Catastrophic Insurance Futures And Options
Definition of "Catastrophic insurance futures and options"
First exchange-traded risk management tool specifically developed for the insurance industry by the Chicago Board of Trade as a way for the primary insurance company to offset its underwriting exposures. See also futures tied to reinsurance. These contracts are designed to provide the insurance company with a hedge against underwriting losses resulting from catastrophic occurrences. The futures contract is an agreement to buy or sell a commodity or financial instrument at a set price on a given date. The option permits the owner to decide whether or not to exercise the option to buy or sell the commodity or financial instrument by the stipulated exercise date. The insurance option trading is based on the loss ratio concept (losses incurred over a stipulated time period divided by premiums earned over the same time period). For example, assume an insurance company buys an option on the loss ratio that will fall within the range of 50% to 70%. Should losses fall within that range, the insurance company would then exercise the option and sell the contract, thereby enabling the company to make a profit on the option. This profit could then be used by the company to offset losses. Should the loss portion not fall within the 50% to 70% range, the option would expire at zero value.
Popular Insurance Terms
Coverage in the event of damage or destruction resulting from collision by a vessel or high waves. Excluded are fire, lightning, windstorm, earthquake, and explosion, since these perils are ...
Executive of Travelers Insurance Company who developed the domino theory of accident causation by studying over 75,000 industrial accidents and concluding that most accidents would be ...
Annuity payments that continue for the life of the annuitant. ...
Person who engages an agent or broker for advice and possible purchase of insurance. ...
When we are young, we usually don’t take our retirement seriously and don’t even know the definition of an Individual Retirement Account (IRA). We become more preoccupied with ...
Coverage that is renewable at the option of the insured, who is not required to take a medical examination. Regardless of physical condition, the insured must be allowed to renew the policy ...
Endorsement to the special multiperil insurance (smp) policy that provides all risks damage coverage for real property. This special form provides only minimum cover, leaving the option for ...
Tax assessed by the states as a payroll tax on employers to pay for unemployment compensation ...
Estimate of the funds necessary to maintain the life-style of a family after the death of the wage earner. ...
Have a question or comment?
We're here to help.