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
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Expectation of a monetary loss that can be covered by insurance. Insurable interest varies according to the type of policy. These relationships give rise to insurable interest: owner of ...
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Coverage for damage or destruction of property with relatively high monetary value, such as stock brokerage house and bank shipments, which involve the transfer of securities and monies to ...
Benefit in disability income insurance whereby an injured or ill wage earner receives a monthly income payment to replace a percentage of his or her lost earnings. ...
Shipper's policies covering one cargo exposure or all cargo exposures by sea on all risks basis. Exclusions include war, nuclear disaster, wear and tear, dampness, mold, losses due to delay ...
Excess of the sales price of an asset over its book value. Listed as part of the Annual Report in the summary of the surplus account and/or in the Summary of Operations. ...
Total amount of insurance coverage available for an insured. ...
(land and attachments) and personal (movable effects not attached to land). Both classifications of property give rise to an insurable interest. ...
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