insurance Options


Insurance option refers to an option whose strike price is the loss of a certain underwriting risk. When an insurance company buys an insurance option, when the specific underwriting loss exceeds the option exercise price, the value of the option increases with the increase in the amount of the specific underwriting loss. At this time, if the insurance company exercises the option, the option income it obtains can just offset the loss over the limit, thus protecting the solvency of the insurance company.

Characteristics of insurance options
As a financial innovation, insurance options have the following basic characteristics:
(1) Compared with catastrophe risk bonds, insurance options, especially over-the-counter insurance options, have lower costs for transferring underwriting risks. Insurance is essentially a choice or a combination of multiple choices. Using the option function to control the operating risks of insurance companies meets the needs of insurance companies for dynamic solvency.
(2) When the specified insured loss exceeds the exercise price of the option, the loss of the seller of the insured option increases with the increase in the amount of the insured loss. The premium of the insurance option received by the seller in advance is the risk compensation for the seller to bear the risk of loss of the insurance.
(3) For the seller of insurance options, there is no upper limit on the loss risk of a single insurance option. In practice, it is difficult to find a seller of a single insurance option, and it is often necessary to combine two insurance options with the same contract period but different exercise prices to reduce the risk borne by the option seller.
(4) There are two forms of insurance options: on-exchange and over-the-counter transactions. Over-the-counter transactions can easily arrange insurance option contracts suitable for insurance companies’ underwriting risk conditions based on the risks transferred by insurance companies, but such exchanges bear a greater risk of counterparty default; and on-exchange transactions must meet the standard conditions of the exchange. The risk contained in the option contract is a certain underwriting risk of the entire insurance industry, and may not be suitable for the individualized demand risk of diversified underwriting of individual insurance companies
{5} The income of insurance options, the annualized rate guarantees the static income of this income 30%-80%. The dynamic income is 100%-500%, and the dynamic income cannot be guaranteed. For details, please refer to the user agreement /agreement