Glossary

More in Insurance Term

• Accident Year
  The annual calendar accounting period in which loss events occurred, regardless of when the losses are actually reported, booked or paid.
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• Admitted Insurer
  A company licensed to transact insurance business within a state.
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• Annuity
  A contract that pays a periodic benefit over the remaining life of a person (the annuitant), the lives of two or more persons or for a specified period of time.
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• Assigned Risk Pools
  Reinsurance pools which cover risks for those unable to purchase insurance in the voluntary market. Possible reasons for this inability include the risk being too great or the profit being too small under the required insurance rate structure. The costs of the risks associated with these pools are charged back to insurance carriers in proportion to their direct writings.
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• Assumed Reinsurance
  Insurance risks acquired from a ceding company.
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• Average Value Analysis
  An actuarial method used to estimate ultimate losses for a given cohort of claims such as an accident year/product line component. If the paid-to-date losses are then subtracted from the estimated ultimate losses, the result is an indication of the unpaid losses. The basic premise of the method is that average claim values are stable and predictable over time for a particular cohort of claims. The
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• Bornhuetter-Ferguson Method
  An actuarial method to estimate ultimate losses for a given cohort of claims such as an accident year/product line component. If the paid-to-date losses are then subtracted from the estimated ultimate losses, the result is an indication of the outstanding losses. The basic premise of the method is that the historical ratio of additional claim activity to earned premium for a given product line com
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• Capacity Insurance
  The percentage of surplus, or the dollar amount of exposure, that an insurer or reinsurer is willing or able to place at risk. Capacity may apply to a single risk, a program, a line of business or an entire book of business. Capacity may be constrained by legal restrictions, corporate restrictions or indirect restrictions.
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• Captive
  A closely-held insurance company whose primary purpose is to provide insurance coverage to the companys owners or their affiliates.
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• Case Incurred Development Method
  An actuarial method to estimate ultimate losses for a given cohort of claims such as an accident year/product line component. If the paid-to-date losses are then subtracted from the estimated ultimate losses, the result is an indication of the unpaid losses.
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• Case Reserves
  Claim department estimates of anticipated future payments to be made on each specific individual reported claim.
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• Casualty Insurance
  Insurance which is primarily concerned with the losses caused by injuries to third persons, i.e., not the insured, and the legal liability imposed on the insured resulting therefrom. It includes, but is not limited to, employers liability, workers compensation, public liability, automobile liability, personal liability and aviation liability insurance. It excludes certain types of losses that by l
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• Catastrophe Insurance
  A severe loss, resulting from natural and man-made events, including risks such as fire, earthquake, windstorm, explosion, terrorism and other similar events. Each catastrophe has unique characteristics. Catastrophes are not predictable as to timing or amount in advance, and therefore, their effects are not included in earnings or claims and claim adjustment expense reserves prior to occurrence. A
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• Catastrophe Loss
  Loss and directly identified loss adjustment expenses from catastrophes.
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• Catastrophe Reinsurance
  A form of excess of loss reinsurance which, subject to a specified limit, indemnifies the ceding company for the amount of loss in excess of a specified retention with respect to an accumulation of losses resulting from a catastrophic event. The actual reinsurance document is called a "catastrophe cover." These reinsurance contracts are typically designed to cover property insurance losses but can
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• Cede, Ceding Company
  When an insurer reinsures its liability with another insurer or a "cession," it "cedes" business and is referred to as the "ceding company."
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• Ceded Reinsurance
  Insurance risks transferred to another company as reinsurance.
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• Claim
  Request by an insured for indemnification by an insurance company for loss incurred from an insured peril.
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• Claims And Claim Adjustment Expenses
  The expenses of settling claims, including legal and other fees and the portion of general expenses allocated to claim settlement costs.
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• Cohort
  A group of items or individuals that share a particular statistical or demographic characteristic. For example, all claims for a given product in a given market for a given accident year would represent a cohort of claims.
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• Commercial Multi Peril Policies
  Refers to policies which cover both property and third-party liability exposures.
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• Commutation Agreement
  An agreement between a reinsurer and a ceding company whereby the reinsurer pays an agreed-upon amount in exchange for a complete discharge of all obligations, including future obligations, between the parties for reinsurance losses incurred.
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• Deductible
  The amount of loss that an insured retains.
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• Deferred Acquisition Costs
  Primarily commissions and premium-related taxes that vary with, and are primarily related to, the production of new contracts and are deferred and amortized to achieve a matching of revenues and expenses when reported in financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP).
  Insurance Term
• Deficiency
  With regard to reserves for a given liability, a deficiency exists when it is estimated or determined that the reserves are insufficient to pay the ultimate settlement value of the related liabilities. Where the deficiency is the result of an estimate, the estimated amount of deficiency (or even the finding of whether or not a deficiency exists) may change as new information becomes available.
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• Direct Written Premiums
  The amounts charged by an insurer to insureds in exchange for coverages provided in accordance with the terms of an insurance contract. The amounts exclude the impact of all reinsurance premiums, either assumed or ceded.
  Insurance Term
• Earned Premiums or Premiums Earned
  That portion of property casualty premiums written that applies to the expired portion of the policy term. Earned premiums are recognized as revenues under both Statutory Accounting Practices (SAP) and GAAP.
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• Excess Liability
  Additional casualty coverage above a layer of insurance exposures.
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• Excess of Loss Reinsurance
  Reinsurance that indemnifies the reinsured against all or a specified portion of losses over a specified dollar amount or "retention."
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• Facultative Reinsurance
  The reinsurance of all or a portion of the insurance provided by a single policy. Each policy reinsured is separately negotiated.
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• Fair Access to Insurance Requirements FAIR Plan
  The reinsurance of all or a portion of the insurance provided by a single policy. Each policy reinsured is separately negotiated.
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• Fidelity and Surety Programs
  Fidelity insurance coverage protects an insured for loss due to embezzlement or misappropriation of funds by an employee. Surety is a three-party agreement in which the insurer agrees to pay a second party or make complete an obligation in response to the default, acts or omissions of an insured.
  Insurance Term
• GAAP Combined Ratio
  The sum of the loss and LAE ratio, the underwriting expense ratio and, where applicable, the ratio of dividends to policyholders to net premiums earned. A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss.
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• Ground Up Analysis
  A method to estimate ultimate claim costs for a given cohort of claims such as an accident year/product line component. It involves analyzing the exposure at an individual insured level and then through the use of deterministic or stochastic scenarios and/or simulations, estimating the ultimate losses for those insureds. The total losses for the cohort are then the sum of the losses for each indiv
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• Guaranteed Cost Products
  An insurance policy where the premiums charged will not be adjusted for actual loss experience during the covered period.
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• Guaranty Fund
  A state-regulated mechanism that is financed by assessing insurers doing business in those states. Should insolvencies occur, these funds are available to meet some or all of the insolvent insurers obligations to policyholders.
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• Inland Marine
  A broad type of insurance generally covering articles that may be transported from one place to another, as well as bridges, tunnels and other instrumentalities of transportation. It includes goods in transit, generally other than transoceanic, and may include policies for movable objects such as personal effects, personal property, jewelry, furs, fine art and others.
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• Insurance Broker
  One who negotiates contracts of insurance or reinsurance on behalf of an insured party, receiving a commission from the insurer or reinsurer for placement and other services rendered.
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• Insurance Claim
  Request by an insured for indemnification by an insurance company for loss incurred from an insured peril.
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• Insurance Rates
  Amounts charged per unit of insurance.
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• Insurance Underwriter
  An employee of an insurance company who examines, accepts or rejects risks and classifies accepted risks in order to charge an appropriate premium for each accepted risk. The underwriter is expected to select business that will produce an average risk of loss no greater than that anticipated for the class of business.
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• Insurance Underwriting
  The insurers or reinsurers process of reviewing applications for insurance coverage, and the decision as to whether to accept all or part of the coverage and determination of the applicable premiums; also refers to the acceptance of that coverage.
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• Insurance Underwriting Expense Ratio
  For SAP, it is the ratio of underwriting expenses incurred less other income to net written premiums. For GAAP, it is the ratio of underwriting expenses incurred reduced by an allocation of fee income and billing and policy fees to net earned premiums.
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• Insurance Underwriting Gain or Loss
  Net earned premiums and fee income less claims and claim adjustment expenses and insurance-related expenses.
  Insurance Term
• IRIS Ratios
  Financial ratios calculated by the NAIC to assist state insurance departments in monitoring the financial condition of insurance companies.
  Insurance Term
• Large Deductible Policy
  An insurance policy where the customer assumes at least $25,000 or more of each loss. Typically, the insurer is responsible for paying the entire loss under those policies and then seeks reimbursement from the insured for the deductible amount.
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• Lloyds
  An insurance marketplace based in London, England, where brokers, representing clients with insurable risks, deal with Lloyds underwriters, who represent investors. The investors are grouped together into syndicates that provide capital to insure the risks.
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• Loss And LAE Ratio
  An insurance marketplace based in London, England, where brokers, representing clients with insurable risks, deal with Lloyds underwriters, who represent investors. The investors are grouped together into syndicates that provide capital to insure the risks.
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• Loss Reserve Development
  The increase or decrease in incurred claims and claim adjustment expenses as a result of the re-estimation of claims and claim adjustment expense reserves at successive valuation dates for a given group of claims. Loss reserve development may be related to prior year or current year development.
  Insurance Term
• Loss Reserves
  Liabilities established by insurers and reinsurers to reflect the estimated cost of claims incurred that the insurer or reinsurer will ultimately be required to pay in respect of insurance or reinsurance it has written. Reserves are established for losses and for LAE, and consist of case reserves and IBNR reserves. As the term is used in this document, "loss reserves" is meant to include reserves
  Insurance Term
• Losses Incurred
  The total losses sustained by an insurance company under a policy or policies, whether paid or unpaid. Incurred losses include a provision for IBNR.
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• National Association of Insurance Commissioners NAIC
  An organization of the insurance commissioners or directors of all 50 states, the District of Columbia and the five U.S. territories organized to promote consistency of regulatory practice and statutory accounting standards throughout the United States.
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• Net Written Premiums
  Direct written premiums plus assumed reinsurance premiums less premiums ceded to reinsurers.
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• Paid Development Method
  An actuarial method to estimate ultimate losses for a given cohort of claims such as an accident year/product line component. If the paid-to-date losses are then subtracted from the estimated ultimate losses, the result is an indication of the unpaid losses. The basic premise of the method is that cumulative paid losses for a given cohort of claims will grow in a stable, predictable pattern from y
  Insurance Term
• Pool
  An organization of insurers or reinsurers through which particular types of risks are underwritten with premiums, losses and expenses being shared in agreed-upon percentages.
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• Premiums
  The amount charged during the year on policies and contracts issued, renewed or reinsured by an insurance company.
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• Property Insurance
  Insurance that provides coverage to a person or business with an insurable interest in tangible property for that persons or businesss property loss, damage or loss of use.
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• Quota Share Reinsurance
  Reinsurance wherein the insurer cedes an agreed-upon fixed percentage of liabilities, premiums and losses for each policy covered on a pro rata basis.
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• Redundancy
  With regard to reserves for a given liability, a redundancy exists when it is estimated or determined that the reserves are greater than what will be needed to pay the ultimate settlement value of the related liabilities. Where the redundancy is the result of an estimate, the estimated amount of redundancy (or even the finding of whether or not a redundancy exists) may change as new information be
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• Reinstatement Premiums
  Additional premiums payable to reinsurers to restore coverage limits that have been exhausted as a result of reinsured losses under certain excess-of-loss reinsurance treaties.
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• Reinsurance
  The practice whereby one insurer, called the reinsurer, in consideration of a premium paid to that insurer, agrees to indemnify another insurer, called the ceding company, for part or all of the liability of the ceding company under one or more policies or contracts of insurance which it has issued.
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• Reinsurance Agreement
  A contract specifying the terms of a reinsurance transaction.
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• Reported Claim Development Method
  An actuarial method to estimate ultimate claim counts for a given cohort of claims such as an accident year/product line component. If the reported-to-date counts are then subtracted from the estimated ultimate counts, the result is an indication of the IBNR counts.
  Insurance Term
• Residual Market Involuntary Business
  Insurance market which provides coverage for risks for those unable to purchase insurance in the voluntary market. Possible reasons for this inability include the risks being too great or the profit potential too small under the required insurance rate structure. Residual markets are frequently created by state legislation either because of lack of available coverage such as: property coverage in
  Insurance Term
• Retention
  The amount of exposure a policyholder company retains on any one risk or group of risks. The term may apply to an insurance policy, where the policyholder is an individual, family or business, or a reinsurance policy, where the policyholder is an insurance company.
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• Retention Rate
  Current period renewal premiums, accounts or policies as a percentage of total premiums, accounts or policies available for renewal.
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• Retrospective Premiums
  Premiums related to retrospectively rated policies.
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• Retrospective Rating
  A plan or method which permits adjustment of the final premium or commission on the basis of actual loss experience, subject to certain minimum and maximum limits.
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• Risk Based Capital RBC
  A measure adopted by the NAIC and enacted by states for determining the minimum statutory capital and surplus requirements of insurers. Insurers having total adjusted capital less than that required by the RBC calculation will be subject to varying degrees of regulatory action depending on the level of capital inadequacy.
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• Risk Retention Group
  An alternative form of insurance in which members of a similar profession or business band together to self insure their risks.
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• Runoff Business
  An operation which has been determined to be nonstrategic; includes non-renewals of in-force policies and a cessation of writing new business, where allowed by law.
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• S-Curve Method
  A mathematical function which depicts an initial slow change, followed by a rapid change and then ending in a slow change again. This results in an "S" shaped line when depicted graphically. The actuarial application of these curves fit the reported data to date for a particular cohort of claims to an S-curve to project future activity for that cohort.
  Insurance Term
• Salvage
  The amount of money an insurer recovers through the sale of property transferred to the insurer as a result of a loss payment.
  Insurance Term
• Second Injury Fund
  The employer of an injured, impaired worker is responsible only for the workers compensation benefit for the most recent injury; the second-injury fund would cover the cost of any additional benefits for aggravation of a prior condition. The cost is shared by the insurance industry and self-insureds, funded through assessments to insurance companies and self-insureds based on either premiums or lo
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• Self Insured Retentions
  That portion of the risk retained by a person for its own account.
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• Servicing Carrier
  An insurance company that provides, for a fee, various services including policy issuance, claims adjusting and customer service for insureds in a reinsurance pool.
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• Statutory Accounting Practices SAP
  The practices and procedures prescribed or permitted by domiciliary state insurance regulatory authorities in the United States for recording transactions and preparing financial statements. Statutory accounting practices generally reflect a modified going concern basis of accounting.
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• Statutory Surplus
  As determined under SAP, the amount remaining after all liabilities, including loss reserves, are subtracted from all admitted assets. Admitted assets are assets of an insurer prescribed or permitted by a state to be recognized on the statutory balance sheet. Statutory surplus is also referred to as "surplus" or "surplus as regards policyholders" for statutory accounting purposes.
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• Structured Settlements
  Periodic payments to an injured person or survivor for a determined number of years or for life, typically in settlement of a claim under a liability policy, usually funded through the purchase of an annuity.
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• Subrogation
  A principle of law incorporated in insurance policies, which enables an insurance company, after paying a claim under a policy, to recover the amount of the loss from another person or entity who is legally liable for it.
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• Third Party Liability
  A liability owed to a claimant (third party) who is not one of the two parties to the insurance contract. Insured liability claims are referred to as third-party claims.
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• Treaty Reinsurance
  The reinsurance of a specified type or category of risks defined in a reinsurance agreement (a "treaty") between a primary insurer or other reinsured and a reinsurer. Typically, in treaty reinsurance, the primary insurer or reinsured is obligated to offer and the reinsurer is obligated to accept a specified portion of all that type or category of risks originally written by the primary insurer or
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• Umbrella Coverage
  A form of insurance protection against losses in excess of amounts covered by other liability insurance policies or amounts not covered by the usual liability policies.
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• Unassigned Surplus
  The undistributed and unappropriated amount of statutory surplus.
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• Unearned Premium
  The portion of premiums written that is allocable to the unexpired portion of the policy term.
  Insurance Term
• Unpaid Claims and Claims Adjustment Expenses
  Claims reserves for events that have occurred, including both reported and incurred-but-not-reported (IBNR) reserves, and the expenses of settling such claims.
  Insurance Term
• Voluntary Market
  The market in which a person seeking insurance obtains coverage without the assistance of residual market mechanisms.
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• Wholesale Broker Insurance
  An independent or exclusive agent that represents both admitted and nonadmitted insurers in market areas, which include standard, non-standard, specialty and excess and surplus lines of insurance. The wholesaler does not deal directly with the insurance consumer. The wholesaler deals with the retail agent or broker.
  Insurance Term
• Workers Compensation Insurance
  A system (established under state and federal laws) under which employers provide insurance for benefit payments to their employees for work-related injuries, deaths and diseases, regardless of fault.
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