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
Professional designation earned after the successful completion of six national examinations given by the insurance institute of America (IIA). Covers such areas of expertise as premium ...
Protection for all classes of business including automobile, fire, general liability, homeowners, multiple peril, burglary, and glass, by combining the contracts for these classes of ...
Liability incurred by a parent by reason of a tort committed by his or her minor child. ...
Coverage in the event that the negligent acts or omissions of an insured result in damage or destruction to another's property. Coverage can be purchased with bodily injury liability under ...
Same as term Annuity: contract sold by insurance companies that pays a monthly (or quarterly, semiannual, or annual) income benefit for the life of a person (the annuitant), for the lives ...
Type of business interruption insurance policy that provides a specific daily dollar amount benefit to the business owner for each day the business is unable to resume normal business ...
Same as term Excess of Loss reinsurance: method whereby an insurer pays the amount of each claim for each risk up to a limit determined in advance and the reinsurer pays the amount of the ...
a large number of homogeneous exposures (in order for the deviation of actual losses from expected losses to approach zero, and thecreditability of the prediction to approach one). loss ...
In property insurance, percentages of basic coverages which may be applied to provide coverage for other real and personal property. For example, under the homeowners INSURANCE POLICY ...
Have a question or comment?
We're here to help.