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
Value of a foregone opportunity, one rejected in favor of a presumably better opportunity. For example, investment of a sum into a mutual fund instead of a variable annuity with a ...
Effective proprietor of a business. Under the tax reform act of 1986, a uniform accrual rule prevents a qualified pension plan from being weighted in favor of the substantial owner of the ...
Same as term cash surrender value: money the policyowner is entitled to receive from the insurance company upon surrendering a life insurance policy with cash value. The sum is the cash ...
Means of setting life insurance reserves based on expected mortality rates as reflected in a mortality table. ...
Addition to a workers compensation insurance policy to cover payments to injured employees who are not covered by a state's workers compensation law. This endorsement provides employees who ...
Change in the nature of an employer or other organization that sponsors a qualified pension plan. A qualified plan must guarantee vested benefits due to participants in the event of a ...
Risk that premiums and reinsurance, as well as other receivable instruments, will not be collected. ...
Employee's right to transfer pension benefit credits from a former employer to a current employer. ...
Automatic right of an insured to renew a policy until a given date or age except under stated conditions. It is extremely important for the purchaser to review the conditions for renewal in ...
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