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
The term mutually exclusive defines an instance when the occurrence of a specific event makes the emergence of another event impossible. Then, two or more things can be described as ...
Endorsement to a fidelity bond or surety bond to cover losses that occurred after lapse of the discovery period of the previous bond. Coverage is limited to the amount provided by the ...
Endorsement to a property insurance policy providing all risks coverage for insured property. Excluded properties include residences, farms, and manufacturing properties. This endorsement ...
Approach in pension plan funding under which a separate account is maintained for comparing actual contributions to the plan with the minimum contributions required to meet future employee ...
Coverage in the event of property damage or destruction resulting from wrongful installation of equipment. ...
Report that an insurance company must file annually with the State Insurance Commissioner in each state in which it does business. The statement shows the current status of reserves, ...
Coverage for direct or indirect property loss that can be analyzed under the following headings: Peril a particular peril may be included or excluded. For example, the Standard Fire Policy ...
Amount of the insurance company's liabilities for claims that have not been settled. If this reserve increases significantly in relation to the company's surplus, the risk is greater for ...
Means of borrowing at no charge by a policyowner under universal life insurance policies. ...
Have a question or comment?
We're here to help.