Derivatives
Definition of "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
Act passed by Congress in 1991, the purpose of which is to make it easier for consumers to compare deposit accounts among savings institutions (SI). Some of the act's more important ...
Property owned by two or more parties in such a way that at the death of one, the survivors retain complete ownership of the property. ...
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Element of a life insurance policy permitting the policy owner to change a beneficiary as frequently as desired unless the beneficiary has been designated as irrevocable. Here the written ...
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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 ...
Agreement among insurance companies through which a multinational employer is permitted to purchase employee benefits coverage's for two or more of its overseas subsidiaries under a single ...
Earned premium minus incurred losses plus loss adjustment expense plus other incurred underwriting expenses plus policy owner dividends. This income is generated from the insurance business ...
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