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
Table used in health insurance premium rate calculations that depicts the probability that a claim will continue by time and amount. ...
Circumstance that increases the likelihood or probable severity of a loss. For example, the storing of explosives in a home basement is a hazard that increases the probability of an ...
Federal act composed of amendments to the Product Liability Risk Retention Act of 1981 and enacted to make the procedures more efficient for creating risk retention groups (capitalized, ...
Same as term Contract Holder: in insurance, individual with rightful possession of an insurance policy, usually the policyowner. ...
Agents' records showing when clients' policies expire. ...
pool that contains various reinsurance companies with each sharing reinsurance contracts on a pro rata basis as they are submitted to the pool. market that operates much like the New York ...
Coverage on an all risks basis for fur garments belonging to customers of a furrier. ...
Difference in the amount of losses between the beginning and end of a time period. ...
Exception in general liability policies for all expenses associated with product recall. In recent years, there have been increasing instances of federal recalls. In addition, there have ...
Have a question or comment?
We're here to help.