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
Means of selling and servicing property and casualty insurance through agents who represent different companies. The agents own the records of the policies they sell. ...
Up to 1986, arrangement to provide a personal trust while the settlor is still alive. The income is paid to named children, who enjoy lower income taxes. After 10 years and a day, the ...
12-month period from the date of issue of a policy as stated in its declarations section. ...
Coverage in the event that papers of intrinsic value are damaged or destroyed. Coverage is on an all risks basis. Limits of coverage can be quite high; but the insurance company will not ...
Coverage that guarantees bond holders against default by a municipality. This form of financial guarantee was introduced in the early 1970s and became a runaway success. Municipalities ...
1970 federal law that requires shipowners to clean up or pay for the cleanup of waters polluted by discharges from their ships. Shipowners may be refused navigation privileges if they ...
Total of operating income plus realized capital gains (losses) from investment and underwriting operations minus federal income taxes. ...
Circumstance in which no agent is servicing a debit. ...
Federal legislation requiring employers with traditional health plans to also provide an HMO to its employees. The act also makes it mandatory for employers to contribute as much to the HMO ...
Have a question or comment?
We're here to help.