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
Deductible amount between a basic health insurance plan and major medical insurance. ...
Professional designation earned after the successful completion of four national examinations given by the insurance institute of America (IIA). Covers such areas of expertise as principles ...
Paid-in surplus, revaluation surplus, and donated surplus. This surplus includes all sources of surplus with the exception of earned surplus. ...
Arrangement between the buyer and the seller in which there is a mutual agreement to buy or sell a security at a given price at a stipulated future date. These contracts are effected on a ...
Same as term Ceding Company: insurance company that transfers a risk to a reinsurance company. ...
Modifications of the single premium deffered annuity, which usually guarantees at a minimum a return of a stipulated amount (usually at least 90% of the single premium accumulated at the ...
Premium income divided by the surplus account. ...
Required reserve to satisfy all life insurance policy obligations and expenses according to the appointed actuary's best estimate assumptions. Numerous interest rate scenarios are tested ...
Choice of a lump sum payment for an injury incurred instead of a series of periodic payments, available under a health insurance policy. ...
Have a question or comment?
We're here to help.