catastrophe future

A form of derivative contract whose returns are based on insurance companies' losses in the event of natural catastrophes. Introduced by the Chicago Board of Trade, the contract's returns are derived from the ratio of the insurance industry's catastrophe loss to premiums earned in some regions over a period of time. When catastrophe losses are high, the value of the contracts increases, offsetting the insurer's losses; on the other hand, when catastrophe losses are low, its value decreases and the insurer losses money on the contract.