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
Payment of that portion of the annual premium by the employee necessary to cover the PS-58 cost for that given year. Any unpaid premium balance for that particular year is paid by the ...
Measurement of how people feel about prevailing economic conditions, employment outlook, and personal finances. This index is based on statistics gathered from questionnaires mailed by the ...
Buy-sell agreements found in partnerships, sole proprietorships, and close corporations. Either the business entity or the surviving members of the business agree to buy out the interest of ...
Circumstance in which an insurance company can issue life or health insurance to an applicant based on standards set by the company. ...
Means of supplementing an executive's retirement benefits by deferring a portion of his or her current earnings. Deferring income in this manner encourages the loyalty of executives. To ...
Annuity that continues income payments as long as the annuitant lives, ceasing upon the individual's death. ...
Value of a foregone opportunity, one rejected in favor of a presumably better opportunity. For example, investment of a sum into a mutual fund instead of a variable annuity with a ...
Coverage for small groups that cannot meet the underwriting standards of true group insurance. Even though the franchise insurance covers an entire group, individual policies are written on ...
Entitlement of a pension plan participant (employee) to receive full benefits at normal retirement age, or a reduced benefit upon early retirement, whether or not the participant still ...
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