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
Same as term Credit Card Insurance: coverage under a homeowners insurance policy in the event that a credit card is fraudulently used or altered. Fraud includes theft and the unauthorized ...
Adjustment in property insurance to reflect increased construction costs. ...
Additional amount of surplus from an additional amount of capital necessary to act as a supplement to the cash flow in the event unforeseen contingencies occur that disrupt or impair the ...
Coverage in the event a safe of a business is forceably entered, either on or off the premises, and property is stolen from the safe. Also covered is damage to the premises during actual or ...
Rule adopted by the financial accounting standards board that requires that obligations owed to re-insurers under multiyear insurance contracts must be reported as liabilities by the ceding ...
Endorsement to a property insurance policy providing all risks coverage for insured property. Excluded properties include residences, farms, and manufacturing properties. This endorsement ...
Total premiums generated from all policies written by an insurance company within a given period of time. ...
Provision in a life insurance policy that protects its proceeds from the beneficiary's creditors. On payment, the beneficiary loses the protection of the spendthrift trust clause and the ...
Element used to adjust losses to reflect the incurred but not reported claim (IBNR) under the retrospective method of rating. ...
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