ISDA standard seen fostering catastrophe swaps

LONDON, May 21 (Reuters) - New standardised documentation for catastrophe swaps, published earlier this week, should improve liquidity and transparency and encourage growth in the market, market participants said on Thursday.

Al Selius, head of insurance-linked securities trading at Swiss Re (RUKN.VX: Quote, Profile, Research), the world's second largest reinsurer, said he was "excited and optimistic" the standardised document would boost liquidity and trading volumes for catastrophe swaps.

"Now that every term doesn't have to be scrutinised each time you do a contract, the speed of execution of cat swaps should increase," Selius said.

"It also gives the ability to assign contracts to others to get out of them, which will hopefully increase liquidity and encourage new entrants to the market."

The International Swaps and Derivatives Association's (ISDA) U.S. Wind Event Confirmation template standardises natural catastrophe swaps referencing U.S. windstorms.

The template aims to reduce ambiguity in natural catastrophe swap contracts by providing standard definitions for key terms and a menu of standardised choices for U.S. "wind events".

Catastrophe swaps are financial instruments that allow insurers to transfer to a counterparty potential losses from a specified catastrophic event.

The ISDA document, which is based on an internal template used by Swiss Re, had taken more than a year to agree, Selius said.

"It took longer than I would have thought but we're through the process and now we're going to move on to other areas of catastrophes such as European windstorm and California earthquake. This is the first step, hopefully, in many standardised contracts."