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
Coverage in which individuals who cannot obtain conventional automobile liability insurance, usually because of adverse driving records, are placed in a residual insurance market. Insurance ...
Cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, a 10-year-old living room sofa will not be replaced at ...
Same as term Medical Examination: physical checkup required of applicants for life and/or health insurance to ascertain if they meet a company's underwriting standards or should be ...
Coverage in which one premium payment is made and the policy is fully paid up with no further premiums required. ...
Circumstance under which there is a significant deviation of the actual aggregate losses from the expected aggregate losses. For example, a hurricane is a hazard that is catastrophic in ...
Agreement by an insurance company to underwrite business submitted by an agent or broker even though that business is substandard. The object is to continue to attract profitable business ...
Requirement that the combination of medicare and the employer's plan can not be greater than the amount the employer's plan would pay without Medicare. ...
Provision of health maintenance organization (HMO) coverage. A member who is critically injured within the geographical service area of the HMO can use the nearest hospital for emergency ...
Process in life insurance by which an applicant who is uninsurable, or is a greater than average risk, seeks to obtain a policy from a company at a standard premium rate. Life insurance ...
Have a question or comment?
We're here to help.