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
Form of accident insurance that indemnifies or pays a stated benefit to insured or his/her beneficiary in the event of bodily injury or death due to accidental means (other than natural ...
Agent who is licensed and who markets and services insurance policies in a state in which he or she is not domiciled. ...
Additional amount of life insurance above that provided by the employee benefit plan (standard group life plan) that may be chosen by the employee. A limit is usually placed on this maximum ...
Event that results in bodily injury and/or property damage to a third party. A clause that is common to most liability insurance policies stipulates that all bodily injuries and/or property ...
In many health insurance and dental insurance policies, stipulation that, if the estimated cost of a recommended plan of treatment exceeds a specified sum, the insured must submit the plan ...
Conversion of form of ownership from a mutual insurance company to a stock insurance company. Interest in demutualization of life insurance companies surged in the early 1980s among many ...
Arrangement by which the insured agrees to incur a given degree of variability in the ultimate total costs associated with financing its losses. ...
in a life insurance policy, benefit in addition to the death benefit paid to the beneficiary, should death occur due to an accident. In double indemnity, twice the face value of the policy ...
Company formed and operated without the profit motive as its normal business objective; normally sells and services health insurance policies. ...
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