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
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To accept by a reinsurer, part or all of a risk transferred to it by a primary insurer or another reinsurer. ...
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Maximum amount of insurance that an insurance company will issue on a particular risk exposure. This limit is used by the insurance company to avoid having to pay for a loss on the exposure ...
Insurance for owners and operators of private, municipal, or commercial airports, as well as fixed-base operators, against claims resulting from injuries to members of the general public or ...
Insurance that covers each and every loss except for those specifically excluded. If the insurance company does not specifically exclude a particular loss, it is automatically covered. ...
Type of excess of loss reinsurance in which the insurance company (cedent) receives payments from its re-insurer in a specific pattern of payments. ...
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