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
Bonds that are secured by mortgage securities classified as either interest only or principal only strips (separate trading of registered interest and principal of securities). Insurance ...
Coverage if transmission equipment is damaged or destroyed on an all risks basis excluding the perils of war, wear and tear, inherent defect, and nuclear damage, consequential loss ...
Investments restricted to short-term financial instruments issued by state, city, and county governments and agencies. Interest paid by those instruments are not subject to federal income ...
Coverage for equipment normally carried from location to location by a physician or surgeon; written on an all risks basis to include supplies and scientific books used in medical practice. ...
Compensation payable to the owner of a ship detained for reasons beyond his or her control who incurs a loss of earnings because of the delay. Detainment can be caused by a delay in the ...
Type of insurance providing all risks coverage for personal property of the crew and passengers aboard a ship. Marine cargo insurance does not cover personal property of the crew and ...
Payment to a broker, master general agent, general agent, or agent on any particular line of insurance written by other agents within a particular geographical area. ...
Limited special purposes policy that provides liability and physical damage insurance for owners and operators of trucks while engaged in business. This insurance is often purchased by a ...
Enacted on April 1, 1997; provides protection against creditors for irrevocable trusts provided that the trust has a grantor who is a discretionary beneficiary. In order for the statute of ...
Have a question or comment?
We're here to help.