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
State law that stipulates that the worth of separate accounts must be valued at current market with the exception of those separate accounts established and maintained for guaranteed ...
Property damage resulting from aircraft traveling faster than the speed of sound. Although the vibrations caused by such high speed can cause damage, it is excluded on most property forms. ...
Agreement that eliminates tariffs among the United States, Canada, and Mexico over a 15-year period. Approximately 65% of United States agricultural and industrial exports would be eligible ...
Written contract between an insured and an insurance company stating the obligations and responsibilities of each party. ...
Describing automobile accidents that are considered to be the results of the negligent acts of the insured driver and are included in the driving record of that insured. ...
Benefits provided to and obtained by those insured, while still alive. They include the annuity, cash surrender value, disability income, policy loan, and waiver of premium (WP). ...
Insurance for which (1) an application has been filed but the first premium has not yet been paid or (2) a life insurance policy that has not yet been delivered to an insured. ...
Additional amount of surplus generated by an additional amount of capital to be included in the surplus above that required by the statutory requirements. This additional surplus is ...
Bond derivatives of short-term duration whose principal or coupon value is determined by a market index. Market indexes that can be utilized include securities, commodity prices, and ...
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