Catastrophe Futures
Definition of "Catastrophe futures"
Financial instrument traded on the Chicago Board of Trade (CBOT). By purchasing this future, the insurance company can hedge its risk exposure against possible future catastrophic losses. The CBOT releases a report each quarter showing on a state-by-state basis the premium amount and the line of insurance that has a catastrophic exposure. Each future contract has a stated value of $25,000 multiplied by the catastrophe ratio for that particular quarter. This multiplied result forms the basis for beginning to trade the quarterly catastrophic futures contract on the CBOT. If there is a high level of catastrophes such that the actual catastrophic loss ratio is greater than the expected catastrophic loss ratio, the futures contract increases in value and the insurance company purchaser gains the difference between the initial purchase price and the quarterly ending value of the contract. Conversely, if there is a low level of catastrophes such that the actual catastrophic loss ratio is less than the expected catastrophic loss ratio, the futures contract decreases in value and the insurance company purchaser loses the difference between the initial purchase price and the quarterly ending value of the contract.
Popular Insurance Terms
Statement by an auditor or certified public accountant indicating if a company's financial statements fairly present its true financial condition. A statement of opinion may be unqualified, ...
Group that, with the exception of the government, establishes the standards for all financial accounting and reporting for the various entities in the United States. The standards enable ...
Statutory liabilities minus the interest MAINTENANCE RESERVE minus the ASSET VALUATION RESERVE. ...
Provision that covers a business to be protected under a reinsurance treaty. The class either can appear at the beginning of the agreement or may be included in the retention and limits ...
Amount expressed as a liability on the insurance company's balance sheet for benefits owed to policy owners. These reserves must be maintained according to strict actuarial formulas as they ...
Life insurance policy given by a donor to a charity; donor only relinquishes the cash value and the cost of the premiums previously paid. The receiving charity's future value of the life ...
Time interval between the date benefits end under Social Security and the date these benefits resume. For example, survivor benefits are paid only as long as the parent (if less than age ...
Action by the owner of a cash value policy to relinquish it for its cash surrender value. Since the depression of the 1930s, companies have reserved the right to delay payment of a cash ...
Means of borrowing at no charge by a policyowner under universal life insurance policies. ...
Have a question or comment?
We're here to help.