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Glossary

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ACCESS TO RECORDS CLAUSE

Gives the REINSURER the right to inspect, at all reasonable times, during and beyond the currency of the agreement, the books, records and papers of the CEDING COMPANY pertaining to the reinsurance provided.

ACCIDENT YEAR EXPERIENCE [USA]

Reinsurance experience calculated by matching the total value of all losses occurring during a given twelve-month period (i.e., the dates of loss fall within the period) with the premiums earned for the same period. Compare CALENDAR YEAR EXPERIENCE and POLICY YEAR EXPERIENCE.

ACQUISITION COSTS

All expenses directly related to acquiring insurance or reinsurance accounts, i.e., commissions paid to agents, brokerage fees paid to brokers, and expenses associated with marketing, underwriting, contract issuance and premium collection. Compare CASE RESERVES.

ADJUSTMENT EXPENSE [UK]

The expense incurred by the CEDING INSURER in the defense and settlement of claims under its policies but not the insurer's overhead expenses. The definition of adjustment expense depends on the terms of the reinsurance contract. Also LOSS EXPENSE, CLAIM EXPENSE, LOSS ADJUSTMENT EXPENSE - LAE. Compare ALLOCATED LOSS ADJUSTMENT EXPENSE - ALAE and UNALLOCATED LOSS ADJUSTMENT EXPENSE - ULAE

ADMITTED REINSURANCE

In American ceding companies, REINSURANCE for which credit is given in the CEDING COMPANY's ANNUAL STATEMENT because the REINSURER is licensed or otherwise authorized to transact business in the jurisdiction in question. Also AUTHORIZED REINSURANCE.

ADMITTED REINSURER

In American ceding companies, a REINSURER is "admitted" when it has been licensed or recognized by an insurance authority or statutory body of a state or country and, as such, must submit itself to or conform to statutory regulations. Credit is given in the CEDING COMPANY's ANNUAL STATEMENT for reinsurance provided by an admitted reinsurer. Also AUTHORIZED REINSURER.

AGGREGATE EXCESS OF LOSS REINSURANCE

A variation of STOP LOSS REINSURANCE designed to prevent the CEDING COMPANY's loss from exceeding a specific predetermined limit during a certain period.

AGGREGATE EXTENSION CLAUSE [UK]

Clause usually found in liability and professional indemnity business, which in effect, extends a reinsurance contract to protect the CEDING COMPANY in excess of the amounts provided for on an individual basis and the aggregation so applying is subject to the deductible and indemnity provided by the cover in all and any one such aggregate loss.

AGGREGATE STOP LOSS [UK]

This is a wider application of the ordinary STOP LOSS REINSURANCE treaty in that it applies to the entire portfolio of one branch of the REINSURED's activities.

ALIEN INSURER [USA]

An insurer domiciled outside the United States or outside a specific state. (Compare FOREIGN INSURER.)

ALWAYS OPEN [UK]

A term used to indicate that, unless canceled by either party, the proposed contract would remain in effect.

ANNUAL STATEMENT [USA]

The annual report format prescribed by the NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS and the states. Also STATUTORY ANNUAL STATEMENT, CONVENTION BLANK. Sometimes referred to as the "Yellow Book".

ANY ONE RISK COVER [UK]

Type of WORKING COVER, usually subject to an aggregate limit, designed to protect the CEDING COMPANY's liability on an individual risk. Also RISK EXCESS.

ARBITRATION CLAUSE [USA]

A provision found in many reinsurance contracts whereby the parties agree to submit their disputes using the law of an agreed state or forum to a non-judicial tribunal of their own choosing rather than a court of law; generally subject to selection criteria and procedures set out in the clause, which produces an opinion or a decision ultimately enforceable by a court of law. Also CHOICE OF LAW CLAUSE and JURISDICTION CLAUSE.

ASSOCIATION [USA]

An organization of insurers or REINSURERs through which pool members underwrite particular types of risks with premiums, losses, and expenses shared in agreed amounts. Also POOL, (UNDERWRITING) SYNDICATE.

ASSUME [USA]

To accept all or part of a CEDING COMPANY's insurance or reinsurance on risk or exposure.

ASSUMPTION [USA]

A procedure under which one insurance or REINSURANCE COMPANY takes over or assumes the liabilities of another insurer or REINSURER.

ASSUMPTION AGREEMENT [USA]

An agreement by which one insurance or reinsurance company takes over or assumes the liabilities of another insurer or REINSURER.

ASSUMPTION CERTIFICATE [UK]

An ENDORSEMENT added to an insurance policy to provide that, in the event of the insolvency of the insurance company, the amount of any loss which would have been recovered from the REINSURER by the insurance company will be paid instead directly to the policyholder by the reinsurer. Also CUT-THROUGH ENDORSEMENT, CUT THROUGH CLAUSE, ASSUMPTION OF LIABILITY ENDORSEMENT - ALE. Compare GUARANTEE ENDORSEMENT.

ASSUMPTION OF LIABILITY ENDORSEMENT [USA]

An ENDORSEMENT added to an insurance policy to provide that, in the event of the insolvency of the insurance company, the amount of any loss which would have been recovered from the REINSURER by the insurance company will be paid instead directly to the policyholder by the reinsurer. Also CUT-THROUGH ENDORSEMENT, CUT THROUGH CLAUSE, ASSUMPTION CERTIFICATE. Compare GUARANTEE ENDORSEMENT.

ATTRITIONAL LOSS

Loss associated with ordinary reinsurance operations, i.e. loss other than MAJOR LOSS.

AUTHORIZED REINSURANCE

REINSURANCE for which credit is given in the CEDING COMPANY's ANNUAL STATEMENT because the REINSURER is licensed or otherwise authorized to transact business in the jurisdiction in question. Also ADMITTED REINSURANCE.

AUTHORIZED REINSURER

A REINSURER is "admitted" when it has been licensed or recognized by an insurance authority or statutory body of a state or country and, as such, must submit itself to or conform to statutory regulations. Credit is given in the CEDING COMPANY's ANNUAL STATEMENT for reinsurance provided by an admitted reinsurer. Also ADMITTED REINSURER.

AUTOMATIC FACULTATIVE BINDER [USA]

A reinsurance contract under which the CEDING COMPANY has the option to CEDE and the REINSURER has the option to accept or decline classified risks of a specific business line. The contract merely reflects how individual FACULTATIVE REINSURANCE shall be handled. Also AUTOMATIC FACULTATIVE TREATY, FACULTATIVE TREATY.

AUTOMATIC FACULTATIVE TREATY [USA]

A reinsurance contract under which the CEDING COMPANY has the option to CEDE and the REINSURER has the option to accept or decline classified risks of a specific business line. The contract merely reflects how individual FACULTATIVE REINSURANCE shall be handled. Also AUTOMATIC FACULTATIVE BINDER, FACULTATIVE TREATY.

AUTOMATIC TREATY

A REINSURANCE contract under which business must be ceded in accordance with contract terms and must be accepted by the REINSURER Also OBLIGATORY TREATY.

BASE PREMIUM

The CEDING COMPANY's premiums (written or earned) to which the reinsurance premium rate is applied to produce the REINSURANCE PREMIUM. Sometimes also called GNEPI or GNWPI (Gross net earned, or written, PREMIUM INCOME) or SMPI (Subject Matter Premium Income). Also SUBJECT PREMIUM, PREMIUM BASE, UNDERLYING PREMIUM.

BINDER

A commitment to provide reinsurance coverage pending replacement by a formal reinsurance contract, usually a FACULTATIVE CERTIFICATE. Compare COVER NOTE.

BLOCK RATING PLAN [UK]

A system of rating an EXCESS OF LOSS REINSURANCE contract by applying a loading factor to the actual claims cost over an appropriate block period, usually 3 years, to produce the premium. Each block period is then annually adjusted until all liabilities have been ascertained.

BORDEREAU

A report provided periodically by a REINSURED detailing the reinsurance premiums and/or reinsurance losses with respect to specific risks ceded under the reinsurance agreement.

BOUQUET OF TREATIES [UK]

An array of linked treaty layers written on a package basis.

BROKER

An individual who negotiates reinsurance contracts between the CEDING COMPANY and the REINSURER(s). The intermediary generally represents the ceding company and receives a commission, almost always from the reinsurer(s), for placing the business and performing other necessary services. Also INTERMEDIARY.

BROKER MARKET [USA]

The collective reference to those reinsurance companies which accept business mainly from reinsurance BROKERs. Compare DIRECT WRITING REINSURER.

BROKERAGE [UK]

A remuneration or commission paid to a BROKER for his services.

BULK REINSURANCE [USA]

A transaction sometimes defined by statute as any quota share, surplus aid or portfolio reinsurance agreement through which, of itself or in combination with other similar agreements, an insurer assumes all or a substantial portion of the liability of the reinsured company. Also PORTFOLIO REINSURANCE and PORTFOLIO TRANSFER.

BURNING COST

The ratio of the reinsurance losses occurred incurred to the CEDING COMPANY's SUBJECT PREMIUM. Also PURE LOSS COST.

CALENDAR YEAR EXPERIENCE [USA]

Reinsurance experience calculated by matching the total value of all losses incurred during a given twelve-month period (regardless of the dates of loss) with the premiums earned for the same period. As the name implies, CALENDAR YEAR EXPERIENCE is usually calculated for a twelve-month period beginning January 1st. ACCIDENT YEAR EXPERIENCE and POLICY YEAR EXPERIENCE are related but not synonymous terms.

CAPACITY

The largest amount of insurance or reinsurance available from a company or the market in general. Also used to refer to the maximum amount of business (premium volume) which a company or the total market could write based on financial strength.

CARRIER [USA]

An insurance or reinsurance company which "carries" or writes the insurance liability of another insurer.

CASH LOSS [UK]

A provision in a proportional treaty that allows the CEDENT to make a call upon its REINSURERs for payment of a loss in advance of the usual account.

CATASTROPHE REINSURANCE [USA]

A form of EXCESS OF LOSS REINSURANCE which, subject to a specific limit, indemnifies the CEDING COMPANY in excess of a specified RETENTION with respect to an accumulation of losses resulting from a catastrophic event or series of events arising from one occurrence. Catastrophe contracts can also be written on an aggregate basis under which protection is afforded for losses over a certain amount for each loss in excess of a second amount in the aggregate for all losses in all catastrophes occurring during a period of time (usually one year). Also CATASTROPHE QUESTIONNAIRE

CEDE

To transfer to a REINSURER all or part of a risk undertaken by an insurer.

CEDENT

The insurer that CEDEs all or part of the insurance or REINSURANCE risk it has written to another insurer/REINSURER. Also CEDING COMPANY, CEDING INSURER, PRIMARY INSURER, REINSURED and REASSURED.

CEDING COMMISSION [USA]

In calculating a REINSURANCE PREMIUM, an amount allowed by the REINSURER for part or all of a CEDING COMPANY's acquisition and other overhead costs, including premium taxes. It may also include a profit floor. Compare OVERRIDING COMMISSION.

CEDING COMPANY

The insurer that CEDEs all or part of the insurance or REINSURANCE risk it has written to another insurer/REINSURER. Also CEDENT, CEDING INSURER, PRIMARY INSURER, REINSURED and REASSURED.

CEDING INSURER

The insurer that CEDEs all or part of the insurance or REINSURANCE risk it has written to another insurer/REINSURER. Also CEDING COMPANY, CEDENT, PRIMARY INSURER, REINSURED and REASSURED.

CERTIFICATE (OF REINSURANCE) [UK]

A short form documentation of a reinsurance transaction, usually incorporating complete terms and conditions by reference. Compare SLIP, PLACEMENT SLIP and PLACING SLIP.

CESSION

The amount of insurance risk transferred to the REINSURER by the CEDING COMPANY.

CHOICE OF LAW CLAUSE [USA]

A provision found in many reinsurance contracts whereby the parties agree to submit their disputes using the law of an agreed state or forum to a non-judicial tribunal of their own choosing rather than a court of law; generally subject to selection criteria and procedures set out in the clause, which produces an opinion or a decision ultimately enforceable by a court of law. Also ARBITRATION CLAUSE and JURISDICTION CLAUSE.

CLAIM EXPENSE [UK]

The expense incurred by the CEDING INSURER in the defense and settlement of claims under its policies but not the insurer's overhead expenses. The definition of claim expense depends on the terms of the reinsurance contract. Also LOSS ADJUSTMENT EXPENSE - LAE, ADJUSTMENT EXPENSE, LOSS EXPENSE. Compare ALLOCATED LOSS ADJUSTMENT EXPENSE - ALAE and UNALLOCATED LOSS ADJUSTMENT EXPENSE - ULAE

CLAIMS (CO-OPERATION) CLAUSE [UK]

Clause that binds the CEDENT to notify the REINSURER of all claims exceeding a certain amount and to accept the REINSURER's assistance in negotiating the settlement of such claims.

CLAIMS-MADE COVERAGE [USA]

Any form of insurance under which the trigger of coverage is the presentation or making of a claim against the insured rather than the date on which the loss occurred. A claims-made policy can provide for varying limitations as to the length of time prior to the policy period during which the loss event could have occurred (the "retroactive period") or the length of time after the policy has terminated during which the claim must be presented (the "tail" or "extended reporting period"). Also CLAIMS-MADE INSURANCE and CLAIMS-MADE POLICY.

CLAIMS-MADE INSURANCE [USA]

Any form of insurance under which the trigger of coverage is the presentation or making of a claim against the insured rather than the date on which the loss occurred. A claims-made policy can provide for varying limitations as to the length of time prior to the policy period during which the loss event could have occurred (the "retroactive period") or the length of time after the policy has terminated during which the claim must be presented (the "tail" or "extended reporting period"). Also CLAIMS-MADE COVERAGE and CLAIMS-MADE POLICY.

CLAIMS-MADE POLICY [USA]

Any form of insurance under which the trigger of coverage is the presentation or making of a claim against the insured rather than the date on which the loss occurred. A claims-made policy can provide for varying limitations as to the length of time prior to the policy period during which the loss event could have occurred (the "retroactive period") or the length of time after the policy has terminated during which the claim must be presented (the "tail" or "extended reporting period"). Also CLAIMS-MADE COVERAGE and CLAIMS-MADE INSURANCE.

CLAIMS RESERVES

Funds set aside to satisfy those claims that have been reported to the company yet not yet resolved.

CLASH COVER [USA]

An EXCESS OF LOSS REINSURANCE agreement with a retention level equal to or higher than the maximum limits written any one reinsured policy or contract. Usually applicable to casualty lines business, the clash cover is intended to protect the CEDING COMPANY against accumulations of loss arising from multiple insureds and/or multiple lines of business for one insured involved in one loss occurrence. Also CONTINGENCY (EXCESS) COVER and CONTINGENCY CLASH.

CLASS OF BUSINESS [UK]

The general classification of business as utilized in the insurance industry, i.e., fire, allied lines, homeowners, etc. Also LINE OF BUSINESS.

CLEAN-CUT

The termination provision of a reinsurance contract stipulating that the REINSURER shall not be liable for losses as a result of occurrences taking place after the date of termination Also CUT-OFF.

COEFFICIENT SYSTEM [UK]

System of allocating CESSIONs to a proportional treaty program by providing classification of insurances into a limited number of groups, each with predetermined RETENTION and reinsurable proportions, so that apportionment of premiums and losses may be made on such groups of CESSIONs rather than individually.

COMBINATION PLAN REINSURANCE [USA]

A reinsurance agreement which combines the excess of loss and the quota share forms of coverage within one contract, with the REINSURANCE PREMIUM established as a fixed percentage of the CEDING COMPANY's SUBJECT PREMIUM. After deducting the excess recovery on any one loss for one risk, the REINSURER indemnifies the CEDING COMPANY based on a fixed quota share percentage. If a loss does not exceed the excess of loss retention level, only the quota share coverage applies.

COMBINED RATIO

The ratio of claims plus COMMISSION and BROKERAGE (more commonly known as general reinsurance expenses) to premiums. The combined ratio may be calculated gross or net of REINSURANCE, in respect of RETROCESSIONs, on an ultimate basis or in respect of earned premiums.

COMMISSION

An allowance made by the REINSURER for part or all of a CEDING COMPANY's acquisition and other costs, including taxes. Compare CONTINGENT COMMISSION, PROFIT COMMISSION and OVERRIDING COMMISSION.

COMMON ACCOUNT [UK]

A term used to describe the joint interests of a CEDING COMPANY and its REINSURER or REINSURERs. Compare COMMON ACCOUNT EXCESS CONTRACT and COMMON ACCOUNT PROTECTION.

COMMON ACCOUNT EXCESS CONTRACT [UK]

A term used to describe the joint interests of a CEDING COMPANY and its REINSURER or REINSURERs as regards their EXCESS OF LOSS REINSURANCE contracts exclusively. Compare COMMON ACCOUNT and COMMON ACCOUNT PROTECTION.

COMMON ACCOUNT PROTECTION [UK]

A special form of treaty to cover all members of a POOL including insurers and REINSURERs. Compare COMMON ACCOUNT and COMMON ACCOUNT EXCESS CONTRACT.

COMMUTATION AGREEMENT [USA]

An agreement between the CEDING COMPANY and the REINSURER that provides for the valuation, payment and complete discharge of all obligations between the parties under a particular reinsurance contract or contracts. Although more common where the ceding company or reinsurer has concerns about the other party's financial condition, commutation agreements can be used whenever the parties wish to settle and discharge all future obligations.

COMMUTATION CLAUSE

The clause in a reinsurance agreement which provides for the valuation, payment, and complete discharge of all obligations between the CEDING COMPANY and the REINSURER, including future obligations for reinsurance losses incurred. The clause is most often found in workers' compensation reinsurance contracts where future payments are of a continuous and generally known value. Also MANDATORY COMMUTATION CLAUSE.

CONFLAGRATION COVER (Chiefly Australian)

A reinsurance protection specifically designed to cover the hazard of extensive and widespread fire damage.

CONTINGENCY (EXCESS) COVER [USA]

An EXCESS OF LOSS REINSURANCE agreement with a retention level equal to or higher than the maximum limits written any one reinsured policy or contract. Usually applicable to casualty lines business, the clash cover is intended to protect the CEDING COMPANY against accumulations of loss arising from multiple insureds and/or multiple lines of business for one insured involved in one loss occurrence. Also CLASH COVER and CONTINGENCY CLASH.

CONTINGENCY CLASH [USA]

An EXCESS OF LOSS REINSURANCE agreement with a retention level equal to or higher than the maximum limits written any one reinsured policy or contract. Usually applicable to casualty lines business, the clash cover is intended to protect the CEDING COMPANY against accumulations of loss arising from multiple insureds and/or multiple lines of business for one insured involved in one loss occurrence. Also CLASH COVER and CONTINGENCY (EXCESS) COVER.

CONTINGENT COMMISSION

An allowance payable to the CEDING COMPANY in addition to the normal CEDING COMMISSION, based on a predetermined percentage of the REINSURER's net profits after a charge for the reinsurer's overhead, which is derived from the subject treaty. Also PROFIT COMMISSION.

CONTINUOUS CONTRACT [USA]

A form of reinsurance contract for accepting new business which does not terminate automatically but rather is intended to continue from year to year unless 1) one of the parties delivers notice of intent to discontinue or 2) termination is mutually agreed upon in accordance with the termination provisions of the contract.

CONTRIBUTORY REINSURANCE [UK]

A form of QUOTA SHARE REINSURANCE mostly used in non-marine reinsurance.

CONVENTION BLANK [USA]

The annual report format prescribed by the NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS and the states. Also ANNUAL STATEMENT, STATUTORY ANNUAL STATEMENT. Sometimes referred to as the "Yellow Book".

COVER NOTE

A statement indicating that the coverage has been placed. Compare BINDER.

CREDIT CARRY-FORWARD [UK]

The transfer of credit or profit from one accounting period under a SPREAD LOSS REINSURANCE treaty or other form of long-term REINSURANCE TREATY to the succeeding accounting period.

CREDIT FOR REINSURANCE [USA]

A statutory accounting procedure permitting a CEDING COMPANY to treat amounts due from REINSURERs as assets or reductions from liability based on the status of the REINSURER.

CURRENCY CLAUSE [UK]

A clause in a reinsurance contract specifying the funds with which premiums and losses are to be paid. This clause may also specify conditions for conversion of currency.

CUT-OFF

The termination provision of a reinsurance contract stipulating that the REINSURER shall not be liable for losses as a result of occurrences taking place after the date of termination. Also CLEAN-CUT.

CUT-THROUGH CLAUSE [UK]

An ENDORSEMENT added to an insurance policy to provide that, in the event of the insolvency of the insurance company, the amount of any loss which would have been recovered from the REINSURER by the insurance company will be paid instead directly to the policyholder by the reinsurer. Also CUT-THROUGH ENDORSEMENT, ASSUMPTION CERTIFICATE, ASSUMPTION OF LIABILITY ENDORSEMENT - ALE. Compare GUARANTEE ENDORSEMENT.

CUT-THROUGH ENDORSEMENT [USA]

An ENDORSEMENT added to an insurance policy to provide that, in the event of the insolvency of the insurance company, the amount of any loss which would have been recovered from the REINSURER by the insurance company will be paid instead directly to the policyholder by the reinsurer. Also CUT THROUGH CLAUSE, ASSUMPTION CERTIFICATE, ASSUMPTION OF LIABILITY ENDORSEMENT - ALE. Compare GUARANTEE ENDORSEMENT.

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