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MANDATORY 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 COMMUTATION CLAUSE.
MAJOR LOSS
Losses whose cost to the REINSURER exceeds a predetermined limit, for example 30 million US dollars, before reinsurance and tax. In most companies, major losses are controlled and monitored on an individual basis.
MERIT 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 EXPERIENCE RATING, LOSS RATING. Compare RETROSPECTIVE RATING and PROSPECTIVE RATING.
MINIMUM PREMIUM [USA]
An amount of premium which will be charged (usually for an EXCESS OF LOSS REINSURANCE contract), not withstanding that the actual premium developed by applying the rate to the SUBJECT PREMIUM could have produced a lower figure. Compare DEPOSIT PREMIUM.
MORTGAGE GUARANTOR ENDORSEMENT
An ENDORSEMENT added to an insurance policy covering the policyholder's mortgaged property to provide that, in the event of the insolvency of the insurance company, the REINSURER shall pay directly to the mortgage guarantor and/or the policyholder the amount of loss which would have been recovered from the reinsurer by the insurance company. The endorsement may provide that the reinsurer will pay the full loss amount in accordance with the insurance protection afforded by the insurance company. The MORTGAGE GUARANTOR ENDORSEMENT is similar in concept to the CUT-THROUGH ENDORSEMENT. Also GUARANTEE ENDORSEMENT.
NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS - NAIC [USA]
An association of the chief insurance regulatory officials of the 50 states, the District of Columbia, American Samoa, Guam, Puerto Rico and the Virgin Islands.
NET LINE [UK]
GROSS LINE on an individual risk less all reinsurance ceded. Also NET RETAINED LINE.
NET LOSS
The amount of loss sustained by an insurer after deducting all applicable REINSURANCE, salvage, and subrogation recoveries.
NET RETAINED LIABILITY
The amount of insurance which a CEDING COMPANY keeps for its own account and does not reinsure in any way (except in some instances for CATASTROPHE REINSURANCE). Also NET RETENTION.
NET RETAINED LINE
GROSS LINE on an individual risk less all reinsurance ceded. Also NET LINE.
NET RETENTION [UK]
The amount of insurance which a CEDING COMPANY keeps for its own account and does not reinsure in any way (except in some instances for CATASTROPHE REINSURANCE). Also NET RETAINED LIABILITY.
NET UNDERWRITING INCOME
In reinsurance, the sum of all income from reinsurance operations less the related expenses but not those expenses relating to MAJOR LOSSes and reinsurance protection.
NINETY-DAY RULE [USA]
The ANNUAL STATEMENT requirement which provides that an insurer may not take credit for certain balances when it has reinsurance recoverables over ninety days past due.
NO CLAIM BONUS [UK]
A form of PROFIT COMMISSION under which the CEDING COMPANY receives a stated percentage of the premium ceded in the event no claims are presented under the REINSURANCE TREATY for a stipulated period of time. The no claim bonus differs from an ordinary profit commission in that no distribution occurs if any claims are made even if the treaty may have produced a profit.
NON-ADMITTED REINSURANCE
In American ceding companies, REINSURANCE for which no credit is given in the CEDING COMPANY's ANNUAL STATEMENT because the REINSURER is not licensed or authorized to transact business in the jurisdiction in question. Also UNAUTHORIZED REINSURANCE.
NON-ADMITTED REINSURER
In American ceding companies, a REINSURER is "non-admitted" when it has not been licensed or recognized by an insurance authority or statutory body of a state or country and, as such, does not have to submit itself to or conform with statutory regulations. Usually no credit is given in the CEDING COMPANY's ANNUAL STATEMENT for reinsurance provided by a non-admitted reinsurer. Also UNAUTHORIZED REINSURER.
NON-TRADITIONAL 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, LIMITED RISK REINSURANCE, FINANCIAL REINSURANCE. Compare ALTERNATIVE RISK TRANSFER.
OBLIGATORY TREATY [USA]
A REINSURANCE contract under which business must be ceded in accordance with contract terms and must be accepted by the REINSURER. Also AUTOMATIC TREATY.
OFFSET [USA]
The reduction of the amount owed by one party to a second party by crediting the first party with amounts owed it by the second party. The existence and scope of offset or set off rights may be determined by contract language as well as statutory, regulatory and common law. Also SETOFF.
OR AS ORIGINAL [UK]
An expression indicating that the terms underwritten by the REINSURER are on exactly the same basis as those of the CEDENT on the original policy. Also ORIGINAL POLICIES and ORIGINAL TERMS.
ORIGINAL GROSS RATE [UK]
The original rate charged to the insured by the insurer.
ORIGINAL NET PREMIUM [UK]
The net PREMIUM INCOME of the CEDING COMPANY
ORIGINAL NET RATE [UK]
The ORIGINAL GROSS RATE charged to the insured by the insurer less the original deductions.
ORIGINAL NET RETAINED PREMIUM [UK]
The part of the net PREMIUM INCOME retained by the CEDING COMPANY.
ORIGINAL POLICIES [UK]
An expression indicating that the terms underwritten by the REINSURER are on exactly the same basis as those of the CEDENT on the original policy. Also OR AS ORIGINAL and ORIGINAL TERMS.
ORIGINAL TERMS [UK]
An expression indicating that the terms underwritten by the REINSURER are on exactly the same basis as those of the CEDENT on the original policy. Also OR AS ORIGINAL and ORIGINAL POLICIES.
OTHER REINSURANCE CLAUSE [UK]
This clause generally permits the REINSURED to make loss recoveries under other REINSURANCE contracts without penalty. It permits reinsurance contracts to supplement each other to make up a reinsurance program.
OUTSTANDING LOSS RESERVE [UK]
REINSURANCE TREATY provision entitling the CEDING COMPANY to retain a specified amount of money to cover claims that have been presented to the ceding company but have not yet been actually settled under the original policy. At the time of the settlement, the proportion recoverable from the REINSURER is then collected and the amount set up in the reserve for that particular claim is released to the reinsurer's credit.
OUTSTANDING LOSSES [UK]
Losses that have been provisionally advised by the insured or reinsured but which are in the process of investigation and so have not been settled. See LOSS RESERVE.
OUTWARDS TREATY [UK]
A term used to describe a REINSURANCE TREATY that protects the account of a CEDENT.
OVER-LINE
The amount of insurance or REINSURANCE exceeding the insurer's or REINSURER 's normal CAPACITY inclusive of automatic (also obligatory) reinsurance facilities.
OVERRIDING COMMISSION
An allowance paid to the CEDING COMPANY over and above the ACQUISITION COST to allow for overhead expenses and often including a margin for profit.
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