Rplu 5 - Reinsurance

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10% Capacity Rule

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A state requirement providing that the maximum limit of liability for each policy or exposure must not exceed 10% of an insurer's policyholder's surplus

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Access to Records Article

Back 2

A reinsurance agreement article that reinforces the reinsurer's right to examine and inspect all documents of the cedant/reinsured related to the business covered by the reinsurance agreement

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Account Executive

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A salaried employee of a reinsurance company who is responsible for selling and marketing the company's products and services

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Actuary

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A professional statistician who has specialized academic training and who calculates the risks and probabilities of future events, estimates claims costs based on past experience, and uses projections to establish insurance rates. Note: An actuary may also develop experience and schedule rating plans that can be used to modify the base rates

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Admitted Reinsurer

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A reinsurance company that is licensed or authorized to conduct business in a particular state, that may be located outside the US and must meet certain requirements for admitted status

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Aggregate Limit

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The maximum amount the insurer will pay within a specific policy period for all the claims incurred under an insurance policy

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Aggregate Non-Proportional Agreement

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The reinsurer's agreement to reimburse losses once the reinsured's aggregate (or sum total) of losses exceeds the predetermined retention

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Arbitration

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A method of alternative dispute resolution that allows the disputing parties to present arguments and evidence to an independt and impartial third party (arbitrator) and that usually binds the parties to the arbitrator's decision

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Arbitration Article

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A reinsurance agreement article that provides any disputes arising between the parties to the reinsurance agreement shall be settled by arbitration rather than through litigation

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Arbitrator

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An independent and impartial third party who makes a decision to resolve a dispute submitted for arbitration

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Article

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A clause or provision found in reinsurance agreements

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Automatic Facultative Placement

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A facultative placement that requires the reinsurer to accept all policies that meet certain exposures criteria agreed to by the cedent-reinsured and reinsurer but does not obligate the insured to cede certain policies

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Banking

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The bank's use of client deposits to make loans to borrowers - individuals and businesses - on which borrowers pay interest on the money loaned to them

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Book of Business

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A segment of class of business an insurer writes and manages. Note: also called a portfolio

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Broker Market Channel

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A type of reinsurance distribution channel that assumes business through reinsurance intermediaries

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Broker Market Reinsurer

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A reinsurer that accepts business through reinsurance intermediaries who bring primary insurance companies to the reinsurer that might not otherwise seek the reinsurer's services

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Business Coveraed Article

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A reinsurance agreement article that provides an overview of the subject of the agreement and outlines the exposures to be ceded or reinsured under the agreement

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Capacity

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The largest amount that an insurer is willing and able to underwrite - either on individual account or in the aggregate

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Captive

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An insurance or reinsurance company whose primary purpose is to provide insurance or reinsurance protection to its owner company and its subsidiaries or to a group of insureds and its members

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Catastrophe Cover

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The document that contains the catastrophe reinsurance agreement

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Catastrophe Reinsurance

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A specialized form of non-proportional reinsurance that indemnifies the reinsured for an accumulation of losses (typically after all other reinsurance recoveries have been reflected) for a loss arising from a single catastrophic event, such as a hurricane, earthquake or terrorism related event. Notes: The term is typically used in the context of property losses.

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Cedant/Ceding Company

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The primary insurer that cedes all or a portion of risks to a reinsurer and this is typically called a cedant in a proportional reinsurance agreement

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Ceding Commission

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The compensation the reinsurer pays to the cedant-reinsured for the business reinsured to reimburse the cedant for the acquisition expenses incurred in writing the policies ceded.

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Ceded Liability

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The risk or exposure ceded to or assumed by a reinsurer. Note: also called cession

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Certificate

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A document that contains a facultative reinsurance agreement

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Cession-based Agreement

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An agreement in which the reinusred and reinsurer conclude that the appropriate amount of reinsurance premium to be ceded is the premium amount the reinsured charges based on the Increased Limit Factors (ILFs) for the limits greater than the basic limit

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Clash Event

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The losses arising from a signle event of incident that affect multiple policies or insureds an insurer covers

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Clash Reinsurance

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A specialized form of non-proportional reinsurance that indemnifies the reinsured when multiple losses involving more than one policy or insured arise from a single event. Note: typically used in the context of liability losses.

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Clause

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An article or provision found in reinsurance agreements

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Coninsurance

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1. A process in which the insured risk is distributed among two or more insurers whereby each insurer bears a portion of the risk and incurs direct obligations to the insured according to the policy's terms and conditions. Note: this definition is used more in property rather than casualty insurance. 2. A policy provision that provides a method of risk or cost sharing by the insured and insurer. Note: a deductible or retention may apply along with a coinsurance provision

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Co-Insurer

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An insuring party or insurer in a coinsurance agreement

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Combined Ratio

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A formula that measures losses and expenses in relation to the earned premium. It is calculated by adding the loss ration and expense ratio, it measures the company's overall operating profitability.

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Contingent Commission

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A term for profit sharing in proportional agreements.

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Cut-Off

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An agreement that provides that the reinsurer is no longer responsible for paying any new claims presented after the policy's termination date on policies that were covered under the treaty,

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Definitions

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A section of an insurance policy that defines terms used throughout the policy

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Direct Market Channel

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A reinsurance distribution channel that direct market reinsurers use

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Direct Market Reinsurer

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A reinsurance company that distributes products and services on a direct basis and that uses the reinsurer's own salaried employees and staff in marketing and underwriting its products

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Excess of Loss

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A term for proportional reinsurance agreement

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Excess of Policy Limits (XPL)

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The amount awarded by courts in excess of policy limits for claims that are covered within the policy's terms and conditions

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Excess per occurrence or per claim

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A method of reimbursing losses incurred in non-proportional reinsurance agreements once losses exceed a specified retention and up tp a reinsurance limit. Note: Excess per occurrence and per claim is typically used for liability classes of business. In professional liability insurance, in which the underlying insurance is written on a claims-made basis, the term per claim or per claim made may be used.

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Excess per policy

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A type of reinsurance that typically responds only to a single claim against the policy and that is used more often in liability rather than property classes of business.

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Excess per risk

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A type of reinsurance that covers the excess of a specified retention regarding each risk involved in an occurrence and that is normally used in property rather than liability classes of business.

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Exclusion Article

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A reinsurance agreement article that identifies specific types of policies and-or exposures not covered by the reinsurance agreement

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Expense Ratio

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A formula that measures an insure's operating expenses in relation to earned premiums, that is calculated as expenses divided by earned premium, an indication of operating efficiency.

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Experience Rating

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A term of the reinsurance agreement

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Experience Pricing Method

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A pricing method that uses the actual loss history of the covered class of insurance to determine a reinsurance rate for the reinsurer's limit in excess of the reinsured's retention for the coming year.

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Exposure Pricing Method

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A pricing method used in non-proportional agreement to determine the percentage of a reinsured's premium that the reinsurer requires in order to pay the expected losses that are greater than the retention

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Extra-Contractual Obligations (ECO)

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A reinsurance agreement article that provides coverage for liabilities that are outside the scope of the coverage provided by the policy and that typically arise from court judgments granting compensation for damages in the plaintiff's favor due to the insurer's bad faith, fraud, or gross negligence in dealing with the insured.

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Facultative Reinsurance Agreement

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A type of reinsurance agreement that covers individual risks or exposures

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Financial Rating

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The rating of a company's financial strength by independent financial rating and research organizations

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Financial Strength

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An indication of the company's ability to fulfill its obligations as they become due. Note: also called solvency.

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Follow the Fortunes

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A reinsurance principle providing that, generally, reinsurers must follow the cedant's underwriting fortunes or fate and be bound by the cedant's decisions regarding the insured's claims

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Frequency

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The number of insurance claims in a given period

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Increased Limit Factors (ILFs)

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A rating factor applied to a based rate when higher limits are purchased that adjusts the premium to reflect the increased exposure that exists when higher limits of liability are purchased.

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Incurred But Not Reported (IBNR) losses

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An amount of funds established for losses that have occurred but have not yet been reported to the insurer and losses that are not fully developed

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Indemnification and Errors and Omissions

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A reinsurance agreement article that allows for inadvertent mistakes of recording or describing a ceded risk to be corrected without resulting in a breach of the agreement

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Insolvency

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The inability of a company to fulfill its financial obligations

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Insolvency Clause

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A reinsurance agreement article that provides that a reinsurer is liable to pay the reinsurance portion of covered claims by the cedant-reinsured in the event that the reinsured becomes insolvent whether or not the reinsured has paid its obligations to the original insured.

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Insured

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The policyholder or the original insured

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Insurer

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The company providing insurance coverage to policyholders or insureds. Note: Also called the insurance company or primary insurer. Also called the ceding company, cedant or reinsured in reinsureance.

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Insurer's Line

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An insurer's risk capacity (for property insurance) or policy limit (for liability insurance) on a single risk or exposure

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Interests and Liabilities Agreement (I&L)

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A reinsurance agreement article that specifies the individual interested and liabilities of the subscribing reinsurers when more than one reinsurer provides reinsurance coverage.

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Intermediary Article

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A reinsurance agreement article that indicates the reinsurance agreement was purchased through a reinsurance intermediary

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Large Line Capacity

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An insurer's ability to write higher limits of liability on a single exposure than its policy limits or insurer's line

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Limited Treaty

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A treaty that covers only one class of insurance. Note: also called a mono-line treaty

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Line

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A retained dollar limit on the policy written by an insurer. Note: also called the Insurer's line

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Loss Cost

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The actual historical losses from a class or portfolio

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Loss Reserve Analysis

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The analysis of the accuracy of an insurer's prior year actual loss reserves and its estimates of Incurred But Not Reported (IBNR) losses

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Loss Triangle

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A list of insurance claims showing how the value of the losses for each contract or policy year progresses, or develops, year after year until all losses are ultimately settled

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Losses Occurring During Basis

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A form of coverage attachment that provides reinsurance only for losses that occurred (or claims made during, if the underlying policies are claims made) between the reinsurance treaty's inception and termination dates

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Loss Ratio

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A formula that measures incurred losses in relation to earned premium and that is calculated by dividing incurred losses by earned premium during a particular year

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Market Capitalization

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The total market value of a public company's outstanding shares

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Mono-line Treaty

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A treaty that covers only one class of insurance.

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Multi-line Treaty

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A treaty that covers more than one class of insurance

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Net Profit

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The return that a company recognizes from operations. Note: Also refers to the amount of income after all losses and expenses are deducted from revenues

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Net Written Premium

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The amount of insurance premium net of reinsurance

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Non-Admitted Reinsurer

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A reinsurance company that has not been licensed or authorized to conduct business in a particular state. Note: also called an unauthorized reinsurer

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Non-Proportional Agreement

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A form of reinsurance agreement in which the reinsurer indemnifies the insurer-reinsured when a loss exceeds a predetermined amount called the retention or attachment point. Note: also called excess of loss agreement

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Notice of Loss and Loss Settlement Article

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A reinsurance agreement article that specifies the notifications criteria for the types of claims or losses and when these claims or losses are to be reported to the reinsurer

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Offset Article

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A reinsurance agreement article that permits the parties to the agreement to net amounts due between them pertaining to the applicable agreement and other agreements

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Off-Shore Reinsurer

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A reinsurer that is domiciled outside the US and that does not fall under US insurance regulations

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Other Reinsurance Article

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A reinsurance agreement article specifying that the cedant-reinsured is permitted to purchase other reinsurance, including facultative reinsurance, that shall inure to the benefit of the treaty reinsurance contract

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Override

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The amount of ceding commission that is greater than the insurer's actual costs

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Partnership

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A legal form of business ownership in which two or more individuals share in the business' results and management on an equivalent basis and in which they are personally liable for any losses - OR - A personal relationship in which two or more individuals or entities have similar knowledge, share results on an equivalent basis, and can terminate their relationship when desired.

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Policies Attached Basis

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A form of coverage attachment that provides reinsurance for insurance policies written or renewed between the inception date and the termination date

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Policy Limit

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An insurer's limit of liability for a particular policy

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Policyholders' Surplus

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The value of the insurer's equity calculated by subtracting an insurer's liabilities from its assets

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Portfolio

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A segment or class of business managed by an insurer. Note: also called a book of business

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Premium Clause

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A reinsurance agreement article that specifies what amount or percentage of premium the reinsurer will receive under the contract and how it will be paid. Note: Also called the Reports & Remittances Clause

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Premium to Surplus Ratio

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A formula that measures an insurer's ability to write additional premiums and assume additional losses based on the amount of the insurer's policyholder surplus; it is calculated by dividing net written premium by policyholders' surplus

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Premium Volume Capacity

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The insurer's capacity to assume liability in terms of premium volume written; it refers to the total amount of business an insurer may accept based on the amount of its policyholders' surplus

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Primary Insurer

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The company providing insurance coverage to policyholders or insureds. Note: Also called the insurer

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Profit Sharing

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An agreement under which the reinsurer agrees to pay the cedant a portion of any profit earned under its proportional reinsruance agreement, if the profit is exceptional. Note: also called contingent commission

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Proportional Reinsurance Agreement

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A form of reinsurance agreement in which the insurer and reinsurer share premiums, losses and expenses based on proportionate percentages agreed to by both parties. Notes: Also called pro-rate agreement.

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Pro-Rate Agreement

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A term used for a proportional reinsurance in which the reinsurer agrees to share the insurer's premiums and losses on a specific or fixed percentage basis

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Quota Share

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A type of proportional reinsurance in which the reinsurer agrees to share the insurer's premiums and losses on a specific or fixed percentage basis

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Reciprocity

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The exchange of reinsurance in which a minimum of two insurers agree to reinsure a portion of each other's insurance obligations

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Reinsurance

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A risk management tool that allows insurers (cedant-reinsureds) to spread exposures across (cede exposures to) other insurers (reinsurers) so that no single insurer is vulnerable to total financial collapse from unanticipated, severe, or catastrophic losses.

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Reinsurance Intermediary

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A specialized insurance agent or broker who places reinsurance for clients who are insurance companies

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Reinsurance Pools

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A group providing reinsurance to its members

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Reinsurance Proposal

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A formal offer of reinsurance coverage from a reinsurer to a potential cedant-reinsured

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Reinsurance Rate

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The reinsurance premium the reinsurer receives from the cedant-reinsured in a non-proportional agreement

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Reinsurer

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The company that provides reinsurance to the cedant-reinsured and that assumes the cedant's-reinsured's risk. Note: Also called the reinsurance company

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Reinsuring Clause

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A reinsurance agreement article that defines and describer the business that the contract reinsures

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Reports and Remittances Clause

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See Premium Clause

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Retention

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A designated amount an insured pays before an insurer has any obligation to indemnify for a covered loss. Note: When a retention applies, the insured is typically responsible for handling its own claims

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Retained Limit or Line

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A term for retention limit

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Retention Limit

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The limit amount the cedant/reinsured retains Note: Also called retention, retianed limit, or retained line

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Retention and Limit

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A reinsurance agreement article that specifies the reinsurance agreement's limit and retention coverage

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Retrocedent

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A reinsurer that cedes or transfers some of its risk or exposure to other reinsurers call retrocessionaires

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Retrocession

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An insurance transaction in which a reinsurer transfers its own risk or exposure to another reinsurer (retrocessionaire)

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Retrocessionaire

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A reinsurer that assumes risk or exposure ceded or transferred by other reinsurers

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Risk Capacity

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An insurer's limit on a single exposure

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Risk Retention Group (RRG)

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An insurance company that is owned and controlled by a group engaged in similar or related businesses for the purpose of insuring the liability exposure of its members

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Run-off

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An agreement indicating that the reinsurer continues to pay claims for insurance policies that were in force when the agreement was terminated

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Semi-Automatic Facultative Placement

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A form of facultative placement that provides limited agreement to reinsure each exposure before individual evaluation by the reinsurer's underwriters

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Service of Suit Article

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A reinsurance agreement article that designates the party who will receive a legal notice or be served in the event of a lawsuit against alien and non-admitted reinsurers participating in a reinsurance agreement if any disputes arise from the agreement

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Several Liability

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A type of liability implying that each reinsurer is liabile only for its own share of exposure reflected in the agreement and indicates that the failture of one reinsurer to fulfill its obligations does not increase the liabilities of the other reinsurers

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Severity

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The dollar amounts of an individual claim or claims that are incurred in a given period

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Sliding Scale Commission

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A type of commission providing that the reinsurer may agree to adjust the commission upward or downward based on the loss ratio of the insurance business

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Solvency

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A company's ability to pay its short-term and long-term liabilities with its assets or fulfill all its financial obligations and to accomplish future expansion and growth. Note: Also called finacial strength

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Special Termination Article

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A reinsurance agreement article that identifies special situations that allow the cedant-reinsured to terminate the reinsurance contract early

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Stop Loss

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A form of aggregate non-proportional agreement in which the reinsured's retention and limit are stated as dollar amounts

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Subscribing Reinsurer

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One if several of reinsurers that is a party to a reinsurance agreement

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Surplus

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An insurance company's reserves for unexpected, severe losses

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Surplus Relief

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The increase in an insurer's policyholder's surplus by an offset of the reinsurer's reimbursement of insurer's expenses through a ceding commission allowed in a reinsurance agreement

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Surplus Share

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A retained dollar limit (usually called a line) that the cedant selects for each policy written; a type of proportional reinsurance agreement in which the insurer and the reinsurer share premiums, losses and expenses based on the relationship the the retained amount bears to the total policy limit. Note: the reinsurer may then agree to assume the dollar portion of the limit (or additional lines) above the retianed line or limit

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Syndicate

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A facility that is established to transact reinsurance coverage among several reinsuers and that consists of a group of financial backers providing reinsurance to its members

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Syndication

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The issuance of more than one policy jointly covering an insurance exposure

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Term

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A reinsurance agreement article that defines the agreement's effective date and expiration or termination date

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Territory Article

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A reinsurance agreement article that identifies the geographic territory in which exposures must be located for reinsurance coverage to apply

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Treaty

Back 132

The document that contains a treaty reinsurance agreement

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Treaty Reinsurance Agreement

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A type of reinsurance agreement that coverage a group, class, or portfolio of insurance exposures

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Trending and Development of Losses

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A method of establishing the value of losses for the pricing year under consideration by analyzing the development of historical losses for the book of business being reviewed

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Utmost good faith

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A basic reinsurance principle implying that a reinsurance relationship involves a high degree of trust between the parties in all of their business transactions