Working Layer

A dollar range in which an insured or, in the case of an insurance portfolio, a group of insureds, is expected to experience a fairly high level of loss frequency. For many organizations, this loss frequency is adequate to provide some degree of statistical credibility to actuarial forecasts of the total expected losses during a specific period of time, e.g., 1 year. This is the layer typically subject to deductibles, self-insured retentions, retrospective rating, and similar programs.

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Weighted Average Loss Forecasting

A method of forecasting losses that assigns greater weight, typically to more recent years, when developing a forecast of future losses. Recent years receive a greater weight because they tend to more closely approximate current conditions (e.g., benefit levels, nature of company operations, medical expenses).

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Valuation Date

The cutoff date for adjustments made to paid claims and reserve estimates in a loss report. For example, a workers’ compensation loss report for the 1996 policy year that has a 1998 valuation date includes all claim payments and changes in loss reserves made prior to the 1998 valuation date.

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Unbundling

The practice of separating risk handling and risk funding services either from a multiline insurer or from themselves. Captives that require a “front” may also be required to purchase all or some of the services from the same insurer. This is a “bundled” program. Unbundling indicates the ability to purchase services from any vendor, not just those associated with the fronting insurer.

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Unearned Premium

That portion of the original premium that applies to the unexpired portion of risk.

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Ultimate Net Loss

The total sum which the assured, or any company as his insurer, or both, become obligated to pay either through adjudication or compromise, and usually includes hospital, medical and funeral charges and all sums paid as salaries, wages, compensation, fees, charges and law costs, premiums on attachment or appeal bonds, interest, expenses for doctors, lawyers, nurses, and investigators and other persons, and for litigation, settlement, adjustment and investigation of claims and suits which are paid as a consequence of the insured loss, excluding only the salaries of the assured’s or of any underlying insurer’s permanent employees.

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Unallocated Loss Adjustment Expense

Salaries, overhead, and other related adjustment costs not specifically allocated to the expense incurred for a particular claim.

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Treaty Reinsurance

A form of reinsurance in which the ceding company makes an agreement to cede certain classes of business to a reinsurer. The reinsurer in turn agrees to accept all business qualifying under the agreement, known as the “treaty.” Under a reinsurance treaty, the ceding company is assured that all of its risks falling within the terms of the treaty will be reinsured in accordance with treaty terms.

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Treaty

An agreement between an insurer and a reinsurer stating the types or classes of businesses that the reinsurer will accept from the ceding insurer.

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Third-party administrator (TPA)

A firm that handles various types of administrative responsibilities on a fee-for-services basis for organizations involved in cash flow programs. These responsibilities typically include claims administration, loss control, risk management information systems, and risk management consulting.

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Tax Reform Act of 1988

The major change imposed by this act affected offshore group captives in that the definition of a U.S. shareholder was changed from an ownership interest of 10 percent or more to any shareholding interest.

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Tax Reform Act of 1984

One section of this act redefined income related to the insurance of US-based risks as US-source income instead of foreign-source income. Another section made income from the insurance of related risks in foreign countries taxable in the current year. The net effect of these two changes was to eliminate most tax advantages for an offshore single parent captive.

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