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
Same as term Cancel: termination of a policy. Contract may be terminated by an insured or insurer as stated in the policy. If the insurance company cancels a policy, any unearned premiums ...
Same as term agent of record: individual who has a contractual agreement with a policyowner. The agent of record has a legal right to commissions from the insurance policy. ...
Coverage for bodily injury and property damage liability resulting from ownership, use, and/or maintenance of the insured business's premises, completed operations, and products. Covers ...
Attachment to a general liability policy thereby eliminating the exclusion of property under the care, custody, and/or control of an insured. Without this endorsement there would be no ...
Coverage during the transfer of securities and monies, precious metals, and other specified types of valuables by armored guard services. Policies are specifically designed to fit an ...
Automatic protection for an insurer against losses that exceed a predetermined loss limit. This reinsurance may be subdivided into three primary types: excess of loss, catastrophe loss, and ...
Omissions from coverage found in products liability insurance. The policy does not provide coverage if the business manufactures a product that does not meet the level of performance as ...
Protects a cedent against an aggregate amount of claims over a period, in excess of a specified percentage of the earned premium income. Stop loss reinsurance does not cover individual ...
Grouping of applicants for life insurance according to expected mortality, so as to produce an underwriting classification in which the spread between health of the worst and best applicant ...
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