The A-Z of insurance

  • Admitted Reinsurance: Reinsurance provided by a reinsurer licensed or authorized in the jurisdiction in question. A company is “admitted” when it has been licensed and accepted by appropriate insurance governmental authorities of a state or country.
  • Burning Cost: The premium needed to cover losses based on historical experience for a proposed reinsurance agreement.
  • Cede: When a company transfers risk to another company.
  • Damages: Monetary compensation provided at law for any civil wrongdoing or breach of a contract.
  • Excess of Loss: Recoveries are available when a given loss exceeds the cedant’s retention defined in the agreement.
  • 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. This fronting insurer assumes little or no loss exposure; instead, financial arrangements are made to guarantee claims administration and payments. The fronting insurer is usually paid a percent of the premium.
  • General Liability Insurance: Coverage related to claims arising from insured’s liability for damages or injuries caused due to property ownership, manufacturing or contracting operations, distribution or sale of products, and machinery operations, and also professional services.
  • Incurred Loss Ratio: The percentage of losses incurred to premiums earned.
  • Joint and Several Liability: Legal term used for defining liability implying that any decree in court of law if made joint and several is enforceable against all parties sued or any one of them separately
    Layer – A horizontal segment of the liability insured.
  • Master Policy (Or Master Contract): Policy issued to group holders settling the provisions of the group insurance cover; insured individuals are provided insurance certificates
  • Non-Admitted Reinsurance: 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.
  • Occurrence: An adverse contingent accident or event neither expected nor intended from the point of view of the insured. With regard to limits on occurrences, property catastrophe reinsurance agreements frequently define adverse events having a common cause and sometimes within a specified time frame.
  • Participating or Pro Rata Reinsurance: Includes Quota Share, First Surplus, Second Surplus, and all other sharing forms of reinsurance where under the reinsurer participates pro rata in all losses and in all premiums.
  • 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.
  • Retention: The net amount of risk which the ceding company or the reinsurer keeps for its own account.
  • 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.
  • Treaty: The written contract defining the reinsurance agreement. The treaty contains provisions defining the terms of the agreement including specific risk definition, data on limits and retention, and provisions for premium payment and duration.
  • Ultimate Net Loss: 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.
  • Valued Policy: Insurance contracts whereby sum insured related to insured property is deemed to be actual property value through the duration of the policy; claims related to total loss are settled without any adjustment that may otherwise arise on similar considerations as adequacy of sum insured, market value, etc.; marine insurance for cargo and hull plans are “valued policies”; under fire and burglary policies such facility is extended with regards to paintings, curios, valuables, pictures, antiques, and other arts.
  • Working Layer: The first layer above the cedant’s retention wherein moderate to heavy loss activity is expected by the cedant and reinsurer.
  • Year of Account Basis: Accounting technique practiced related to reinsurance transactions; within this category accounts dealing with premiums and losses during the year being considered irrespective of the origination year of the cession or loss