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 life insurance, action by an insurance company canceling premium payments by an insured who has been disabled for at least six months. The policy remains in force and continues to build ...
Document used to sign up employees for plans such as salary savings, life insurance, or other employee benefits. ...
Historical record of dividends paid. ...
In many property insurance policies, a requirement that the insured carry insurance as a percentage of the total monetary value of the insured property. If this percentage is not carried, ...
Life is unpredictable so to compensate this, people have invented insurance. Insurance deals with unforeseen events. Sometimes insurance companies cover only a part of your losses and a few ...
Coverage of the hull of a ship and its tackle, passenger fittings, equipment, stores, boats, and ordnance. Coverage is provided under the following types of policies: builders risk hull ...
In insurance, fraudulent or unethical practice that is illegal under state law. States may fine or revoke the licenses of agents and brokers for unfair trade practices, including ...
Act that seals a contract and is noncancellable. surety bonds and fidelity bonds resemble insurance contracts in many ways. However, the surety, which is often an insurance company, cannot ...
Trade group of independent claims adjusters who settle claims for insurance companies on a fee basis. Some insurers use their own staff adjusters to settle a claim. Others use an ...
Have a question or comment?
We're here to help.