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255 Cards in this Set
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- Back
- 3rd side (hint)
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Trend Factor |
An adjustment to loss data for a change in general economic conditions, such as inflation. |
2-11 |
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Increased limit factor table |
A table used by insurers to price layers of coverage in excess of the insurer's base limit. |
2-10 |
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Exposure Unit |
A fundamental measure of the loss exposure assumed by an insurer. |
2-9 |
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Loss Development Factor |
An actuarial means for adjusting losses to reflect future growth in claims due to both increases in the incurred amount for reported losses and incurred but not reported (IBNR) losses. |
2-12 |
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Loss payout pattern |
A listing of incurred loss payments over time. |
2-8 |
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Loss development |
The increase or decrease of incurred losses over time. |
2-7 |
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Incurred losses |
The sum of the paid losses and loss reserves and loss adjustment expense reserves. |
2-6 |
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Loss adjustment expense reserves |
Estimates of the future cost of defending and settling claims for losses that have already occurred. |
2-5 |
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Loss Reserve |
In financial statements, a liability on an insured's balance sheet that shows the estimated amount that will be required to settle claims that have occurred but have not yet been paid. |
2-4 |
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Experience Period |
The Length of time available to collect loss costs. |
11-5 |
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Experience-based System |
A system that allocates costs to departments according to their pro rata portion of past losses. |
11-4 |
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Paid Losses |
Losses that have been paid to, or on behalf of, insured's during a given period. |
2-3 |
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Law of large numbers |
A mathematical principle stating that as the number of similar but independent exposure units increases, the relative accuracy of predictions about future outcomes (losses) also increases. |
2-2 |
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Pure Risk |
A chance of loss or no loss, but no chance of gain |
2-1 |
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Business Risk |
Risk that is inherent in the operation of a particular organization, including the possibility of loss, no loss, or gain. |
1-17 |
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Exposure-based System |
A system that allocates costs to departments on the basis of their exposures, regardless of their loss experience. |
11-3 |
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Pool |
A group of organizations that band together to insure each other's loss exposures. |
3-1 |
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Risk Charge |
An amount over and above the expected loss component of the premium to compensate the insurer for taking the risk that losses may be higher than expected. |
3-2 |
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Counterparty risk |
The risk that the other party to an agreement will default. |
3-3 |
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Single-parent captive (pure captive) |
A captive insurer owned by one company that insurers all or part of the loss exposures of their company or its subsidiaries. |
7-2 |
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Group Captive |
A captive insurer owned by a group of companies usually operating similar businesses, rather than a single parent. |
7-3 |
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Association Captive |
A group captive sponsored by an association. |
7-4 |
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Deductible |
A portion of covered loss that is not paid by the insurer. |
3-4 |
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Treaty reinsurance |
A reinsurance agreement that covers an entire class or portfolio of loss exposures and provides that the primary insurer's individual loss exposures that fall within the treaty are automatically reinsured. |
6-25 |
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Line Guide |
A document that provides the minimum and maximum line a primary insurer can retain on a loss exposure. |
6-39 |
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Frequency probability distribution |
A representation that shows the probability of various numbers of losses over a certain period, such as a calendar year. |
2-16 |
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Expected Value |
The weighted average of all the possible outcomes of a probability distribution. |
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Expected Value |
The weighted average of all the possible outcomes of a probability distribution. |
2-19 |
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Derivative |
A financial contract that derives its value from the value of another asset. |
10-6 |
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Insurance-linked security |
A financial instrument whose value is primarily driven by insurance and/or reinsurance loss events. |
10-7 |
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Waiver of Subrogation |
A special type of waiver that is pre-loss voluntary relinquishment by an insurer of its right to seek reimbursement of its payment for damages that were caused by a party other than the insured. |
8-15 |
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Capital Market |
A financial market in which long-term securities are traded. |
10-2 |
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Contingent capital arrangement |
An Agreement, entered into before any losses occur, that enables an organization to raise cash by selling stock or issuing debt at prearranged terms after a loss occurs that exceeds a certain threshold. |
10-3 |
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Excess of loss reinsurance (nonproportional reinsurance) |
A type of reinsurance in which the primary insurer is indemnified for losses that exceed a specified dollar amount. |
6-40 |
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Attachment Point |
The dollar amount above which the reinsurer responds to losses. |
6-41 |
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Retrocedent |
The reinsurer that transfers or cedes all or part of the insurance risk it has assumed to another reinsurer. |
6-10 |
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Fungible goods |
Commodities or bulk goods, all parts of which are presumed to be uniform. |
8-27 |
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Noninsurance risk financing transfer |
A non insurance transfer in which the transferor transfers to the transferee the financial burden of losses by obligating the transferee to pay money to (or on behalf of) the transferor after the transferor or some third party suffers a loss. |
8-2 |
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Group self-insurance plan |
A group of employers in the same industry that jointly (as a whole) and severally (individually) guarantee payment of workers compensation benefits to the employees of the group's members. A not-for-profit association or corporation is typically formed to which they pay premiums for self-insurance purposes. |
4-3 |
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Segregation |
A risk control technique that separates or duplicates an organization's activities or property so that no single cause of loss can simultaneously affect all the organization's activities or property. |
8-3 |
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Third-party administrator (TPA) |
An organization that provides administrative services associated with risk financing and insurance. |
4-4 |
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Surplus share reinsurance |
A type of pro rata reinsurance in which the policies covered are those whose amount of insurance exceeds a stipulated dollar amount, or line. |
6-37 |
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Fronting Company |
A licensed insurer that issues an insurance policy and reinsures the loss exposures back to a captive insurer owned by the insured organization. |
7-11 |
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Noninsurance risk control transfer |
A noninsurance transfer in which the transferor transfers a loss exposure to the transferee, thereby eliminating the possibility that the transferor will suffer a loss from the transferred exposure. |
8-1 |
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Residual market loading |
An amount charged to make up for losses in a state-sponsored plan to insure high-risk exposures, such as an assigned risk plan for auto insurance. |
3-14 |
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Reinsurance pool |
A reinsurance association that consists of several unrelated insurers or reinsurers that have joined to insure risks the individual members are unwilling to individually insure. |
6-22 |
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Call option |
An option to buy a set amount of the underlying security at any time within a specified period. |
9-8 |
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Excess of policy limits loss |
A loss that results when an insured sues an insurer for failing to settle a claim within the insured's policy limits when the insurer had the opportunity to do so. |
6-51 |
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Strike price |
The price at which the stock or commodity underlying a call option (such as a warrant) or a put option can be purchased (called) or sold (put) during a specified period. |
9-11 |
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Increased limit factor |
A factor applied to the rates for basic limits to arrive at an appropriate rate for higher limits. |
2-15 |
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Sale-and-leaseback (sale-and-leaseback arrangement) |
A transaction through which an organization that owns property transfers its risk by selling the property while retaining the right to occupy or use it under a lease with the new owner. |
8-5 |
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Co-participation provision |
A provision in a reinsurance agreement that requires the primary insurer to retain a specified percentage of the losses that exceed its attachment point. |
6-44 |
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Total loss probability distribution |
A representation that shows the probability of total loss outcomes for a given period, such as a calendar year, and it's constructed by combining the frequency and severity probability distributions. |
2-18 |
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Retrospective rating plan |
A rating plan that adjusts the insured's premium for the current policy period based on the insured's loss experience during the current period; paid losses or incurred losses may be used to determine loss experience. |
5-1 |
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Maximum premium |
The most an insured organization is required to pay under a retrospective rating plan, regardless of the amount of incurred losses. |
5-3 |
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Subject premium |
The premium the primary insurer charges on its underlying policies and to which a rate is applied to determine the reinsurance premium. |
6-42 |
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Retention |
A risk financing technique that involves assumption of risk in which gains and losses are retained within the organization. |
1-3 |
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Co-participation provision |
A provision in a reinsurance agreement that requires the primary insurer to retain a specified percentage of the losses that exceed its attachment point. |
6-44 |
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Waive |
The intentional relinquishment of a known right. |
8-13 |
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Co-participation provision |
A provision in a reinsurance agreement that requires the primary insurer to retain a specified percentage of the losses that exceed its attachment point. |
6-44 |
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Quota share reinsurance |
A type of pro rata reinsurance in which the primary insurer and the reinsurer share the amounts of insurance, policy premiums, and losses (including loss adjustment expenses) using a fixed percentage. |
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Experience Rating |
A rating plan that adjusts the premium for the current policy period to recognize the loss experience of the insured organization during past policy periods. |
5-2 |
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Surety |
The party (usually the insurer) to a surety bond that guarantees to obligee that the principal will fulfill an obligation or preform as required by the underlying contract, permit, or law: |
8-6 |
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Special purpose vehicle (SPV) |
A facility established for the purpose of purchasing income-producing assests from an organization, holding title to them, and then using those assets to collateralize securities that will be sold to investors. |
10-5 |
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Retrocessionaire |
The reinsurer that assumes all or part of the reinsurance risk accepted by another reinsurer. |
6-11 |
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Indemnity |
In a surety agreement, the right of a surety to seek reimbursement from the principal for the resources the surety expended when it preformed the principal's duty. |
8-12 |
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Catastrophe |
A single event that caused widespread losses. |
10-1 |
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Catastrophe |
A single event that caused widespread losses. |
10-1 |
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Catastrophe excess of loss reinsurance |
A type of excess of loss reinsurance that protects the primary insurer from an accumulation of retained losses that arise from a single catastrophic event. |
6-36 |
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Catastrophe |
A single event that caused widespread losses. |
10-1 |
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Catastrophe excess of loss reinsurance |
A type of excess of loss reinsurance that protects the primary insurer from an accumulation of retained losses that arise from a single catastrophic event. |
6-36 |
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Futures contract |
An exchange-traded agreement to buy or sell a commodity or security at a future date at a price that is fixed at the time of the agreement. |
1-10 |
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Catastrophe |
A single event that caused widespread losses. |
10-1 |
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Catastrophe excess of loss reinsurance |
A type of excess of loss reinsurance that protects the primary insurer from an accumulation of retained losses that arise from a single catastrophic event. |
6-36 |
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Futures contract |
An exchange-traded agreement to buy or sell a commodity or security at a future date at a price that is fixed at the time of the agreement. |
1-10 |
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Incurred but not reported (IBNR) losses |
Losses that have occurred but have not yet been reported to the insurer. |
4-5 |
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Option contract |
An agreement to keep an offer open for a states period, supported by consideration. |
9-10 |
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Aggregate excess of loss reinsurance |
A type of excess of loss reinsurance that covers aggregated losses that exceed the attachment point, stated as a dollar amount of loss or as a loss ratio, and that occur over a specified period, usually one year. |
6-52 |
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Direct writing captive insurer |
A captive insurer that issues policies directly to its parent(s) and affiliates and does not use a fronting company. |
7-12 |
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Liquid Asset |
Property that can be quickly and easily converted into cash. |
1-11 |
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Loss Ratio |
A ratio that measures losses and loss adjustment expenses against earned premiums and that reflects the percentage of premiums being consumed by losses. |
6-35 |
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Loss Ratio |
A ratio that measures losses and loss adjustment expenses against earned premiums and that reflects the percentage of premiums being consumed by losses. |
6-35 |
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Insurance derivative |
Financial contract whose value is based on the level of insurable losses that occur during a specific time period. |
10-8 |
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Ultimate loss development favtor |
A factor that is applied to the most recent estimate of incurred losses for a specific accident year to estimate the ultimate incurred loss for the year. |
2-13 |
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Risk Financing |
A conscious act or decision not to act that generates the funds to offset the variability in cash flows that may occur as an outcome of risk. |
1-1 |
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Catastrophe equity put option |
A right to sell equity (stock) at a predetermined price in the event of a catastrophic loss. |
10-13 |
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Cut-through endorsement |
An endorsement that provides that, in the event of the insolvency of the primary insurer, the reinsurer directly assumes the obligations of the primary insurer. |
6-53 |
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Novation |
An agreement under which one insurer or reinsurer is substituted for another. |
6-17 |
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Underlying Insurance |
Insurance that applies below an excess or umbrella liability policy. |
3-15 |
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Syndicate |
A group of insurers or reinsurers involved in joint underwriting to insure major risks that are beyond the capacity of a single insurer or reinsurer; each syndicate member accepts predetermined shares of premiums, losses, expenses, and profits. |
6-23 |
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Association |
An organization of member companies that reinsure by fixed percentage the total amount of insurance appearing in policies issued by the organization. |
6-24 |
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Excess liability policy |
A policy that covers liability claims in excess of the limits of an underlying policy or a stated retention amount. |
3-16 |
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Basic premium |
A fixed cost element of the retrospective rating formula that included acquisition expenses, loss control services, premium audit, general administration of the insurance, an adjustment for limiting the retrospective premium to a stated maximum, and a provision for the insurer's profits and contingencies. |
5-6 |
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Exculpatory clause (exculpatory agreement) |
A contractual provision purporting to excuse a party from liability resulting from negligence or an otherwise wrongful act. |
8-14 |
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Captive insurer, or captive |
A subsidiary formed to insure the loss exposures of its parent company and the parent's affiliates. |
7-1 |
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Credit risk |
The risk that customers or other creditors will fail to make promised payments as they come due. |
9-5 |
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Risk management framework |
A foundation for applying the risk management process throughout the organization. |
1-12 |
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Price risk |
The potential for a change in revenue or cost because of an increase or a decrease in the price of a product or an input. |
9-6 |
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Indemnitor |
Party in a hold-harmless agreement who assumes the other party's liability. |
8-16 |
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Forward contract |
A contract that obligates one party to buy and another party to sell a specific financial instrument or physical commodity at a specific future date and price. |
9-7 |
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Forward contract |
A contract that obligates one party to buy and another party to sell a specific financial instrument or physical commodity at a specific future date and price. |
9-7 |
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Converted losses |
An element of the retrospective rating formula that includes the actual losses incurred increased by a factor (loss conversion factor) that reflects loss adjustment expenses. |
5-8 |
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Hazard Risk |
Risk from accidental loss, including the possibility of loss or no loss. |
1-4 |
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Per occurrence excess of loss reinsurance |
A type of excess of loss reinsurance that applies the attachment point and reinsurance limit to the total losses arising from a single event affecting one or more of the primary insurer's polices. |
6-48 |
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Insurance option |
A specialized type of option that derives its value from insurable losses - either an organization's actual insurable losses or an insurance index of losses: |
10-9 |
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Risk |
Uncertainty about outcomes that can be either negative or positive. |
1-7 |
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Principal |
The party to a surety bond whose obligation or performance the surety guarantees. |
8-8 |
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Excess loss premium |
A component of the retrospective rating insurance premium formula that compensates the insurer for the risk that an individual loss will exceed the loss limit. |
5-10 |
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Per risk excess of loss reinsurance |
A type of excess of loss reinsurance that covers property insurance and that applies separately to each loss occurring to each risk. |
6-45 |
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Hedging |
A financial transaction in which one asset is held to offset the risk associated with another asset. |
1-9 |
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Surplus note |
A type of unsecured debt instrument, issued only by insurers, that has characteristics of both conventional equity and debt securities and is classified as policyholders' surplus rather than as a liability on the insurer's statutory balance sheet. |
10-11 |
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Tax multiplier |
An element of the retrospective rating insurance premium formula that covers the insurer's cost for state premium taxes, license fees, insurance organization assessments, and residual market loading a that the insurer must pay on all written and collected premiums. |
5-11 |
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Line |
The maximum amount of insurance or limit of liability that an insurer will accept on a single loss exposure. |
6-13 |
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Insurance Charge |
A component of the basic premium that provides the insurer with premium to compensate it for the risk that the calculated retrospective rating insurance premium may be higher than the maximum premium or lower than the minimum premium. |
5-7 |
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Reinsurance intermediary |
An intermediary that works with primary insurer's to develop reinsurance programs and that negotiates contracts of reinsurance between the primary insurer and reinsurer, receiving commission for placement and other services rendered. |
6-20 |
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Loss triangle |
A table of successive years of loss data. |
2-14 |
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Direct writing reinsurer |
A professional reinsurer whose employees deal directly with primary insurers. |
6-19 |
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Insurance |
A risk management technique that transfers the potential financial consequences of certain specified loss exposures from the insured to the insurer. |
1-6 |
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Loss conversion factor |
A factor applied to incurred losses so that the converted losses reflect unallocated loss adjustment expenses. |
5-9 |
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Reinsurance pools, syndicates, and associations |
Groups of insurers that share the loss exposures of the group, usually through reinsurance. |
6-21 |
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Hold-harmless agreement (or indemnity agreement) |
A contractual provision that obligated one of the parties to assume the legal liability of another party. |
1-8 |
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Obligee |
The party to a surety bond that receives the surety's guarantee that the principal will fulfill an obligation or preform as promised. |
8-7 |
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Pro rata reinsurance |
A type of reinsurance in which the primary insurer and reinsurer proportionately share the amounts of insurance, policy premiums, and losses (including loss adjustment expenses). |
6-29 |
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Umbrella liability policy |
A liability policy that provides excess coverage above underlying policies and may also provide coverage not available in the underlying policies, subject to a self-insured retention. |
3-17 |
|
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Risk retention group |
A group captive formed under the requirements of the Liability Risk Retention Act of 1986 to insure the parent organization. |
7-5 |
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Large line capacity |
An insurer's ability to provide large amounts of insurance for property loss exposures, or higher limits of liability for liability loss exposures, than it is otherwise willing to provide. |
6-12 |
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Loss limit |
The level at which a loss occurrence is limited for the purpose of calculating a retrospective rated premium. |
5-5 |
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Agency captive |
A type of group captive that is owned by insurance agents or brokers rather than by the organizations insured. |
7-6 |
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Put option |
An option giving the holder the right to sell a set amount of the underlying security at any time within a specified period. |
9-9 |
|
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Sliding scale commission |
A ceding commission based on a formula that adjusts the commission according to the profitability of the reinsurance agreement. |
6-33 |
|
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Loss adjustment expense (LAE) |
The expense that an insurer incurs to investigate, defend, and settle claims according to the terms specified in the insurance policy. |
6-30 |
|
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Rent-a-captive |
An arrangement under which an organization rents capital from a captive, to which it pays premiums and receives reimbursement for its losses. |
7-7 |
|
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Self-contained excess liability policy |
An excess liability policy that is subject to its own provisions only and does not depend on the provisions of the underlying policies for determining the scope of its coverage. |
3-18 |
|
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Surplus relief |
A replenishment if policyholders' surplus provided by the ceding commission paid to the primary insurer by the reinsurer. |
6-14 |
|
|
Named insured endorsement |
An endorsement that, similar to an additional insured endorsement, adds coverage for one or more persons or organizations to the named insured's policy and elevates the new insured to the status of a named insured, giving it special rights and obligations. |
8-19 |
|
|
Facultative reinsurance |
Reinsurance of individual loss exposures in which the primary insurer chooses which loss exposures to submit to the reinsurer, and the reinsurer can accept or reject any loss exposures submitted. |
6-26 |
|
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Securitization |
The process of creating a marketable investment security based in a financial transaction's expected cash flows. |
10-4 |
|
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Severity probability distribution |
A representation that shows the probability of various sizes of each individual loss. |
2-17 |
|
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Aggregate annual deductible |
A deductible that limits the total amount of losses retained during a year. |
3-8 |
|
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Protected cell company (PCC) |
A corporate entity separated into cells so that each participating company owns an entire cell but only a portion of the overall company. |
7-8 |
|
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Objective trigger |
A measurement that determines the value of an insurance-related capital market product based in a parameter that is not within the control of the organization transferring the risk. |
10-14 |
|
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Risk-bearing system |
A risk management cost allocation system that allocates losses to the individual department that generates them. |
11-1 |
|
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Portfolio reinsurence |
Reinsurance that transfers to the reinsurer liability for an entire type of insurance, territory, or book of business after the primary insurer has issued the policies. |
6-16 |
|
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Free on board destination (FOB destination) |
A shipping condition in which ownership passes from the seller to the buyer when the carrier delivers the goods to the buyer's premises. |
8-24 |
|
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Risk criteria |
Reference standards, measures, or expectations used in judging the significance of a given risk in context with strategic goals. |
1-13 |
|
|
Interest rate risk |
The risk that a security's future value will decline because of changes in interest rates. |
9-2 |
|
|
Per policy excess of loss reinsurance |
A type of excess of loss reinsurance that applies the attachment point and the reinsurance limit separately to each insurance policy issued by the primary insurer regardless of the number of losses occurring under each policy. |
6-47 |
|
|
Minimum premium |
The least amount an insured organization is required to pay under a retrospective rating plan, regardless of the amount of incurred losses. |
5-4 |
|
|
Exchange rate risk |
Uncertainty about an investment's value because of potential changes in the exchange rate between currencies. |
9-3 |
|
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Soft market |
Market conditions in which insurer competition is intense and is indicated by widely available coverage, lower premiums, and decreased insurer profitability. |
1-15 |
|
|
Bordereau |
A report the primary insurer provides periodically to the reinsurer that contains s history of all loss exposures reinsured under the treaty. |
6-38 |
|
|
Per claim deductible |
A deductible that applies to all damages sustained by any one person or organization as a result of one occurrence. |
3-9 |
|
|
Liquidity risk |
The risk that an asset cannot be sold on short notice without incurring a loss. |
9-4 |
|
|
Additional insured endorsement |
An endorsement that adds coverage for one or more persons or organizations to the named insured's policy. |
8-18 |
|
|
Risk distribution |
The sharing of risk by an insurer among its insureds. |
7-10 |
|
|
Loss occurrence clause |
A reinsurance agreement clause that defines the scope of a catastrophic occurrence for the purpose of the agreement. |
6-46 |
|
|
Working layers |
The layers of coverage in an organization's insurance program that are most often called on to pay claims. |
3-20 |
|
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Bailment |
The temporary possession by one party (the Bailee) of personal property owned by another party (the Bailor) for a specific purpose, such as cleaning or repair. |
8-20 |
|
|
Profit-sharing commission |
A ceding commission that is contingent on the reinsurer realizing a predetermined percentage of excess profit on ceded loss exposures. |
6-32 |
|
|
Per accident or per occurrence deductible |
A deductible that applies only once to the total of all claims paid arising out of one accident or occurrence: |
3-10 |
|
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Exoneration |
The removal of a duty. |
8-10 |
|
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Working cover |
An excess of loss reinsurance agreement with a low attachment point. |
6-43 |
|
|
Self-insurance |
A form of retention under which an organization records its losses and maintains a formal system to pay for them. |
3-13 |
|
|
Speculative risk |
A chance of loss, no loss, or gain. |
1-5 |
|
|
Flat commission |
A ceding commission that is a fixed percentage of the ceded premiums. |
6-31 |
|
|
Indemnitee |
Party in a hold-harmless agreement whose legal liability is assumed by the indemnitor. |
8-17 |
|
|
Reinsurance agreement |
Contract between the primary insurer and reinsurer that stipulates the form of reinsurance and the type of accounts to be required. |
6-4 |
|
|
Standby credit facility |
An arrangement in which a bank or another financial institution agrees to provide a loan to an organization in the event the organization suffers a loss. |
10-10 |
|
|
Primary insurer |
In reinsurance, the insurer that transfers or cedes all or part of the insurance risk it has assumed to another insurer in a contractual arrangement. |
6-2 |
|
|
Enterprise Risk Management |
An approach to managing all of an organization's key business risks and opportunities with the intent of maximizing shareholder value. |
1-16 |
|
|
Disappearing deductible |
A deductible that decreases in amount as the amount of loss increases, and disappears entirely to provide full coverage after a loss surpasses a specified amount. |
3-6 |
|
|
Clash cover |
A type of per occurrence excess of loss reinsurance for liability loss exposures that protects the primary insurer against aggregations of losses from one occurrence that affects several insureds or several types of insurance. |
6-49 |
|
|
Incurred loss retrospective rating plan |
A retrospective rating plan in which the insured pays a deposit premium during the policy period; after the end of the policy period, the insurer adjusts the premium based on the insured's actual incurred losses. |
5-12 |
|
|
Reinsurance |
The transfer of insurance risk from one insurer to another through a contractual agreement under which one insurer (the reinsurer) agrees, in return for a reinsurance premium, to indemnify another insurer (the primary insurer) for some or all of the financial consequences of certain loss exposures covered by the primary's insurance policies. |
6-1 |
|
|
Risk sharing system |
All risk management cost allocation system that allocates losses among all of an organization's departments. |
11-2 |
|
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Aggregate, or stop loss, excess liability insurance policy |
An excess liability policy that requires the insured to retain a specified amount of loss from the first dollar during a specified period of time, usually one year; the insurer then pays all loss for that period that exceeds the retention, up to the policy limit. |
3-19 |
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Extracontractual damages |
Damages award to the insured as a result of the insurer's improperly handling a claim. |
6-50 |
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Guarantor |
A person or organization that has promised to perform a duty in the event the party whose duty it was initially (the principal) fails to perform it. |
8-9 |
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Insurance risk |
Uncertainty about the adequacy of insurance premiums to pay losses. |
6-5 |
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Paid loss retrospective rating plan |
A retrospective rating plan in which the insured pays a deposit premium at the beginning of the policy period and makes additional payments, usually monthly, to reimburse the insurer for the insured's losses as they are paid and in which the total amount paid is subject to the minimum and maximum premium. |
5-13 |
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Flat deductible |
A deductible stated in a specified dollar amount. |
3-5 |
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Free on board (F.O.B.) point of origin |
A shipping condition in which ownership passes to the buyer as sop as the carrier picks up the goods from the seller's premises. |
8-23 |
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Individual self-insurance plan |
A retention plan that involves only one organization. |
4-2 |
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Subrogation |
In a surety agreement, the substitution of one party for another whose debt or performance the substituting party satisfies and that entitles the substituting party to the rights that belonged to the defaulting party. |
8-11 |
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Reinsurer |
The insurer that assumes some or all of the potential costs of insured loss exposures of the primary insurer in a reinsurance contractual agreement. |
6-3 |
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Waiting period |
A statutory time period in which the injured worker must wait after an injury before benefits can begin. |
3-11 |
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Nonadmitted insurer |
An insurer not authorized by the state insurance department to do business within the state. |
3-23 |
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Cost, insurance, freight (CIF) |
Selling terms under which the seller's price includes the cost of insurance and freight charges until the goods reach the foreign port of importation and in echo the seller's responsibility for loss or damage to the goods is the same as under Cost and Freight (C&F) terms. |
8-25 |
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Reinsurance premium |
The consideration paid by the primary insurer to the reinsurer for assuming some or all of the primary insurer's insurance risk. |
6-7 |
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Controlled master program |
Nonadmitted master policy issued in the country in which the insured is domiciled paired with locally admitted policies issued in the foreign countries in which the insured operates. |
3-25 |
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Informal retention |
A type of retention in which an organization pays for losses with its cash flow and/or current assets and generally keeps no record of losses. |
4-1 |
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Contingent surplus notes |
Surplus notes that have Ben designed so that an insurer, at its option, can immediately obtain funds by issuing the notes at a pre-agreed rate of interest. |
10-12 |
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Risk shifting |
The transfer of risk of loss to an insurer. |
7-9 |
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Large deductible plan |
An insurance policy with a per occurrence or per accident deductible of $100,000 or more. |
3-12 |
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Hard Market |
Market conditions in which insurer competition diminishes, buyers have a difficulty finding coverage, premiums increase, and insurer profitability rises. |
1-14 |
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Vicarious liability |
A legal responsibility that occurs when one party is held liable for the actions of a subordinate or associate because of the relationship between the two parties. |
8-28 |
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Percentage deductible |
A deductible expressed as a percentage of some other amount, such as the amount of insurance, the covered property's value, or the amount of the loss. |
3-7 |
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Leasehold |
The right to occupy or use real or personal property for a period of time. |
8-4 |
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Facultative certificate of reinsurance |
An agreement that defines the terms of the facultative reinsurance coverage in a specific loss exposure. |
6-28 |
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Market Risk |
Uncertainty about an investment's future value because of potential changes in the market for that type of investment. |
9-1 |
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Admitted insurer |
An insurer to which a state insurance department has granted a license to do business within that state. |
3-22 |
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Ceding commission |
An amount paid by the reinsurer to the primary insurer to cover part or all of the primary insurer's policy acquisition expenses. |
6-8 |
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Transfer |
In the context of risk management, a risk financing technique by which the financial responsibility for losses and variability in cash flows is shifted to another party. |
1-2 |
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Retrocession |
A reinsurance agreement whereby one reinsurer (the retrocedent) transfers all or part of the reinsurance risk it had assumed or will assume to another reinsurer (the retrocessionaire). |
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Installment or conditional sales contract |
A sales contract in which the seller commonly reserves ownership rights until the buyer meets all the contractual conditions, most notably the buyer's final installment payment. |
8-26 |
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Economy of scale |
A reduction in the average cost of a product or a process as the state of a company increases. |
3-26 |
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Policyholder's surplus |
Under statutory accounting principals (SAP), an insurer's total admitted assets minus its total liabilities. |
6-15 |
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Mutual benefit bailment |
An arrangement in which the Bailor pays the bailee for work or service related to the bailed property and from which both the bailee and the bailor expect to benefit. |
8-21 |
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Buffer layer |
A level of excess insurance coverage between a primary layer and an umbrella policy. |
3-21 |
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Gratuitous bailment |
An arrangement in which the Bailee receives no compensation and owes a lower degree of care. |
8-22 |
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Adverse selection |
The decision to reinsurer those kids exposures that have an increased probability of loss because the retention of those loss exposures is undesirable. |
6-27 |
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Professional reinsurer |
An insurer whose primary business purpose is serving other insurers' reinsurance needs. |
6-18 |
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Exporters package policy |
Nonadmitted package policy tailored to organization's with incidental exposures in countries other than their home country. |
3-24 |
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Loss Data is compiled of |
Paid Losses, Loss Reserves, Loss Adjustment Expense Reserves, and Incurred Losses |
2.7 |
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Incurred Losses equals |
Paid Losses plus Loss Reserves plus Loss Adjustment Expense Reserves |
2.7 |
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Factors to consider when evaluating an organization's Loss Data: |
Timeframe, Loss Development and Payout Pattern, and Large Claims. |
2.7 |
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Steps in estimating Hazard Losses: |
1. Collect and organize past data 2. Limit individual losses 3. Apply trend and loss development factors to the data 4. Forecast losses |
2.6 |
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Examples of techniques used in qualitative analysis include: |
Scenario analysis and Failure mode and Effects analysis |
2.4 |
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Exposure unit for General Liability can be: |
Annual Sales (thousands), building square footage, units (apartments), admissions (theaters), or another Krause of public liability. |
2.8 |
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When applying increased limit factors to hazard loss estimates, three steps are involved: |
1. Developing increased limit factors 2. Calculating the increased limit factor for a specific layer of losses 3. Forecasting losses at various loss limits |
2.16 |
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Risk Transfer includes: |
Insurance, Contract, and Hedging |
1 |
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Risk Financing Goals |
1. Pay for negative consequences of event 2. Maintain liquidity 3. Manage uncertainty 4. Comply with legal/regulatory Requirements 5. Minimize the cost of risk |
1 |
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Selecting a retrospective rating plan |
1. Coverages to include 2. The limit to which the plan will apply 3. Loss limitations 4. Maximum and minimum premiums |
5 |
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Retrospective Rating Plan Premium = |
(Basic premium + converted losses + excess loss premium) x tax multiplier |
5 |
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Manual Premium = |
(Exposure units divided by exposure base) x manual rate |
5 |
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Standard Premium = |
Manual premium x experience modification factor |
5 |
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Reinsurance Functions |
1. Increase large line capacity 2. Provide catastrophe protection 3. Stabilize loss experience 4. Provide surplus relief 5. Facilitate withdrawal from a market segment 6. Provide underwriter guidance |
6 |
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Reinsurance can be purchased from three sources: |
1. Professional reinsurers 2. Reinsurance departments of primary insurers 3. Reinsurance pools, syndicates, associations |
6 |
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Types of Excess of Loss Reinsurance: |
1. Per risk excess of loss 2. Catastrophe excess of loss 3. Per policy excess of loss 4. Per occurrence excess of loss 5. Aggregate |
6 |
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Types of Captive insurance programs |
1. Single Parent 2. Group Captive 3. Risk Retention Group 4. Agency Captive 5. Rent-a-Captive 6. Protected Cell Captive |
7 |
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Considerations in setting up a Captive: |
1. Setting lines of business 2. Setting Premiums 3. Determining Domicile 4. Dedicated Management Resources of Parent 5. Administering the Plan 6. Insuring Third Party Business 7. Financial accounting Issues |
7 |
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Cost allocation system should focus on these risk management costs: |
1. Retained losses 2. Insurance premiums 3. Risk Control costs 4. Administrative expenses |
11 |
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Effective Allocation System should serve these purposes: |
1. Promote risk control 2. Facilitate risk retention 3. Prioritize risk management expenditures 4. Reduce costs 5. Distribute cost fairly 6. Balance risk-bearing and risk-sharing 7. Provide managers with risk management cost information |
11 |
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Types of costs that can be allocated: |
1. Costs of accident losses not reimbursed by insurance or other outside sources 2. Insurance premiums 3. Cost of risk control techniques 4. Cost of administering risk management activities |
11 |
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Considerations when implementing Allocation System: |
1. Accounting system 2. Tax system for organization's operations 3. Minimum charge amount for risk management services 4. Determination if cost allocation is insignificant 5. Penalties or rewards for department managers 6. Inclusion of managers in development of system 7. Risk management information system (RMIS) 8. Changes in organizational structure |
11 |
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Losses per $ of Sales |
Trend Ultimate Losses divided by Trend Sales |
2 |
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Manual Premium = |
Number of exposure units x manual rate |
5 |
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Standard Premium = |
Manual Premium x Experience modification factor |
5 |
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Converted Losses = |
Loss conversion rate x incurred losses |
5.9 |
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Excess loss premium = |
Standard premium x excess loss premium factor x loss conversion factor |
5.10 |
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Collateral Requirements of a retrospective rating plan |
Letters of credit, certificates of deposit, or first rights to an escrow accoint |
5.18 |
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Reinsurance Association of America (RAA) |
Headquartered in D.C. Is a not-for-profit trade association of professional reinsurers and intermediaries. All members are domestic. In addition to member advocacy and lobbying at both the state and federal levels, the RAA analyzes aggregate data and conducts seminars countrywide. |
6.14 |
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Brokers & Reinsurance Markets Association (BRMA) |
Represents intermediaries and reinsurers that are predominately engaged in US treaty reinsurance business obtained through reinsurance brokers BRMA seeks to identify and address industrywide operational issues through various member committees and is described as a forum for treaty reinsurance professionals. Contract Wording Reference Book |
6.13 |
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Intermediaries and Reinsurance Underwriters Association (IRU) |
Founded in 1967 and is composed of intermediaries and reinsurers that broker or assume non-life treaty reinsurance. They also published in the Journal of Reinsurance. |
6.13 |
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Basis Risk |
Is the risk that the amount the organization receives to offset it's losses maybe greater than or less than it's actual losses |
10.11 |
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Administration of individual self-insurance plans |
1. Funding 2. Record Keeping 3. Claim Settlement 4. Loss Reserves 5. Litigation Management 6. Regulatory Filings 7. Taxes, Assessments, and Fees 8. Excess Liability Insurance |
4.8 |
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Advantage of Self-Insurance Plan |
1. Control over claims 2. Loss control 3. Long-term cost savings 4. Cash flow benefits |
4.12 |
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Disadvantage of Self-insurance plans |
1. Uncertainty of retained loss outcomes 2. Administrative requirements 3. Deferral of tax deductions 4. Contractual requirements |
4.13 |
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Limited Form |
Party C holds party O harmless for responsibility for losses that are exclusively party C's fault |
8.20 |
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Intermediate Form |
Party C holds party O harmless for responsibility for losses resulting from party C's sole fault and from party C's and party O's joint fault |
8.20 |
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Broad Form |
Party C holds party O harmless from responsibility for losses resulting from party C's sole fault, both parties joint fault, and party O's sole fault. |
8.20 |
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Futures Contract |
is a standardized version of a forward contract that is publicly traded on a futures exchange. Like a forward contract, a futures contract includes an agreed upon price and time in the future to buy or sell an asset — usually stocks, bonds, or commodities, like gold. |
Internet |
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Derivatives |
Forward Contracts, Options and Swaps |
9.5 |
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Advantages of Insurance Derivatives |
1. Additional Risk Capacity 2. Lower in cost than insurance-linked securities 3. Transparent Pricing 4. Opportunities for investors to exit during its term 5. Standardized contracts 6. Efficient claims and contract settlement |
10.13 |
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Risk Charge |
An amount added to an organizations expected loss is to cover potential adverse fluctuations in experience |
11.9 |
