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
Practice of selling those securities whose price has increased and retaining those securities whose price has declined. The securities that have declined are listed at their amortized value ...
Existence of a financial need which permits in-service withdrawals of funds from a section 401 (k) plan or a section 403 (b) plan to pay tuition for post secondary education for a ...
Provision in almost all excess of loss reinsurance contracts under which payment is made by a re insurer of each and every loss incurred by the cedent in excess of a specified sum, up to a ...
Programs that deal with troublesome personal and family problems such as alcohol and drug abuse, marital problems, workplace violence, compulsive gambling, child care, legal problems, and ...
System whereby the re insurer shares losses in the same proportion as it shares premium and policy amounts. Proportional reinsurance may be divided into the two basic forms: automatic ...
Health insurance that provides income payments to the insured wage earner when income is interrupted or terminated because of illness, sickness, or accident. Definitions under this ...
Detailed descriptive list made available to the survivor (s) of the insured showing: attorney, accountant, insurance agent, and location of important documents such as wills, power of ...
Insurance company that sells property and casualty insurance only to industrial insureds. These companies are separately licensed and separately capitalized to market insurance to cover the ...
Insurance that follows an insured property. ...
Have a question or comment?
We're here to help.