 |
|
|
|
|
|
|
Attachment Point: The dollar amount under an excess of loss reinsurance contract at which a ceding (primary) insurer's retention requirements have been met, and the point at which the reinsurance will respond to a loss
Capacity: The percentage of surplus or the dollar amount of exposure that an insurer or reinsurer is willing to place at risk. Capacity may apply to a single risk, a program, a line of business, or an entire book of business.
Captive Insurance Company: Any pure captive insurance company, association captive insurance company, or industrial insured captive insurance company formed or licensed under the provisions of this chapter. A company which is wholly-owned by another organization (generally non-insurance), the main purpose of which is to insure the risks of the parent organization.
Ceding Company: The original or primary insurer; the insurance company which purchases reinsurance.
Earned Premium: (1) that part of the premium applicable to the expired part of the policy period, including the short-rate premium on cancellation, the entire premium on the amount of loss paid under some contracts, and the entire premium on the contract on the expiration of the policy. (2) that portion of the reinsurance premium calculated on a monthly, quarterly or annual basis which is to be retained by the reinsurer should there cession be canceled. (3) when a premium is paid in advance for a certain time, the company is said to "earn" the premium as the time advances. For example, a policy written for three years and paid for in advance would be one-third "earned" at the end of the first year.
Experience: (1) The loss record of an insured or of a class of coverage. (2) Classified statistics of events connected with insurance, of outgo, or of income, actual or estimated. (3) What figures show to have happened in the past. Experience may be compiled on different bases to provide various means of appraisal, viz. Accident Year, Calendar Year, or Policy Year, but, for underwriting purposes, should always compare earned premium with incurred losses after the latter have been modified by an allowance for loss development and incurred but not reported losses (I.B.N.R.).
Facultative: Facultative reinsurance means reinsurance of individual risks by offer and acceptance wherein the reinsurer retains the "faculty" to accept or reject each risk offered.
Fronting: Most commonly refers to the practice of a non-admitted insurer (or an insured with a captive insurance company) contracting with a licensed insurer to issue an insurance policy for regulatory or certification purposes.
Incurred Loss Ratio: The percentage of losses incurred to premiums earned. (See Experience.)
Layer: A horizontal segment of the liability insured, e.g., the second $100,000 of a $500,000 liability is the first layer if the cedant retains $100,000 but a higher layer if it retains a lesser amount.
Letter of Credit: A financial guaranty issued by a bank that permits the party to which it is issued to draw funds from the bank in the event of a valid unpaid claim against the other party; in reinsurance, typically used to permit reserve credit to be taken with respect to non-admitted reinsurance; and alternative to funds withheld and modified coinsurance.
Loss Adjustment Expense (LAE): All expenditures of an insurer associated with its adjustment, recording, and settlement of claims, other than the claim payment itself. The term encompasses both allocated loss adjustment expenses (ALAE) which are loss adjustment expenses identified by a claim file in the insurer's records, such as attorney's fees; and unallocated loss adjustment expenses (ULAE), which are operating expenses not identified by claim file, but functionally associated with settling losses, such as salaries of claims department.
Loss Development: The difference between the original loss as originally reported to the reinsurer and its subsequent evaluation at a later date or at the time of its final disposal. A serious problem to reinsurers who, being involved in the more serious cases, must frequently wait many years for the final disposition of a loss.
Non-admitted Insurer: Insurance companies not licensed in a state may engage in business in the state if an admitted, properly filed company issues the policy and reinsures losses to the non-admitted reinsurer.
Non-Admitted Reinsurance: A Company is "non-admitted" when it has not been licensed and thereby recognized by appropriate insurance governmental authority of a state or country. Reinsurance is "non-admitted" when placed in a non-admitted company and therefore may not be treated as an asset against reinsured losses or unearned premium reserves for insurance company accounting and statement purposes.
Policy Year: The year commencing with the effective date of the policy or with an anniversary of that date.
Pool: An organization of insurers or reinsurers through which particular types of risks are underwritten with premiums, losses, and expenses shared in agreed ratios.
Quota Share: The basic form of participating treaty whereby the reinsurer accepts a stated percentage of each and every risk within a defined category of business on a pro rata basis. Participation in each risk is fixed and certain.
Reinsurance: The practice whereby one party called the Reinsurer in consideration of a premium paid to him agrees to indemnify another party, called the Reinsured, for part or all of the liability assumed by the latter party under a policy or policies of insurance which it has issued. The reinsured may be referred to as the Original or Primary Insurer, or Direct Writing Company, or the Ceding Company.
Reinsurer: An insurer or reinsurer assuming the risk of another under contract.
Rent-a-Captive: Under these programs, the policyholder is insured by the Captive without owning, or at least, without voting control of the Captive. The Captive facility "rents" its capital, surplus, and license to the policyholder and usually provides administrative services, reinsurance, and/or an admitted fronting company. A Rent-a-Captive can be structured as a protected cell, which is the legal segregation of the accounts of each program from the liabilities of every other program and those of the Rent-a-Captive itself.
Retention: The net amount of risk which the ceding company or the reinsurer keeps for its own account or that of specified others.
Retrocession: A reinsurance of reinsurance. Example: Company "B" has accepted reinsurance from Company "A", and then obtains for itself, on such business assumed, reinsurance from Company "C". This secondary reinsurance is called a Retrocession. The transaction whereby a reinsurer cedes to another reinsurer all or part of the reinsurance it has previously assumed.
Retrospective Rating: A plan or method which permits adjustment of the final reinsurance ceding commission or premium on the basis of the actual loss experience under the subject reinsurance treaty - subject to minimum and maximum limits
Reciprocal or Reciprocal Risk Retention Group - Some domiciles allow risk retention groups to be formed as reciprocals. A reciprocal risk retention group is an unincorporated association of individuals or entities that exchange contracts of insurance through an attorney-in-fact, which acts as an agent or manager. In a reciprocal, profits (including investment income) and losses are allocated back to each member's subscriber savings account. Essentially all income (and the related income tax) reverts back to the members. Thus, the reciprocal structure may provide a tax advantage to groups whose members are non-profit entities.
Self Insurance: Setting aside of funds by an individual or organization to meet his or its losses, and to absorb fluctuations in the amount of loss, the losses being charged against the funds so set aside or accumulated.
Sponsored Captive: A captive insurance company in which the minimum capital and surplus required by applicable law is provided by one or more sponsors, insures the risks of separate participants through the contract, and segregates each participant's liability through one or more protected cells.
Stop Loss: A form of reinsurance under which the reinsurer pays some or all of a cedant's aggregate retained losses in excess of a predetermined dollar amount or in excess of a percentage of premium.
Surplus: The excess of assets over liabilities. Statutory surplus is an insurer's or reinsurer's capital as determined under statutory accounting rules. Surplus determines an insurer's or reinsurer's capacity to write business.
Ultimate Net Loss: This term usually means the total sum which the assured, or any company as his insurer, or both, become obligated to pay either through adjudication or compromise, and usually includes hospital, medical and funeral charges and all sums paid as salaries, wages, compensation, fees, charges and law costs, premiums on attachment or appeal bonds, interest, expenses for doctors, lawyers, nurses, and investigators and other persons, and for litigation, settlement, adjustment and investigation of claims and suits which are paid as a consequence of the insured loss, excluding only the salaries of the assured's or of any underlying insurer's permanent employees.
Unearned Premium: That portion of the original premium that applies to the unexpired portion of risk. A fire or casualty insurer or reinsurer must carry a reserve against all unearned premiums as a liability in its financial statement, for if the policy should be canceled, the company would have to pay back the unearned part of the original premium.
Working Layer: The first layer above the cedant's retention wherein moderate to heavy loss activity is expected by the cedant and reinsurer. Working layer reinsurance agreements often include adjustable features to reflect actual underwriting results.
THANK YOU to www.Captive.com and www.CaptiveAssociation.com for these definitions.
|
|
|
|
|
|
