IPTM - Glossary
This Glossary contains some of the terms commonly referred to
in insurance. A more comprehensive dictionary of insurance should
be used where a more detailed definition of a term is needed. The
website of the Financial Services Authority (www.fsa.gov.uk) also
contains a useful Glossary.
| A | B | C | D | E | F | G | H | I | L | M | N | O | P | Q | R | S | T | U | W |
A
ABI: Association of British Insurers, the principal
representative body for companies, including some foreign
companies, authorised to carry on insurance business in the UK.
Acceptance: the agreement by an insurer to accept a proposal
for insurance which ordinarily concludes the contract even though
the policy may not be issued until later (see also notification).
Accident basis: a basis of reporting for general insurance
business in the Accounting and Statements Rules, according to the
calendar or accounting year in which an accident or loss occurred
(compare with underwriting basis).
Accounting and Statements Rules: the requirements for making
returns to the Financial Services Authority, commonly referred to
as the regulatory return, to be found in the Interim Prudential
Sourcebook for Insurers (see Integrated Prudential Sourcebook).
Accounting class: a category of business for which separate
figures have to be given at certain points in the regulatory return
made to the Financial Services Authority (some accounting classes
group together several classes of general business, whilst others
are a sub- division of one or more classes).
Acquisition cost: cost associated with the underwriting of
new business, including commission paid to brokers and agents (and
to the cedant company in the case of reinsurance)
Active underwriter: in the Lloyd's market, an underwriter who
is authorised to accept risks on his/her own account and on behalf
of names in the syndicates for whom he/she acts.
Actuary: a person qualified to apply the mathematical
doctrines of probability and compound interest to the statistics on
which life insurance and pension business etc. are based; in the UK
an actuary will normally have qualified as a member of the
Institute of Actuaries.
Adjuster (loss): an independent professional individual who
is engaged by insurers to settle large or complex claims.
Agent (insurance): a person who introduces insurance business
to the insurer, in law an insurance agent is agent, if at all, for
the prospective policy holder although remunerated by the insurer;
the term is also used of the employees of an insurance company who
seek business for the company.
Aggregate excess of loss: a form of excess of loss
reinsurance which indemnifies the ceding company against the amount
by which the ceding company's losses incurred during a specified
period exceeds either a predetermined sum or a percentage of the
premium income for the class of business concerned; also known as
stop loss or excess of loss ratio reinsurance.
Alternative Risk Transfer: methods of transferring insurance
risk, other than by conventional reinsurance.
Annual basis: accounting for general insurance business
whereby a result is determined at the end of the accounting period
reflecting the profit or loss from providing insurance cover in
that period (compare with fund basis).
Arbitration: an alternative to litigation for the settlement
of insurance disputes; contracts often specify the place of
arbitration in the event of a dispute.
Assessor: an independent professional who advises and
negotiates on behalf of policyholders on the settlement of their
claims.
Assignment: the transfer of rights under an insurance policy
to a third party, often as security for a loan, in English law,
obligations under an insurance policy may not normally be assigned
without the consent of the insured, such a transaction being known
as novation.
Assurance: a term commonly used to distinguish insurance
business providing benefits related to the duration of human life
from other types of insurance (for practical purposes the terms
assurance and insurance are interchangeable).
Average: the clause which protects an insurer against the
undesirable effects of under- insurance, indemnity being scaled
down in the proportion that the sum insured was less than the true
value of the property.
B
Benefit: an amount payable by an insurer as a consequence of
liabilities assumed under an insurance contract.
Bordereau: information submitted by a cedant to a reinsurer
giving details of individual risks insured under a reinsurance
treaty.
Bornhuetter Ferguson: a method of claims reserving for
general insurance, similar to chain ladder technique, which
involves setting an initial expected loss for the class of
business.
Broker: a professional adviser who assists a client to obtain
the insurance cover he/she needs; although strictly an agent for
the insured, the broker is remunerated by way of commission from
the insurer.
Brokerage: the commission received by a broker or other
intermediary for placing insurance risks.
Burning cost: a method of calculating the premium in
non-proportional reinsurance, in particular excess of loss and stop
loss reinsurance, whereby the premium is directly related to the
insured's claims experience; the reinsurer reviews the cedant's
claims experience to ascertain what proportion of premium income
would have been "burned up" by the reinsurance claims.
C
Capital redemption: business other than life insurance
whereby in return for one or more premiums a sum or series of sums
is to become payable to the insured in the future.
Captive insurance company: a company whose business is wholly
or mainly derived from a company or group of companies of which it
is usually a subsidiary or associated company.
Case reserve: reserves for outstanding claims built up on a
case by case basis with the amount likely to be paid out on each
claim being separately estimated.
Catastrophe: an event leading to substantial losses, such as
an explosion, hurricane or earthquake.
Catastrophe insurance: a form of excess of loss reinsurance
under which the ceding insurer is indemnified, subject to a
specified retention and an over-riding limit, against an
accumulation of losses arising from a catastrophic event (for
example, an earthquake or hurricane).
Cedant: the company which cedes the business covered by a
reinsurance contract.
Cedant's commission: the commission paid by a reinsurer to
the ceding company, in recognition of the acquisition costs borne
by that company.
Cede: to obtain reinsurance cover for insurance business, the
company obtaining reinsurance is said to "cede" the business in
question.
Certificate of insurance: a document certifying that an
insurance contract exists (usually met where there is a legal
obligation to insure, for example, motor insurance which complies
with the terms of the Road Traffic Act).
Cession: (1) in reinsurance, the act of ceding business to a
reinsurer, (2) a block of business so ceded.
Chain ladder: the traditional technique of reserving for
future claims in general insurance business which compares the
emergence of claims year by year for each underwriting year, the
relevant data being set out in triangular arrays (whence the
alternative term triangulation).
Claim: invocation of a right to a payment under a contract of
insurance; also the amount set aside in the accounts of an insurers
respect of payments made or anticipated.
Claims handling expenses: expenses incurred in negotiating
and settling claims, including the direct expenses of the claims
department (loss adjusters’ fees, court fees, etc.) and any
part of general administration expenses associated with the claims
function.
Claims made: a term referring to liability policies covering
all claims notified in the policy period, regardless of the time of
the occurrence (contrast losses occurring).
Class: a category of insurance business, as set out for
regulatory purposes in Schedules 1 (general business) and 2 (long
term business) to the Regulated Activities Order (Contracts of
Insurance).
Closed line: the amount for which an insurer becomes liable
in the event of a slip being over- subscribed (see written line).
Cohort: a body of claims, for example, claims grouped by
accident year, report year or underwriting year.
Co-insurance: the insurance, usually of large risks, by two
or more direct insurers as a means of spreading the risk; also used
in North America to describe certain types of reinsurance.
Commission: the remuneration paid to an agent or broker for
the introduction of business, usually in the form of a percentage
of the premium (see also cedant's commission and contingent
commission).
Composite: a company authorised to carry on both long term
and general insurance business.
Contingent commission: an amount payable to a broker or
ceding company, in addition to the normal percentage commission,
calculated as a percentage of the insurer's or reinsurer's net
profit on the business after allowing for overheads; also known as
profit commission.
Contribution: the amount paid by each insurer in respect of a
loss where two or more insurers cover the same insured in respect
of the same risk, this division of a loss between insurers arises
from the principle of indemnity and ensures equitable distribution
of losses between insurers.
Cover note: a document issued as evidence of a contract of
insurance, pending the issue of a policy.
D
Damages: financial compensation for loss suffered.
Debt: a device the effect of which is to reduce the amount
payable under a life policy effected on a sub- standard life in the
case of death from a specified cause, or from natural causes as
opposed to accidental death.
Deductibles: an amount which the insured is prepared to, or
has to, bear on any one claim: when the loss exceeds the deductible
only the excess is recoverable under the policy (see also excess
and retention).
Deposit back: in reinsurance, a deposit of the whole or part
of the premiums paid by a cedant company with that company as
surety for payment by the reinsurer (also called treaty deposit).
Development year: (1) in one year accounting, in relation to
any underwriting year, any year or years following the end of that
year until the claims for that year have been run off, (2) in
general business funded accounting the year or years between the
underwriting year and the closing of the account.
Direct insurer: an immediate insurer of a risk, as opposed to
a reinsurer who insures derivative risks, that is the risks assumed
by a direct insurer.
Directive society: a friendly society which is subject to the
provisions of the EC Insurance Directives, as implemented in UK
law.
Discounting: a term used to describe adjustments made to
general business reserves so that they reflect the present value of
the future contingent liabilities; such an adjustment may be made
for accounting purposes, and may in certain circumstances be
required for tax purposes where the reserves are initially
calculated by reference to the likely ultimate cost of settlement
after taking into account monetary inflation, and also the tendency
for court awards for damages to increase by more than the rate of
inflation; the adjustment is usually made by discounting the
ultimate cost of settlement by reference to a suitable rate of
interest, thus reflecting the time value of money.
Distribution network: the means by which a direct insurer
markets its products to prospective policy holders (for example,
agents, brokers, branches).
D & O: Directors' and Officers' liability.
E
Earned premium: that part of an insurance premium receivable
which is attributable to the period of cover which has already gone
by.
Endorsement: any writing on a policy, in addition to the
original wording, which changes the terms of the contract, or any
rider additional to the main text.
Equalisation provision: an amount set aside out of past or
current underwriting profits to meet future underwriting losses, in
particular losses arising from claims due to the occurrence of
events of an exceptional nature, that is events not normally
occurring every year.
Escalation: provision for automatic increases on a defined
basis in premiums and sums insured.
Estimated maximum loss (EML): an estimate of the monetary
loss which could be sustained by insurers on a single risk as a
result of a single fire or explosion considered by the underwriter
to be within the realms of possibility (an expression used only in
fire, explosion and material damage policies).
Excess: the first part of the cost of a claim which the
insured or reinsured has to bear in accordance with the terms of
the policy.
Excess of loss: a form of non-proportional reinsurance under
which the reinsurer agrees to indemnify the cedant for losses in
excess of a specified amount (the cedant's retention), either in
respect of each risk or for claims in aggregate arising from a
particular occurrence.
Excess of loss ratio: see stop loss.
Exclusion: a peril or contingency specifically excluded from
the cover afforded by a policy.
Ex gratia: without legal obligation.
Experience refund: a refund of premiums made to the insured
when the claims payable under the contract are at a lower level
than anticipated by the insurer.
F
Facultative obligatory treaty: a contract for reinsurance
whereby the ceding company may cede risks of any agreed class which
the reinsurer must accept if ceded
Facultative reinsurance: the reinsurance of risks on an
individual basis (contrast treaty reinsurance).
Financial insurance/reinsurance: a contract which is in form
a contract of insurance or reinsurance and under which the insured
ultimately recovers the premiums paid plus the interest earned on
their investment less an amount designed to cover the insurer's or
reinsurer's expenses and profit, the time value of money thus
entering explicitly into the calculation of the premiums charged;
the financial element of such contracts often does not involve the
transfer of any underwriting risk so there is doubt whether they
are in law contracts of insurance (see also finite risk insurance).
Financial Ombudsman Service: an independent organisation set
up under the Financial Services and Markets Act 2000, covering
firms and activities regulated by the Financial Services Authority,
which replaced a number of former complaints handling schemes.
Financial Services and Markets Act 2000: the Act which
created a unified regulatory framework in the UK for financial
services, including insurance, under which functions and powers are
conferred on the Financial Services Authority.
Financial Services Authority: an independent body that
regulates the financial services industry in the UK; it was set up
by the Financial Services and Markets Act 2000 and is accountable
to Treasury Ministers; it is financed by the financial services
industry; its statutory objectives are to maintain confidence in
the financial system, promote public understanding of the financial
system, secure appropriate degrees of consumer protection for
consumers, and reduce financial crime.
Financial Services Compensation Scheme: a statutory fund of
last resort for customers of regulated firms, set up under the
Financial Services and Markets Act 2000.
Finite risk insurance/reinsurance: general business contracts
which include both underwriting risk and elements of financial
insurance/reinsurance.
Follow the fortunes: a clause in reinsurance contracts under
which the reinsurer is committed to following the decisions on
claims made by the direct insurer.
Free reserves: the excess of the value of an insurer's assets
over the sum of its liabilities and its minimum solvency margin.
Friendly society: (1) an unincorporated association set up
under the provisions of the Friendly Societies Act 1974, or similar
earlier legislation, and carrying on certain types of insurance
business allowed by that Act; (2) an incorporated society set up
under the provisions of the Friendly Societies Act 1992 and allowed
to carry on a wider range of insurance and other financial
activities than is permitted under the 1974 and earlier
legislation.
Fronting: an arrangement whereby one insurer agrees to accept
business on behalf of others, or to cede the business to others;
such an arrangement may be used in markets where the fronting
company is well established and finds it easier to obtain business
than the companies for which it agrees to front, or to conceal the
identity of the company to which the business is being channelled.
FSA: see Financial Services Authority.
FSA Handbook: the Financial Services Authority’s
handbook of rules and guidance which contains regulatory material
relating to the financial services industry.
FSMA 2000: see Financial Services and Markets Act 2000.
Fund: in funded basis, the balance of premiums received less
claims and expenses paid in respect of business accounted for on a
two or three year basis the profits of which have not been struck.
Funded basis: accounting for general insurance business on
the basis that premiums, claims and expenses are related to the
underwriting year in which the policy incepts and recognition of
profits is deferred until a subsequent accounting period, receipts
and payments being carried forward in a fund; not permitted with
effect for accounting periods beginning on or after 1 January
2004.
G
GAD: Government Actuary's Department.
General insurance: the classes of insurance business set out
in Schedule 1 to the Regulated Activities Order and consisting of
various types of indemnity insurance, as distinct from long term
insurance (including life insurance).
Gross retention: the total limit of liability accepted by an
insurer together with quota share reinsurers on an individual risk
(also known as "gross line").
H
Hazard: a condition which may create or increase the
likelihood of a loss arising from a given peril.
I
IARD: incendie, accidents et risques divers; meaning fire,
accident and other risks, the French equivalent of general
insurance.
IBNR: incurred but not reported, referring to potential
claims where the incident giving rise to a claim has or may have
occurred but has not been reported to the insurer or reinsurer.
Inception: the coming into force of an insurance contract.
Incurred loss: (1) in relation to the totality of an
insurer's general insurance business, or a given class of such
business, the claims paid in a given year less the claims reserve
at the beginning of the year plus the claims reserve at the end of
the year; (2) in relation to a cohort of claims originating in a
given policy year or accident year the amounts paid to date on
settled or partly settled claims plus the reserve for open claims
(that is, excluding the BNR element).
Incurred loss ratio: the ratio of losses incurred to premiums
earned, expressed as a percentage.
Indemnify: to provide indemnity.
Indemnity: security against financial loss, a policy of
indemnity is designed to place the insured in the same financial
position as he/she would have been in had the insured peril not
occurred.
Indemnity commission: commission paid to an agent in advance
but subject to the condition that it shall be repaid if the premium
by reference to which it is calculated is not paid by the policy
holder, for example, because the policy is allowed to lapse.
Independent financial adviser (IFA): an intermediary who
provides potential investors and policy holders with advice on a
range of products from different companies (contrast tied agent).
Index clause: see stability clause.
Insurable interest: a legal or equitable financial interest,
in property or in the happening of some event; such an interest is
essential for the validity of a contract of insurance; in life
insurance the policy holder must have a financial interest in the
life assured at the time the policy is issued.
Integrated Prudential Sourcebook (‘PRU’): the
part of the FSA Handbook that contains most of the rules that must
be followed by insurers in maintaining adequate financial
resources; some material applicable to insurers is in another part
of the FSA Handbook, the ‘Interim Prudential Sourcebook for
Insurers’ (‘IPRU(INS)’).
Issued and renewed: a term used in accounting for excess of
loss (reinsurance) treaties whereby all claims under policies
issued or renewed in the treaty year are covered, no matter in what
year they may occur; the reinsurer is at risk until all policies
covered by the treaty for that year have expired and all losses
have been settled.
L
Layer: a term used in mainly in reinsurance to denote a
stratum of cover, for example, claims between £10,000 and
£50,000 (which might be expressed as £40,000 excess of
£10,000); insurance cover may be arranged in a number of
successive layers, with different layers being covered by different
insurers or reinsurers.
Leading underwriter: in the Lloyd's market, one of the
experts in a particular type of business; a broker seeing cover
presents the slip in the first place to a leading underwriter who
sets the premium and signifies the extent of participation in the
risk by syndicates on whose behalf he/she is authorised to accept
risks; other underwriters are obliged to follow the lead as regards
the rate of premium.
Line: (1) individual class or type of insurance business; (2)
in reinsurance, an amount equal to the ceding company's retention
(a proportional treaty may have a total capacity expressed as X
lines of which a reinsurer's share may be Y lines).
LMX: London market excess of toss (a type of reinsurance).
Long tail business: general insurance business characterised
by lengthy delay between the period of cover and either the
emergence or settlement of claims, or both (contrast short tail
business).
Long term business: the classes of insurance business set out
in Schedule to the Regulated Activities Order and characterised by
the long term nature of the contracts; for the most part this
business comprises various types of life insurance, annuity and
pension business, together with capital redemption business and
permanent health insurance.
Loss: (1) event giving rise to a claim, (2) financial
disadvantage incurred by the insured as a result of an adverse
contingency; (3) cost of settlement of a claim (4) in the term
underwriting loss, an excess of amounts payable over amounts
receivable (in the usual accounting sense) referable to
underwriting.
Loss adjuster: an independent expert who negotiates claims
settlements as an intermediary between the insurer and the insured.
Loss assessor: see assessor.
Losses occurring: a basis that applies to most liability
insurance, in which the trigger for liability is a loss occurring
in the policy period, regardless of the time of negligence or the
date of claim (contrast claims made).
Loss event: the total losses to the ceding company or to the
reinsurer resulting from a single cause such as a storm or flood,
subject to any time limitations imposed by the reinsurer.
Loss portfolio: an amount payable by a reinsurer to a cedant
in consideration of the release of the reinsurer from all or part
of the liability arising under a reinsurance contract in respect of
claims incurred prior to a specified date (see also outstanding
claims portfolio and premium portfolio).
Loss portfolio reinsurance: a type of reinsurance whereby a
reinsurer agrees to indemnify the cedant for all claims outstanding
in a particular type or class of business, or the totality of the
insurer's business.
Loss ratio: the proportion of claims paid or payable to the
premiums earned or written.
Loss ratio reinsurance: see stop loss.
Loss reserve: reserve or provision in accounts in respect of
claims which have not been settled.
M
Managing agent: at Lloyd's, the person (individual or
corporate) who manages a syndicate, conducts the underwriting,
invests syndicate funds and prepares syndicate accounts.
Margin of solvency: see solvency margin.
MAT business: marine, aviation and transport business
(classes of general insurance)
Material fact: a fact which influences a prudent underwriter
in deciding whether to accept or decline a risk, and in determining
the rate of premium or the imposition of any special conditions.
Maximum probable loss (MPL): the largest loss thought
probable under an insurance policy; normally applied to material
damage risks where the total sum insured is not considered to be at
risk from one loss event: also referred to as probable maximum loss
(PML).
Minimum solvency margin: the solvency margin which an
insurance company is required by regulatory legislation to
maintain; failure to maintain the required margin leads to
intervention by the regulators and possibly to a ban on taking on
new business
Moral hazard: a factor arising from the character or
circumstances of the policy holder, including carelessness or the
nature of the business, which may increase the risk assumed by the
insurer.
Mutual company: a company without shareholders which carries
on business on a mutual basis, that is in such a way that the
policy holders are entitled to the surplus arising from the
business (contrast proprietary company).
N
Name: an underwriting member of Lloyd's.
Negligence: the omission to do something which a reasonable
person, guided by those considerations which ordinarily regulate
the conduct of human affairs, would do; or the doing of something
which a prudent and reasonable person would not do.
Non-proportional reinsurance: any form of reinsurance which
is not proportional reinsurance.
Notification: usually in the sense of the notification by an
insurer of acceptance of a proposal, and an essential element of
acceptance unless specifically waived.
Novation: a process whereby a new contract is substituted for
an existing contract, the latter being cancelled; such a process
requires the agreement of all parties to the original contract.
O
Operative clause: defines the class and nature of business
covered by a specific reinsurance treaty.
Original terms: reinsurance granted on the same conditions
and the same rate of premium as the original insurance.
Outstanding claims portfolio: an amount payable by a cedant
to a reinsurer in consideration of the reinsurer accepting
liability in respect of all or part of claims incurred and arising
prior to a specified date.
Overriding commission: an allowance paid to a ceding company
over and above the acquisition cost to allow for additional
expenses.
P
Package policy: a policy covering several different types of
insurance.
Paid-up policy: a policy kept in force for a reduced sum
assured after the premiums have ceased prematurely; a fully paid-up
policy is one remaining in force after payment of all the premiums
due under the terms of the policy.
Peril: the actual or potential cause of loss.
Permanent health insurance (PHI): insurance, on a group or
individual basis, having a duration of at least five years and
providing a benefit of a fixed amount or proportion of earnings for
individuals prevented from working by sickness, accident etc.
Person assured (or insured): the policyholder or person
effecting a policy (not necessarily the same person as the life
assured or the beneficiary).
Personal lines: insurance bought by individuals for their
personal insurance needs, for example, private car, household,
holiday etc.
PHI: permanent health insurance.
Physical hazard: risk associated with the subject matter of
insurance.
PI: professional indemnity (insurance).
P & I Clubs: Protection and Indemnity Clubs; mutual
insurance associations carrying on MA T business whose membership
is composed of UK and foreign ship owners.
PMI: private medical insurance.
PML: probable maximum loss, see maximum probable loss.
Policy: any document containing written evidence of the
contract between the insurer and the insured; if the full terms of
the contract are located in more than one document, all relevant
documents taken together constitute the policy.
Policy loan: a loan made by a life insurer to a policy holder
on the security of the surrender value of the policy.
Pool: a group of insurers through which particular risks are
insured, normally by each insurer assuming an agreed proportion of
the risk, premiums, losses and expenses being shared in the same
proportion (see also reinsurance pool).
Portfolio: (1) an identifiable and usually homogeneous group
of risks for which an insurer has assumed liability; (2) a parcel
of investments associated with such a collection of risks.
Portfolio commission: an additional commission based on the
results of business covered by a reinsurance treaty (see contingent
commission).
Premium: sum paid by the policy holder to the insurer as
consideration for the assumption of risk by the insurer (originally
the additional interest paid on a bottomry bond as consideration
for the loan being written off in the event of the loss of the
cargo or vessel on which the loan was secured).
Premium portfolio: an amount payable by a reinsurer to a
cedant in consideration of the release of the reinsurer from all or
part of the liability arising under a reinsurance contract for
claims occurring after a specified date under all or certain
underlying contracts incepting prior to that date.
PRH: product related hazard.
Profit commission: at Lloyd's, remuneration received by an
underwriting agent based on the results of a year's underwriting
(see also contingent commission).
Property and casualty insurance: the North American term for
general insurance.
Proportional reinsurance: any form of reinsurance whereby the
reinsurer participates proportionately in the premiums receivable
and claims payable by the cedant.
Proposal: an application by a person (known as the proposer)
for insurance, generally by presentation of a printed form, and
constituting an offer in contract law; the proposer becomes the
insured when the application has been accepted and the contract
brought into being.
Proposal form: standard form used in most classes of business
to elicit basic information about the proposer and the risk for
which cover is sought.
Proposer: a person who makes a proposal for insurance.
Proprietary company: company owned by shareholders (contrast
mutual).
Prospectus: a form giving details of the cover available
under a policy, optional additional benefits, rebates etc, often
printed as part of the proposal form.
Provision: see reserve.
PRU: see Integrated Prudential Sourcebook.
Pure reinsurer: an insurer who carries on only
reinsurance.
Q
Quota share: a form of proportional reinsurance indemnifying
the ceding company against a fixed percentage of each risk.
R
RAO: Regulated Activities Order.
Rate per cent: a rate per £100 at which premiums are
charged; a premium for a sum assured of £50,000 at 25p per
cent is £125.
Reciprocity: the practice of requiring inwards reinsurance
business in exchange for reinsurance ceded, the cedant only
offering a share of its reinsurance to a reinsurer able and willing
to offer suitable reinsurance business in return.
Regulated Activities Order: regulations (SI2001/544) made
under the Financial Services and Markets Act 2000 that specify the
activities, including insurance, regulated by the Financial
Services Authority.
Regulatory return: see Accounts and Statements Rules.
Reinstatement: re-establishment of the sum insured to its
original figure after it has been reduced by the amount of a loss
payment, usually in return for the payment of an additional
premium.
Reinsurance: the insurance of the risks assumed by or
potential losses of another insurer (the direct insurer) whereby
the latter covers a proportion of the risks assumed or the
eventuality of atypically large losses (see also retrocession).
Reinsurance pool: a group of reinsurers who agree to share
certain types of business in specified proportions (such a pool is
sometimes operated by way of cession and retrocession).
Reinsurer: an insurer who accepts insurance from another
insurer or reinsurer
Renewal: the continuation of cover beyond the original term
of the policy (usually involving, in strictness, a new contract).
Renewal notice: the notice sent to the policy holder to
remind him/her that an insurance is due for renewal.
Reserve: an amount built up in the early years of a group of
policies, when the level of premiums is greater than required to
meet claims, expenses etc, and used to pay claims in later years
when the premiums are less than required; often also referred to as
a provision (see technical provisions and equalisation provision).
Retention: the maximum liability an underwriter is prepared
to assume on his/her own account; the proportion of risk retained
by a ceding company.
Retrocedant: a reinsurer who cedes business.
Retrocede: to cede a risk assumed under a reinsurance
contract.
Retrocession: the reinsurance of reinsurance business,
providing cover for the business in excess of that which the
reinsurer wishes to retain for its own account.
Retrocessionaire: the reinsurer who accepts retroceded
business.
Risk: (1) the possibility of adverse deviation from the
predicted outcome of underwriting; (2) the peril or adverse
contingency insured.
Risk excess: an excess of loss reinsurance applicable to
claims arising on individual risks.
Run-off: the continuing liability of an insurers in respect
of a block of past business, for example where a reinsurance
contract has been terminated but a liability remains in respect of
risks or cessions accepted during the period of the agreement, or
where an insurer has ceased to accept new business but has not
settled all outstanding claims arising on old business.
S
Short tail business: types of general insurance business in
which claims are generally reported and settled within a short time
after the occurrence (contrast long tail business).
Signed line: same as closed line (see also written line).
Sliding scale commission: a commission adjusted under a
formula whereby the actual commission varies inversely with the
loss ratio, subject to specified maximum and minimum.
Slip (Lloyd's): a document used in the Lloyd's market which
sets out the details of the risk for which cover is sought and is
presented by the broker to the underwriter, the latter signifies on
the slip the extent of his/her intended participation in the risk
and, in the case of the leading underwriter, the premium to be
charged.
Solvency margin: the excess of an insurance company's assets
over its liabilities, both being valued in accordance with the
relevant regulatory legislation (see also minimum solvency margin).
SORP: see Statement of Recommended Practice on Accounting for
Insurance Business.
Special perils: additional risks frequently added to a
commercial fire policy, either individually or as a group
Stability clause: a clause used in reinsurance contracts
which is intended to protect the relative value of cover from
inception, thus taking into account the effects of inflation on
claims (also known as index clause).
Statement of Recommended Practice on Accounting for Insurance
Business (SORP): the accounting standard agreed by the Accounting
Standards Board and the ABI, which reconciles general accounting
practice, the requirements of Schedule 9A of the Companies Act 1985
and the regulatory requirements of the Financial Services
Authority.
Stop loss: a form of reinsurance under which the reinsurer
reimburses the cedant's losses in any year to the extent by which
they exceed a specified loss ratio or amount, subject to some
specified limit (see also aggregate excess of loss cover and loss
ratio reinsurance).
Structured settlement: a method of settling claims in respect
of damages for personal injury under which the casualty insurer,
instead of paying a lump sum to the plaintiff, makes a series of
periodic payments which are usually funded by the purchase of an
annuity on the life of the injured person.
Subrogation: the right of one person to stand in the place of
another and avail him/herself of the rights and remedies of that
other person, whether already enforced or not (for example, the
right of an insurer who has indemnified a claimant to seek
compensation from the person who caused the insured damage).
Sum insured: the sum expressed in a policy as the amount
payable on the occurrence of the contingency insured against, or as
the maximum amount of the insurer's liability under a contract of
indemnity.
Surplus: in reinsurance, the amount by which the gross sum
insured accepted by a ceding company exceeds the cedant's own
retention.
Surplus reinsurance: a form of reinsurance under which the
cedant decides the limit of the liability which it wishes to retain
on any risk or class of risk, this being its maximum retention; the
surplus above the retention is allotted to reinsurers; the limit of
the liability which may be ceded to the reinsurer is normally
expressed in term of lines (that is multiples of the cedant's
retention).
Syndicate: a group of Lloyd's names on whose behalf insurance
is accepted by an underwriting agent; a name may be a member of
more than one syndicate; the members of the syndicate accept risks
severally but not jointly.
T
Technical provisions: the provisions and reserves shown in
the regulatory return in respect of general insurance; the term is
also used of the equivalent accounts provisions/reserves.
Third party liability: liability incurred by the insured to
another party but excluding contractual liability.
Time & distance: a form of reinsurance that includes a
timing risk, that is the risk that the reinsurer might become
liable before sufficient funds had accumulated to meet the
liability; an early form of financial reinsurance and arguably not
insurance at all.
Tort: a civil breach of a personal duty owed to one's fellow
citizens in general, as opposed to breach of contract; the injured
person has a potential right to damages from the wrongdoer (the
tortfeasor).
Total loss: the complete loss or destruction of all the
property insured under a particular policy.
Treaty deposit: see deposit back, meaning (1).
Treaty reinsurance: a type of reinsurance under which the
reinsurer agrees in advance to accept a specified proportion of all
risks or losses falling within a category defined in the contract
(contrast facultative reinsurance).
Treaty year: a period of twelve months covered by a
reinsurance treaty or contract and used to determine the risks
covered by the contract.
Triangulation: see chain ladder.
U
Uberrima fides: see utmost good faith.
Ultimate net loss: the loss suffered by the insurer for his
net account after all reinsurance or other recoveries have been
made.
Under-insurance: the situation where the sums insured
represent less than the total value of the property at risk.
Underwriter: (1) an insurer, anyone who accepts an insurance
risk (from the act of writing one's name under the details of the
risk set out in the policy); (2) an individual who, on behalf of an
insurer, determines the acceptability of an insurance or
reinsurance risk and specifies the terms on which the risk can be
accepted; (3) in the Lloyd's market, an active underwriter is the
person who runs a syndicate and accepts risks on behalf of the
members of the syndicate.
Underwriting agent: (1) a person who is authorised under a
binding agreement to accept insurance risks on behalf of another
person; (2) (same as active underwriter) more particularly, a
person authorised to fulfil this function on behalf of underwriting
members of Lloyd's; most Lloyd's syndicates are managed by an
incorporated underwriting agency which employs the underwriters and
other professional staff.
Underwriting basis: a form of reporting for general insurance
business used in the Accounting and Statements Rules, according to
the underwriting year in which the business incepts (compare with
accident basis).
Underwriting member (of Lloyd's): an individual who assumes
risks in the Lloyd's market; underwriting members, or names, are
grouped in syndicates; they may not accept business except through
underwriting agents or active underwriters.
Underwriting risk: the possibility that the amount which a
general insurer will have to pay to indemnify policy holders in
respect of the perils covered by the insurance will exceed the
amount anticipated in calculating the premiums (in life insurance
this definition only applies to the mortality risk).
Underwriting year: the accounting year of an insurer or
Lloyd's syndicate to which insurance business relates, usually
determined by the date of inception; reinsurance contracts may be
written by reference to the insurer's business of a particular
underwriting year, and will remain in force until all the claims
referable to that underwriting have been settled.
Unearned premium portfolio: an amount payable by a cedant to
a reinsurer in consideration of the reinsurer accepting liability
for all or part of the liability arising under a contract of
reinsurance for claims occurring after a specified date under all
or certain underlying contract incepting prior to that date.
Unearned premiums provision: an amount representing a pro
rata spread of premiums (sometimes less acquisition costs) carried
forward from one accounting period to the next in recognition of
the unexpired period of contracts remaining at the balance sheet
date.
Unexpired risks provision: (1) a provision for claims
expected to arise in respect of the unexpired period of contracts
in existence at the balance sheet date; (2) the excess of the
amount of unexpired risks over the unearned premiums.
UPP: see unearned premiums provision.
URP: see unexpired risks provision.
Utmost good faith: (uberrima fides) a duty laid on the
parties to an insurance contract, especially the proposer, of
greater force than ordinary good faith, requiring full disclosure
of all facts which are or might be material to the contract; this
duty subsists throughout negotiations over the terms of the
contract and until the contract has been concluded, and may be
maintained during the period of the contract if the policy so
provides.
W
Working cover: an excess of loss reinsurance in which loss
frequency is anticipated because the specified limits fall well
within the insurer's underwriting limit for any one risk or loss
occurrence.
Written line: the maximum amount of insurance that an insurer
has agreed to accept when initialling a slip; it may be more than
the amount actually insured by an individual insurer if the broker
obtains more than 100% cover for the risk, in which case each
insurer's liability will be reduced proportionately (written down)
to a closed line or signed line.
