What do you get when you combine a feline friend with a weapon of war that heaves rocks long distances?
A CatEPut.
We’re sorry to our friends at PETA. And to...pretty much everyone else.
In reality, CatEPut is an insurance term that's short for Catastrophe Equity Put. The business of insurance is unforgiving in the case of a major catastrophe or significant event that fuels a large stream of claims all at once.
Insurance companies collect premiums and then set money aside to meet claims as they come in. Good budgeting and forecasting allow a company to know exactly how much money they'll have available. In the event that they might not have money to meet all of the claims in the future, they have a few different ways to manage the threat of illiquidity.
A CatEPut allows insurance companies to sell their own stock at a specific price if shares fall below a certain level. By selling their stock, they're able to access the capital needed to fulfill insurance claims, and ensure that policyholders receive their settlements on time.
Naturally, this strategy offers much-needed liquidity to the company. Unfortunately, the decision to exercise these put options will dilute ownership by calling upon capital from the holders of the buyers of those puts.
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Finance: What is Directors & Officers In...100 Views
finance a la shmoop what is directors and officers insurance coverage? well if
you ever sit on the board of a public company you'll want this or at least a [People sat at a table in a meeting]
feeling you'll sleep better at night if you have it. D&O insurance is just
insurance like any other kind of insurance only it insurers for board
stupidity or rather legal definitions of dumb things companies do that costs
shareholders money and for which the Board of Directors then gets blamed and
sued in theory if company ever lost a large lawsuit well at worst they would [Man and woman in a court]
just hand over the keys to the company itself to whoever won the lawsuit
famously warren buffett founder and CEO Berkshire Hathaway and the largest
seller of insurance in the world through Geico and other subsidiaries does not
allow his Board of Directors to carry any D&O insurance because he feels that
if the company stumbles so stupidly because of poor governance that he along [Warren Buffet appears]
with all of his boards should suffer the resulting personal bankruptcies that
would follow with all the lawsuits that would be piled on and yes sometimes
companies are so corrupt or stupid or unlucky that the damages in a lost
lawsuit exceed the value of the entire company itself and then the insurance
company has to be called to cover whatever is left in legal bills after
the company has been handed over in practice it's not quite that dramatic
companies carry D&O insurance for smaller things as well like a company
stock goes from $22 to $14 after a bad quarter and some ambulance-chasing [Company stock graph appears]
lawyer from New York is able to convince a judge that proper disclosure wasn't
made about the lack of sales in the Uzbekistan office and to make the
lawsuit go away the company held hostage pays seventeen million dollars in
damages to shareholders making a claim the key thing is the shareholders here
get like pennies a share and the lawyers get millions a typical D&O policy for a
smaller public company might carry a ten million dollar deductible so in this
case the first ten million of that seventeen comes out of the company
coffers and then the money beyond that comes from the insurance company that
wrote the coverage policy well historically the business of writing D&O
policies has been a great business for the insurance industry as tons of
premiums get paid by nervous Nelly directors who in fact never lose [Hammer nails sign to the wall]
lawsuits and well you know the gravy train keeps on graving... [Man riding a gravy train]
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What is term life insurance, and variable life insurance? Hit play to find out, and, uh...let's hope you live long enough to figure out the answers.