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Glossary

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DEDUCTIBLE

Specified amount of risk which attaches to the CEDING COMPANY and/or the underlying REINSURER before an excess of loss reinsurer becomes involved in payment. Compare RETENTION.

DEFICIT (CARRY-FORWARD or CARRY-BACK) [UK]

In reinsurance, the term refers to any excess of charges over credits at the end of any accounting period, which shall be a charge in the computation for the succeeding accounting period.

DEFICIT CLAUSE [UK]

A clause in a reinsurance contract which provides for the carry-forward of debit or loss under a treaty from one accounting period to another.

DEPOSIT PREMIUM [USA]

The amount of premium (usually for an EXCESS OF LOSS REINSURANCE contract) that the CEDING COMPANY pays to the REINSURER on a periodic basis during the term of the contract. This amount is generally determined as a percentage of the estimated amount of premium which the contract will produce based on the rate and estimated SUBJECT PREMIUM. It is often the same as the MINIMUM PREMIUM but may be higher or lower. The deposit premium will be adjusted to the higher of the actual developed premium or the minimum premium after the actual SUBJECT PREMIUM has been determined.

DIRECT WRITER [USA]

A reinsurance company which develops its business by using its own personnel and does not (ordinarily) accept business from a BROKER or INTERMEDIARY. Also DIRECT WRITING REINSURER.

DIRECT WRITING REINSURER [USA]

A reinsurance company which develops its business by using its own personnel and does not (ordinarily) accept business from a BROKER or INTERMEDIARY. Also DIRECT WRITER.

DROP-DOWN [USA]

An approach to establishing the retention level in EXCESS OF LOSS REINSURANCE (usually CATASTROPHE REINSURANCE) under which the amount of the RETENTION is reduced for the second (or subsequent) loss occurrence. The theory is that the CEDING COMPANY can afford to retain a given retention level on one loss, but for additional loss or losses needs protection over the lower RETENTION. Also SECOND EVENT RETENTION.

EARNED REINSURANCE PREMIUM

The portion of a REINSURANCE PREMIUM payment for which protection of the reinsurance has already been given. For example, a REINSURER is considered to have earned 75% of an annual premium if a period of nine months has elapsed from the inception date to the close of the financial year. Unearned premiums are the net written premiums relating to that portion of the term of reinsurances which fall within subsequent periods and which are deferred to such subsequent periods. Unearned premiums represent the portion of premiums due and accrued in respect of a protection period which has not as yet occurred.

ENDORSEMENT [UK]

The document issued to form part of and alter or modify a REINSURANCE TREATY in the same manner as it is used to modify an insurance policy.

ERRORS AND OMISSIONS CLAUSE

The clause in a reinsurance contract which stipulates that in the event of inadvertent error or omission, the REINSURED shall not be prejudiced in the fulfillment of the agreement, provided that any error or omission shall be corrected as soon as discovered.

EX GRATIA PAYMENT [UK]

A payment made for which the company is not liable under the terms of its policy usually in lieu of incurring greater legal expenses in defending a claim.

EXCESS OF LINE REINSURANCE [UK]

A term used in marine reinsurance synonymous with SURPLUS REINSURANCE and SURPLUS SHARE REINSURANCE used in non-marine reinsurance.

EXCESS OF LOSS REINSURANCE

A form of REINSURANCE that, subject to a specified limit, indemnifies the CEDING COMPANY against the amount of loss in excess of a specified RETENTION. It includes various types of a reinsurance such as CATASTROPHE REINSURANCE, EXCESS PER RISK REINSURANCE, per occurrence reinsurance and AGGREGATE EXCESS OF LOSS REINSURANCE. Sometimes referred to as NON-PROPORTIONAL REINSURANCE.

EXCESS OF LOSS REINSURANCE CLAUSE [UK]

A clause that provides that the REINSURER will indemnify the REINSURED for excess losses from the business reinsured, without specific CESSION of liability to the reinsurer.

EXCESS PER RISK REINSURANCE

A form of EXCESS OF LOSS REINSURANCE that, subject to a specified limit, indemnifies the CEDING COMPANY against the amount of loss in excess of a specified RETENTION for each risk involved in each occurrence.

EXCLUSIONS [USA]

Any specific class of business which may not be ceded by the CEDING COMPANY under the terms of a treaty.

EXPERIENCE RATING [USA]

A method of rating, usually applying to EXCESS OF LOSS REINSURANCE, under which the rate is determined based on the ceding insurer's historical loss experience, actual or reconstructed, rather than on the exposure inherent in the business. Both LOSS RATING and EXPOSURE RATING can be used as different rating approaches by the reinsurance underwriter to calculate the price that is quoted. Also LOSS RATING, MERIT RATING. Compare RETROSPECTIVE RATING and PROSPECTIVE RATING.

EXPERIENCE RATIO [UK]

The percentage of premium used to pay all the costs of acquiring, writing and servicing insurance and reinsurance.

EXPOSURE RATING [USA]

A method of rating, usually applied to EXCESS OF LOSS REINSURANCE, under which the rate is determined based on an analysis of the exposure inherent in the business to be covered and not on the loss experience the business has demonstrated in the past. Both exposure rating and loss rating can be used by the reinsurance underwriter to determine the price that is quoted.

EXTRA-CONTRACTUAL OBLIGATIONS CLAUSE - ECO CLAUSE [USA]

A clause in a REINSURANCE TREATY which, for a premium, protects the CEDING COMPANY against all or part of its liability arising from claim settlement activities falling outside of policy provisions.

FACULTATIVE CERTIFICATE OF REINSURANCE [USA]

A contract formalizing a reinsurance CESSION on a specific risk.

FACULTATIVE OBLIGATORY TREATY [USA]

A reinsurance contact under which the CEDING COMPANY may CEDE exposures or risks of a defined class that the REINSURER must accept if ceded. Also SEMI-OBLIGATORY TREATY and SEMI-AUTOMATIC TREATY.

FACULTATIVE REINSURANCE

Reinsurance of individual risks by offer and acceptance wherein the REINSURER retains the "faculty" to accept or reject each risk offered by the CEDING COMPANY. Also SPECIFIC REINSURANCE.

FACULTATIVE TREATY

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, AUTOMATIC FACULTATIVE TREATY.

FAIR ACCESS TO INSURANCE REQUIREMENTS PLAN - FAIR PLAN [USA]

Means fair access to insurance requirements controlled within the USA by the respective State Insurance Commissioner. Reinsurance facility used by insurance companies for certain types of undesirable insurance business.

FINANCIAL REINSURANCE [USA]

A term used to describe a broad spectrum of treaty reinsurance arrangements which provide reinsurance coverage at lower margins than traditional reinsurance, in return for a lower probability of loss to the REINSURER. This reinsurance is often multi-year and financially oriented, and can provide a means of financial management beyond that usually provided by traditional reinsurance. Also FINITE RISK REINSURANCE, NON-TRADITIONAL REINSURANCE, LIMITED RISK REINSURANCE. Compare ALTERNATIVE RISK TRANSFER.

FINITE RISK REINSURANCE [USA]

A term used to describe a broad spectrum of treaty reinsurance arrangements which provide reinsurance coverage at lower margins than traditional reinsurance, in return for a lower probability of loss to the REINSURER. This reinsurance is often multi-year and financially oriented, and can provide a means of financial management beyond that usually provided by traditional reinsurance. Also NON-TRADITIONAL REINSURANCE, LIMITED RISK REINSURANCE, FINANCIAL REINSURANCE. Compare ALTERNATIVE RISK TRANSFER.

FIRST LOSS REINSURANCE [UK]

A reinsurance whereby the REINSURER agrees to reimburse the CEDENT in respect of all claims paid on the original policy up to an agreed fixed amount on a FACULTATIVE REINSURANCE, or up to an agreed amount in respect of any one loss on an OPEN COVER or REINSURANCE TREATY.

FIRST SURPLUS TREATY [UK]

One of the oldest forms of PROPORTIONAL REINSURANCE treaty under which the PRIMARY INSURER cedes all amounts in excess of the agreed RETENTION to the REINSURER, who accepts them up to the limit of the reinsurance any one LINE. The claims presented to reinsurer by the CEDENT are reimbursed in the proportion the ceded line bears to the total acceptance of the original.

FLAT RATE

A reinsurance premium rate applicable to the entire PREMIUM INCOME derived by the CEDING COMPANY from the business ceded to the REINSURER as distinguished from a rate applicable to excess limits.

FLAT RATE PREMIUM

A fixed rate premium not subject to any subsequent adjustment.

FOLLOW THE FORTUNE CLAUSE

A clause in a REINSURANCE TREATY that expresses the intention to set up a partnership so that the REINSURER shares whatever fortune, good or bad, befalls the CEDENT.

FOLLOWING REINSURER [USA]

A REINSURER which accepts the business ceded based on the terms of a contract primarily negotiated by another reinsurer, known as the lead reinsurer. Compare LEAD REINSURER.

FOREIGN INSURER [USA]

A U.S. domiciled insurer which is domiciled in a state other than the jurisdiction in question. Compare ALIEN INSURER.

FROM THE GROUND UP - FGU

A term referring to reinsurance losses subject to the contract under consideration before the application of any RETENTION, but after reduction because of any other reinsurance which inures to the benefit of the coverage being considered. Also sometimes used to describe losses before reduction for inuring reinsurance. Also GROSS LOSS.

FRONTING [USA]

Arrangements by which an authorized insurer, for a specified fee or premium, issues its policy or policies to cover certain risks underwritten or otherwise managed by unauthorized insurers and then transfers all, or substantially all, of its liability to such unauthorized insurers by means of reinsurance.

FUNDS WITHHELD [USA]

A provision in a REINSURANCE TREATY under which the premium due the REINSURER, usually an unauthorized reinsurer, is not paid but rather is withheld by the CEDING COMPANY to enable the ceding company to reduce the provision for unauthorized reinsurance in its STATUTORY ANNUAL STATEMENT. The reinsurer's asset, in lieu of cash, is "Funds held by or deposited with reinsured companies."

FUTURE POLICY BENEFITS AND OTHER POLICY LIABILITIES

TECHNICAL RESERVES booked in respect of life insurance or reinsurance contracts.

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