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
Time period in health insurance that must elapse between a previous illness and a current one, if the current one is to be considered a separate illness eligible for a new set of benefits. ...
Cancellation of a policy by an insurance company. ...
Process under which terminally ill people sell their life insurance policy for value thereby excluding the policy from being subject to the transfer for value under the three-year rule. ...
Single policy covering all insurable property of specified type s) at all locations of an insured business. The form is appropriate for the business that has several locations. There are ...
Insurance salesperson who contacts potential customers and handles clerical responsibilities but has no authority to make insurance contracts. ...
Premium paid by an insured business to an insurance company from which the company subtracts charges for the cost of putting a policy on its books, premium taxes, and profit. The remainder ...
Factor considered in determining amount of life insurance to purchase in order that funds will be available to pay the emergency expenses following the death of a family member. ...
Liability insurance coverage, primarily for shipyards for ocean marine risks, provided in much the same manner as umbrella liability insurance for nonmarine risks. Coverages may be provided ...
Independent, nonprofit, membership medical-surgical plan. Benefits cover expenses associated with medical and surgical procedures. The physician and/or surgeon bills the Blue Shield plan ...
Have a question or comment?
We're here to help.