Insurance Futures
Futures contracts (legally binding contract that stipulates that delivery of an asset will be taken or delivery of an asset will be made at a future time at an agreed upon price at the current moment) on insurance lines to include catastrophic insurance futures, automobile insurance futures, homeowners insurance futures, and so forth, traded on the Chicago Board of Trade (CBOT). Traditionally, precious metals such as gold and silver; agriculture commodities such as cattle, corn, and soy beans; and United States Treasury issues such as bonds and bills, have all been traded on the CBOT. The aim of the transaction with these futures is to cancel the contract with a gain before the delivery of the commodity. (Who would want cattle delivered to their house?) On the other hand, the insurance futures contract concerns itself with the dollar value the market attaches to an index. In turn, this index is an expectation of how much of the premium income generated by a particular line of insurance will have to be allocated to pay off incurred losses. For example, if the automobile insurance line generates an income of $5,000,000 and the market has an expectation that 90% of that income will have to be allocated to paying off incurred losses, the market will value that futures contract at a price somewhat less than $450,000. This is because of such factors that have to be accounted for as incurred but not reported losses (IBNR).
Popular Insurance Terms
In property coverage, ratio of the amount of insurance to the value of an insured property. This ratio, multiplied by the amount of the loss, determines the indemnification payment. ...
Same as term Expected Loss: probability of loss upon which a basic premium rate is calculated. ...
Organization of property insurance companies whose goal is to prevent and uncover fraudulent automobile fire and theft claims. ...
Financial analysis method established by the national association of insurance commissioners (naic) to detect problems of property and casualty insurance companies and life and health ...
Third-in-line beneficiary to receive benefits from an insurance policy should the primary and secondary beneficiaries not survive. ...
Date of the initial annuity payment. ...
Same as term Expiration: termination date of coverage as indicated on the insurance policy. ...
Maintenance of Social Security benefits at current dollar or percentage levels. Social Security benefits are indexed to the Consumer Price Index and rise in tandem with the Index. A benefit ...
Legal capability of those involved in mutual assent of making a contract, including an insurance contract. Those who have been deemed to be incompetent to make a valid contract include ...
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