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
Recording and presentation of financial statements, such as the annual statement, by the insurance company. Financial reporting statements are used by the State Insurance Commissioner in ...
Provision of a treaty reinsurance contract stating that if an insurer fails to report a risk that would normally be covered, the re insurer is still liable for the risk. ...
Method of setting a dollar value on loss suffered by an insured. In some cases, a loss is straightforward, such as the cost of gallbladder surgery. But with burglary of a home or a traffic ...
Employee benefit plan that does not have the federal tax advantages of a qualified pension plan, in which employers receive a federal tax deduction for contributions paid into the plan on ...
Excuses raised by a defendant in a negligent suit (unintentional tort). There are three basic defenses to unintentional torts or negligence. ASSUMPTION OF RISK an individual (plaintiff), by ...
Will written totally in the handwriting of that individual whose name appears on the will. ...
Prior to 1988, right to withdraw retirement assets before age 59 1/2 without having to pay a 10% penalty under the following circumstances: medical expenses are incurred. the plan ...
Percentage return appropriated by the insurer for an immediate variable annuity when the insurer calculates the initial income payment to the annuitant. If the variable annuity's underlying ...
Clause added to an insurance policy providing waiver of premium (WP) if the premium payer dies or becomes disabled. For example, this option is available on insurance policies on a child's ...
Have a question or comment?
We're here to help.