Derivatives
Securities that derive their value from other financial instruments that are used by the insurance company to hedge its bets on which direction the market is moving. For example, cattle futures are a simple derivative in that the cattle futures contract increases or decreases in value as future prices change for cows on the hoof. When insurance companies use derivatives, they are more likely to use them in association with currency and interest rate transactions as a means of protecting themselves against adverse moves in interest rates or foreign currency exchanges. This instrument provides a mechanism for hedging against the interest rate risks that are inherent within insurance products by pricing in that risk in advance and protecting against future negative occurrences.
Popular Insurance Terms
Type of disability income policy used to provide funds for the ongoing monthly business expenses (such as employee salaries, utility charges, rent, and equipment payment due) necessary to ...
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Liability limit on a fidelity bond or surety bond. A fixed-penalty bond is one with a fixed liability limit that the surety company will pay in the event of nonperformance. ...
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