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
Form of insurance covering liability arising out of the provision or nonprovision of hospital services so as to have an action brought against the hospital for malpractice, error, or ...
Association comprised of 59 state and territorial emergency management directors having as its purpose the reduction of losses from natural disasters. The respective directors work directly ...
Feature of life and health insurance policies that stipulates that the policy represents the whole agreement between the insurance company and the insured, and that there are no other ...
Act in which volunteers of nonprofit organizations and government entities do not incur liability if they are acting within the scope of their volunteer activities, their actions do not ...
Frequency of premium payment; for example annually, semiannually, quarterly, or monthly. ...
Fairness (as an objective of insurance pricing). Premium rates are set according to expectation of loss among a classification of policy owners. The premise is that all insureds with the ...
Choice an employee can make of receiving higher private pension benefits prior to eligibility for Social Security, and lower pension benefits thereafter. For example, employees taking early ...
Annuity that continues income payments as long as one annuitant, out of two or more annuitants, remains alive. For example, a married couple would receive an income for as long as both ...
Insurance contract that cannot be cancelled by the insurance company. Since the insurance policy is a UNILATERAL CONTRACT instead of a BILATERAL CONTRACT, the INSURED may cancel at will. ...
Have a question or comment?
We're here to help.