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
Group that advises on employee benefit plans as to amount of benefits to be paid, how benefits are to be financed, and how employees are to qualify for benefits (vesting requirements). An ...
Automatic right of an insured to renew a policy until a given date or age except under stated conditions. It is extremely important for the purchaser to review the conditions for renewal in ...
Termination of life. A death certificate is required by a life insurance company for a beneficiary to receive the death payment. ...
Total limit of coverage under all policies applicable to the covered loss for which an insured can be indemnified. For example, if two health insurance policies are in force on the same ...
Measurement of how people feel about prevailing economic conditions, employment outlook, and personal finances. This index is based on statistics gathered from questionnaires mailed by the ...
Structured product designed to meet specific needs of the insured that may involve any of the following funding arrangements: loss portfolio transfers in which the self-insurer transfers ...
Retirement payments to be credited for future years of service with an employer. ...
Sum of insurance provided by a policy at death or maturity. ...
Insurance company that transfers a risk to a reinsurance company. ...
Have a question or comment?
We're here to help.