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
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 ...
Procedure in which investment income is paired with each life insurance policy according to the time frame in which the premiums for that particular policy are received. ...
provision in a CASH VALUE INSURANCE policy that an insured will receive the equity in some form even if the insurance is canceled. vested benefit to a retirement plan participant. It is ...
Insurance policy underwritten and issued by a syndicate listing each risk insured by each syndicate member. ...
Coverage in a separate policy or as an endorsement to the commercial general liability (CGL) form, for insureds responsible for aircraft they do not own. If an aircraft is leased from ...
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 ...
Most generally, twisting in insurance is regarded as an unfair trade policy or practice. Twisting means a life insurance policy holder’s misrepresentation on behalf of an insurance ...
Exchange, in insurance, of an adequate consideration (premium paid by an insured) for the promise of an insurance company to pay benefits in the event the insured incurs a loss. ...
part of the Model Uniform Life and Health Insurance Policy Provisions Law giving an insurer a time limit on contesting coverage for preexisting conditions or misrepresentation. This law, ...
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