Insurance Futures
Futures contracts (legally binding contract that stipulates that delivery of an asset will be taken or delivery of an asset will be made at a future time at an agreed upon price at the current moment) on insurance lines to include catastrophic insurance futures, automobile insurance futures, homeowners insurance futures, and so forth, traded on the Chicago Board of Trade (CBOT). Traditionally, precious metals such as gold and silver; agriculture commodities such as cattle, corn, and soy beans; and United States Treasury issues such as bonds and bills, have all been traded on the CBOT. The aim of the transaction with these futures is to cancel the contract with a gain before the delivery of the commodity. (Who would want cattle delivered to their house?) On the other hand, the insurance futures contract concerns itself with the dollar value the market attaches to an index. In turn, this index is an expectation of how much of the premium income generated by a particular line of insurance will have to be allocated to pay off incurred losses. For example, if the automobile insurance line generates an income of $5,000,000 and the market has an expectation that 90% of that income will have to be allocated to paying off incurred losses, the market will value that futures contract at a price somewhat less than $450,000. This is because of such factors that have to be accounted for as incurred but not reported losses (IBNR).
Popular Insurance Terms
Publication that lists premiums charged for products sold by an insurance company. A manual also has underwriting guidelines for agents. A life insurance rate manual includes minimum ...
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Professional designation conferred by the International Foundation of Employee Benefit Plans and the Wharton School of the University of Pennsylvania. In addition to professional business ...
Irrevocable living trust (rights to make any changes are forfeited by the grantor permanently) in which the grantor forfeits control of all assets placed in the trust. However, the grantor ...
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Authority that administers state laws regulating insurance and licenses insurance companies and their agents. ...
Record of losses, whether or not insured. This record is used in predicting future losses and in developing premium rates based on expectation of insured losses. ...
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Same as term Excess of Loss reinsurance: method whereby an insurer pays the amount of each claim for each risk up to a limit determined in advance and the reinsurer pays the amount of the ...
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