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
Entitlement to pension benefits without a reduction, even though an employee is no longer in the service of an employer at retirement. For example, under the ten year vesting rule, an ...
Policy that comes into existence or adjusts the amount of coverage to provide protection for newly acquired or increasing values of an insured's real or personal property. ...
Eligible employees reimbursed from the employer for family health care expenses paid by those employees to include health insurance premiums, disability income insurance premiums, and ...
Professional designation awarded by the American College. In addition to professional business experience in financial planning, recipients are required to pass national examinations in ...
Organization that underwrites insurance policies. There are two principal types of insurance companies: mutual and stock. A mutual company is owned by its policy owners, who elect a board ...
Quantitative measurement of the total costs (losses, risk control costs, risk financing costs, and administration costs) associated with the risk management function, as compared to a ...
Charge against a business firm in a product liability insurance lawsuit. Manufacturers have been held responsible for their products. When consumers become injured while operating a ...
Equity of shareholders of a stock insurance company. The company's capital and surplus are measured by the difference between its assets minus its liabilities. This value protects the ...
Person other than the annuitant as designated by the policyholder on whose life expectancy the annuity payment is also based. ...
Have a question or comment?
We're here to help.