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
Process whereby a ceding company resumes the insuring of a portfolio of insurance policies which it had previously CEDED to a REINSURER. ...
Policy similar to that of an individual universal life insurance policy except that the coverage is provided (up to a limit) without the requirement of the submission of evidence of ...
Means of borrowing at no charge by a policyowner under universal life insurance policies. ...
Money the policyowner is entitled to receive from the insurance company upon surrendering a life insurance policy with cash value. The sum is the cash value stated in the money the ...
Arrangement by which two or more employers form a coalition to offer a health plan to their employees. The purpose of the coalition is not to purchase health insurance. The MEWAs can be ...
Probability of loss upon which a basic premium rate is calculated. ...
Technique of loss control and reduction of losses in insurance. Supporters of this method believe that the safety attitudes of individuals determine the safety precautions they take. The ...
Insurance for accountants covering liability lawsuits arising from their professional activities. For example, an investor bases a buying decision on the balance sheet of a company's annual ...
Method of calculating the primary insurance amount (PIA) for Social Security benefits. Employees' covered monthly earnings are adjusted to reflect changes in the national average annual ...
Have a question or comment?
We're here to help.