A new collaboration between Interactive Brokers' ForecastEx platform and Reask, an expert in catastrophe modeling and climate analytics, is set to transform the market for live hurricane contracts. Under this arrangement, Reask will supply critical settlement data, enabling capital providers to dynamically manage their exposure to catastrophe risks.
Interactive Brokers' ForecastEx system offers investors the ability to trade 'yes' or 'no' contracts linked to specific outcomes of various indicators. The platform also features prediction markets, which Interactive Brokers anticipates will play an increasingly vital role in future risk hedging and transfer activities. Notably, Tropical Storm Isaias, the initial hurricane of the 2026 Atlantic season, is expected to be among the first significant storms for which these innovative hurricane contracts will be traded.
Interactive Brokers' ForecastEx has launched a new category of tradeable event contracts, known as live hurricane contracts. These contracts are linked to specific wind gusts generated by named storms at defined coastal locations. Reask's Metryc product will serve as the basis for settling these contracts, while its LiveCyc forecasts will be accessible on the ForecastEx platform, providing a shared reference for fair market value. Unlike traditional bilateral agreements like Industry Loss Warranties (ILWs) and short-dated retrocession, which often involve high basis risk and negotiated pricing, the new live hurricane contracts on ForecastEx offer an exchange-traded, continuously priced alternative, significantly reducing transaction costs and providing transparent price signals. Reask further highlighted the limitations of previous market attempts, such as the Chicago Mercantile Exchange's storm-wide index hurricane contracts, which faced challenges due to high basis risk and reduced storm activity. While catastrophe bonds offer some liquidity during live events, their high volatility and lack of objective pricing metrics often hinder reliable real-time trading.
These new contracts are meticulously defined across 163 coastal locations spanning the US Gulf and Atlantic coasts, the Caribbean, Mexico, Central America, and northern South America. Each location features a 10 km radius settlement footprint, evaluated at a 1 km spatial resolution. Contracts become active when forecast probabilities of wind gusts reaching 70 mph or more exceed approximately 5%, and they remain open across a range of gust thresholds from 70 mph to 200 mph in 10 mph increments. An additional contract type determines the location with the highest wind gust intensity during an event, facilitating continuous trading throughout the storm and settling within days of its conclusion. Reask emphasized that settling wind-gust contracts necessitates defined and verifiable peak-gust measurements. The company explained that its Metryc product addresses measurement challenges by reconstructing peak three-second gust wind speeds at 1 km resolution for all affected locations, using observed storm tracks and intensities combined with physical wind-field interaction models. This methodology provides a standardized, location-indexed measurement, independent of physical instrument presence, and is widely applied in parametric insurance products. Reask's LiveCyc product further provides probabilistic forecasts of wind-gust threshold exceedance, updated every six hours, which can serve as a fundamental reference value for contract pricing, with market prices expected to diverge based on factors such as risk compensation and capital costs.
This innovative approach offers a promising future for the risk transfer market. Once trading volumes increase to levels comparable to existing live catastrophe risk transfer markets, these live hurricane contracts could provide reinsurers with an unprecedented capability to enter and exit live catastrophe exposure efficiently and in real time. The continuous, exchange-traded pricing could also extend live catastrophe risk transfer to a broader base of capital providers, offering new tools for structuring bespoke risk transfer products. Although current trading volumes may not yet allow reinsurers to significantly offload live exposure, the immediate benefit lies in enhanced price visibility. The publicly observable, continuously updated price for wind-gust exceedance establishes a crucial benchmark for evaluating bilateral quotes, which historically lacked external reference points. For ILS funds, these exchange-traded reference prices for specific risks and locations offer a partial basis for interim valuations, filling a critical gap between major storms or annual renewals. Furthermore, the continuous updating of contract prices in response to new information suggests that these markets could incorporate data faster than traditional forecast products, potentially serving as a supplementary indicator of storm risk alongside existing forecast sources over multiple seasons, leading to more informed decision-making and robust risk management strategies.
