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
Bond guaranteeing that a contractor will pay fees owed for labor and materials necessary for construction of a project. If these fees are not paid, an owner who has paid the contractor ...
Privately formed insurance company whose objective is to make a profit. ...
HEALTH MAINTENANCE ORGANIZATION that restricts to a relatively small amount the number of medical providers from which an HMO member may seek services. Usually, HMO members may select the ...
In umbrella liability insurance clause that stipulates that in the event of a loss where there are no underlying policies providing coverage, the deductible will apply. ...
Dollar ceiling on a life insurance policy for applicants who are not given a medical examination. The insurer accepts a health questionnaire in the place of a physical examination. At one ...
Statement by an auditor or certified public accountant indicating if a company's financial statements fairly present its true financial condition. A statement of opinion may be unqualified, ...
Frequency and severity of accidents resulting from conditions and environment surrounding one's workplace. Occupation is an important underwriting factor when considering an applicant for ...
Expenses and damages incurred as the result of damage to a ship and its cargo and/or of taking direct action to prevent initial or further damage to the ship and its cargo. These expenses ...
Plan in which funds are currently allocated to purchase retirement benefits. An employee is thus assured of receiving retirement payments, even if the employer is no longer in business at ...
Have a question or comment?
We're here to help.