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
Conditions found in employee benefit plans such as pensions, under which minimum requirements, such as 20 years of service, must be met by an employee to qualify for benefits. ...
Ruling that, under current tax law, if an insurance company is to use a loss carryforward accounting adjustment, the company must first offset a net income loss in a specified time period ...
State laws based on a model law of the National Association of Insurance Commissioners (NAIC) that allow insurers to set rates independently; or adopt those rates developed by a rating ...
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Person who transfers rights under an insurance or mortgage contract. ...
Reserve at the beginning of the policy year that is equal to the terminal reserve for the preceding year plus the net level premium for the current year. ...
Type of major medical deductible amount that acts as a corridor between benefits under a basic health insurance plan and benefits under a major medical insurance plan. After benefits are ...
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