Actuary

A statistician who computes insurance risks and premiums.

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Admitted Insurer

An insurance company licensed to do business in a specified jurisdiction to underwrite insurance in that jurisdiction.

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Admitted Reinsurance

Reinsurance provided by a reinsurer licensed or authorized in the jurisdiction in question. A company is “admitted” when it has been licensed and accepted by appropriate insurance governmental authorities of a state or country.

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Aggregate Limit of Liability

An insurance contract provision limiting the maximum liability of an insurer for a series of losses in a given time period. An insurance policy may have one or more aggregate limits. For example, the standard commercial general liability policy has two: the general aggregate that applies to all claims except those that fall in the products-completed operations hazard and a separate products-completed operations aggregate. Aggregate excess of loss reinsurance -A form of reinsurance that requires participation by the reinsurer when aggregate excess losses for the primary insurer exceed a certain stated retention level.

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Alien Insurer

An insurer domiciled outside the US.

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Alternative Market

A term commonly used in risk financing to refer to one of a number of risk funding techniques (e.g., self-insurance, captive) or facilities (e.g., ACE, XL) that provide coverages or services outside the realm of those provided by most traditional property and casualty insurers. The alternative market may be utilized by large corporations, for example, to provide high limits of coverage over a large self-insured retention. It may also be utilized by groups of smaller entities, for example, participating in a risk retention group or group captive program. Note that the distinction between traditional and alternative markets tends to blur over time as many traditional insurers have expanded their offering of products to encompass alternative-type funding techniques, and vice versa. Finally, retrospective funding plans, especially paid loss plans, are sometimes identified with the alternative market.

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Arbitration Clause

A clause within a reinsurance agreement providing that if the ceding company and the reinsurer fail to agree, then they select neutral arbitrators with the authority to bind both parties to a solution. Resolving differences without litigation.

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Association Captive

A captive insurance company formed and owned by a trade or professional association.

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Attachment Point

The point at which excess insurance or reinsurance limits apply. For example, a captive’s retention may be $250,000. This is the attachment point at which excess reinsurance limits would apply.

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Bordereau

A report providing premium or loss data with respect to identified specific risks, which is furnished the reinsurer by the reinsured. This report typically includes the insured’s name, premium basis, premium and the amount of coverage.

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Buffer Layer

Any layer of insurance (or risk retention) that resides between the primary (burning) layer and the excess layers. For example, if the insured’s primary CGL limit is $500,000 and its umbrella attachment point is $1 million, the layer of $500,000 excess of $500,000 coverage between the two is the buffer layer.

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Burning Cost

The premium needed to cover losses based on historical experience for a proposed reinsurance agreement.

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Cancellation

Run-off basis means that the liability of the reinsurer under policies, which became effective under the treaty prior to the cancellation date of such treaty, shall continue until the expiration date of each policy; Cut-off basis means that the liability of the reinsurer under policies, which became effective under the treaty prior to the cancellation date of such treaty, shall cease with respect to losses resulting from accidents taking place on and after said cancellation date. Usually the reinsurer will return to the company the unearned premium portfolio, unless the treaty is written on an earned premium basis.

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Capacity

The largest amount of insurance an insurer or a reinsurer is willing and able to underwrite, including the amount they retain and the amounts for which they automatically bind their reinsurer.

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Catastrophe Reinsurance

A form of reinsurance that indemnifies the ceding company for the accumulation of losses in excess of a stated sum arising from a single catastrophic event or series of events.

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Catastrophic Loss

Loss in excess of the working layer, usually of such magnitude as to be difficult to predict and therefore rarely self-insured or retained.

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Cedant

A ceding insurer or reinsurer. A ceding insurer is an insurer that underwrites and issues an original, primary policy to an insured and contractually transfers (cedes) a portion of the risk to a reinsurer. A ceding reinsurer is a reinsurer that in turn transfers (cedes) a portion of its reinsurance layer to a retrocessionnaire.

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Cede

When a company transfers risk to another company.

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Ceding Commission

A percentage of the reinsurance premium retained by a ceding company to cover its acquisition costs, and sometimes, to provide a profit.

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Ceding Company

The original or primary insurer; the insurance company that transfers its risk to a reinsurer.

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Claims Reserve

An amount of money set aside to meet future payments associated with claims incurred but not yet settled at the time of a given date.

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Claims-Made Basis

A form of reinsurance under which the date of the claim report is deemed to be the date of the loss event. Claims reported during the term of the reinsurance agreement are therefore covered, regardless of when they occurred.

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Combined Ratio

The sum of two ratios, loss and expense, calculated by dividing incurred losses and all other expenses by earned premiums. Used in both insurance and reinsurance, a combined ratio below 100 percent indicates an underwriting profit.

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Commission

The primary insurance company usually pays the reinsurer its proportion of the gross premium it receives on a risk. The reinsurer then allows the company a ceding or direct commission allowance on such gross premium received, large enough to reimburse the company for the commission paid to its agents, plus taxes and its overhead. The amount of such allowance frequently determines profit or loss to the reinsurer.

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Commutation

In the result of the termination of this contract, the Reinsurer shall be free from all further liability to the company for all loss and allocated loss expense not finally settled by the company as of the date of termination. In consideration of that release, the Reinsurer shall pay to the Company all amounts of loss and allocated loss expense due for losses finally settled.

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Commutation Clause

A clause in a reinsurance agreement, which provides for estimation, payment and complete discharge of all future obligations for reinsurance losses incurred regardless of the continuing nature of certain losses.

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Contingent Commission

In reinsurance, an allowance payable to the ceding company in addition to the normal ceding commission allowance. It is a predetermined percentage of the reinsurer’s net profits after a charge for the reinsurer’s overhead, derived from the subject treaty.

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Contributing Excess

Where there is more than one reinsurer sharing a line of insurance on a risk in excess of a specified retention, each such reinsurer shall contribute towards any excess loss in proportion to his original participation in such risk.

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Deductible

An amount agreed to between the insured and insurer whereby the insured reimburses the insurer for losses it pays within the specified deductible amount.

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Domicile

The location or venue in which a captive insurer is licensed to do business. Some factors to be considered in selecting the best domicile for a given captive include capitalization and surplus requirements, investment restrictions, income and local taxes, formation costs, acceptance by fronting insurers and reinsurers, availability of banking and other services, and proximity considerations.

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