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
Coverage for golf clubs and golf equipment on an all risks basis subject to exclusions of wear and tear, war, and nuclear disaster. Location of coverage is a clubhouse locker or any other ...
Insurance company's total investments in financial securities. ...
Group of insurers or re insurers involved in joint underwriting. Members typically take predetermined shares of premiums, losses, expenses, and profits. Syndicates, more common in ...
Plan in which funds are currently allocated to purchase retirement benefits. An employee is thus assured of receiving retirement payments, even if the employer is no longer in business at ...
Coverage that goes into effect when an individual's claim reaches a specific threshold selected by the employer who has self-insurance. After this threshold is reached, the policy pays ...
Academic publication of the American risk and insurance association in which articles deal with aspects of risk, insurance, and allied fields of study. ...
Costs incurred by an insurance company other than agent commissions and taxes; that is, mainly the administrative expense of running a company. ...
Terms specifying obligations of an insured to keep a policy in force. For example, an insured must pay the premiums due; in life insurance, if death occurs, the beneficiary or the insured's ...
Individuals or organizations covered by property and liability insurance other than the named insured. For example, under the personal automobile policy (pap), other insureds under Coverage ...
Have a question or comment?
We're here to help.