Catastrophic Insurance Futures And Options
Definition of "Catastrophic insurance futures and options"
First exchange-traded risk management tool specifically developed for the insurance industry by the Chicago Board of Trade as a way for the primary insurance company to offset its underwriting exposures. See also futures tied to reinsurance. These contracts are designed to provide the insurance company with a hedge against underwriting losses resulting from catastrophic occurrences. The futures contract is an agreement to buy or sell a commodity or financial instrument at a set price on a given date. The option permits the owner to decide whether or not to exercise the option to buy or sell the commodity or financial instrument by the stipulated exercise date. The insurance option trading is based on the loss ratio concept (losses incurred over a stipulated time period divided by premiums earned over the same time period). For example, assume an insurance company buys an option on the loss ratio that will fall within the range of 50% to 70%. Should losses fall within that range, the insurance company would then exercise the option and sell the contract, thereby enabling the company to make a profit on the option. This profit could then be used by the company to offset losses. Should the loss portion not fall within the 50% to 70% range, the option would expire at zero value.
Popular Insurance Terms
Low-cost life insurance sold by savings banks in the states of Connecticut, Massachusetts, and New York. SBLI is a popular source of life insurance in these states for two reasons: it is ...
Amount paid to an insurer. Determination of the actual cost (not the price paid) of a life insurance policy has been widely discussed for many years in life insurance and consumer circles. ...
In an insurance policy, sentences and paragraphs describing various coverages, exclusions, duties of the insured, locations covered, and conditions that suspend or terminate coverage. ...
Federal agency that regulates the securities markets. The independent, five-member commission was created under the Securities Exchange Act of 1934 to enforce the securities act of 1933. ...
Written statement by an insurance company attesting to the powers it has vested in an agent. ...
Refusal by an insurance company to underwrite a risk. ...
Coverage that pays a fixed dollar amount of interest at regular intervals. ...
Combination of property insurance on the hull of an airplane and liability insurance in the following manner: property coverage provided on an ALL RISKS basis or on a specified perils ...
Provision in an umbrella liability insurance policy under which the policy will pay those losses that come within the retention limits of the primary policy, but the primary policy cannot ...
Have a question or comment?
We're here to help.