 billion event occuring.

The BCOE is betting the nervous will see catastrophe options as one way to hedge their risks in case one or a series of hurricanes or earthquake strike an area.

The options are also another way for insurers to raise underwriting capacity through use of the financial markets. They'll simply have more of a type of money behind them, depending on how much investors are willing to put up.

While the BCOE's principals have lined up some heavyweights in the industry to back the venture, others are also keen to make some money on the strategy.

US-based Insurance Services Office, Inc., in industry organised data service company, has announced it will now help insurers appraise the effects of buying catastrophe options on the BCOE.

Insurance Services is combining its actuarial and data-collection expertise with predictions by two catastrophe-simulation modelers in giving advice on the options.

In an interview with The Royal Gazette the company's vice president David Ostwald said the securitisation of catastrophe risk is likely to make a substantial impact on the industry.

"There is a high degree of interest among insurers, large and small, in the Commodities Exchange,'' he said. "This represents one of the most sophisticated approaches to securitising risk. It's an important new way for insurers and investors to spread their risks too the broader market.'' The company has $250 million in annual revenue and 2,100 employees. It's main business is calculating the aggregate premiums and losses of US insurers and their estimated future claims. So the extension of its consultancy services is in line with its expertise in data collection and analysis.