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
Amount paid to an insurer. Determination of the actual cost (not the price paid) of a life insurance policy has been widely discussed for many years in life insurance and consumer circles. ...
Bodily injury liability and property damage liability expressed as a single sum of coverage. ...
Provision of a property policy that excludes construction that is likely to suffer a loss. For example, the roofing material used may not be able to withstand a wind force of more than 15 ...
Same as term Captive Agent: representative of a single insurer or fleet of insurers who is obliged to submit business only to that company, or at the very minimum, give that company first ...
Latin for "Let the superior reply." That is, an employer is liable for the torts of employees that result from their employment. For example, an insurance company (the master) acts through ...
Classification of ships according to their construction material, age, physical condition, propulsion type, stress tests of structure, and owners. Marine insurance rates for a particular ...
Endorsement to many commercial property insurance policies that covers office equipment. Coverage includes all equipment, whether or not owned by an insured, improvements an insured has ...
Law that provided for federal crime insurance. Because private insurance is not available for business owners and residents of certain high-crime areas, the act provides that the federal ...
Inland marine policy to cover liability for goods that belong to clients while in a mover's possession. ...
Have a question or comment?
We're here to help.