Derivatives
Definition of "Derivatives"
Securities that derive their value from other financial instruments that are used by the insurance company to hedge its bets on which direction the market is moving. For example, cattle futures are a simple derivative in that the cattle futures contract increases or decreases in value as future prices change for cows on the hoof. When insurance companies use derivatives, they are more likely to use them in association with currency and interest rate transactions as a means of protecting themselves against adverse moves in interest rates or foreign currency exchanges. This instrument provides a mechanism for hedging against the interest rate risks that are inherent within insurance products by pricing in that risk in advance and protecting against future negative occurrences.
Popular Insurance Terms
Method of depreciating an asset in which its useful life is divided into an appropriate number of years (or other periods), the final salvage value is deducted, and the asset is written off ...
Payment by the insurance company to the insured for the actual expenses incurred by the insured, such as medical expenses. ...
Contributions to a pension plan on a fixed basis according to a formula, with variable benefits. Contributions can be made under an allocated funding instrument (paid to an insurance ...
Transaction by a tax-exempt organization with a person from inside the organization (disqualified person) that provides an economic benefit to that person that is in excess of the value of ...
Type of inland marine insurance that provides coverage for jewels, watches, gold, silver, platinum, pearls, precious and semiprecious stones. Property can be owned by the insured jeweler, ...
Modification of the major medical insurance policy that provides coverage for the terminating employee who otherwise would not be covered by a health insurance policy. Usually, this ...
Assembly of people formed only for obtaining group insurance. Such a group is uninsurable and violates underwriting principles concerning group insurance. ...
Real property (structure (s) attached to the land) that is occupied and/or is under the care, custody, or control of an individual, individuals, or an organization for which an insurance ...
State law that stipulates the establishment of required reserves for claims made basis liability coverage contracts, removes the excess statutory reserves, and directs that all amounts that ...
Have a question or comment?
We're here to help.