@lost com you made a post 45191009 asking what exactly institutional insurance was. Apologies for only getting back to you now, with covid easing my business is back in full swing.
You asked if institutional insurance (INIS) was simply selling futures contracts. The answer is no, while INIS is a hedge (of sorts) no underlying asset or instrument is taken ownership of. Institutional insurance acts like professional indemnity insurance would for a business but for invested money for large players. However, it is not limited to this, insurance can be claimed on acts of errors, omissions, breach of duty, breach of trust, breach of authority, misstatement or misleading statement by the financial institution while performing or failing to perform professional services.
Largely INIS is almost exclusively bought for long only portfolio's and the vast majority of INIS is bought by Australian super funds in Australia.
INIS is directly affected by large dividends being paid on that day especially by the large players such as banks and a sudden decrease can occur because of this. Insurance % also plummets with the change of the relevant futures contract. This is simply a readjustment of risk in the forward contract and not a sudden shift in immediate risk or sentiment (this can be a pit trap if not understood)
When it come to INIS, it is very complicated and the agreements between parties can vary. Largely when INIS is purchased, they have to adhere to certain standards/requirements such as amount of stocks they lend for shorts, max selling pressure and overall hedged exposure. This ensures large players cant arbitrage their insurer and the system.
INIS is a leading indicator of what big money is doing as it provides accurate sentiment and data into the day and week ahead. INIS is a more effective indicator when tracked on a weekly basis but in volatile markets, tracking it daily give you such an edge over the market.
INIS is not perfect and should be relied upon 100%. This was obvious Friday as the big players were caught off guard, under insured and this was clearly seen with the rally seen friday from 11:30am-close. The market rallied about 1.9% from the days low, buying the dip. This was almost all institutional buying and I can further confirm this from the EBMI indicator which is a propriety indicator which tracks retail and institutional buying separately.
Further, INIS has no limit, during 08 financials crisis, INIS was seen on the percentage scale at 127%. Those were very very spooky times.
Last i heard, the biggest player offering INIS is Blackrock but there are a multitude of companies offering these services and bigger players may be in the space that i am unaware of.
reach out if you got questions, happy to answer all and any!
(20min delay)