The practice of insuring again. One of the functions of the Direct Insurance is to spread the loss so that the losses of the few who have claims will be carried by the many insuring that type of risk. Reinsurance further spreads the risk so that the Insurers of the few who have claims will be protected from individual heavy losses by the Reinsurance market meeting a substantial part of the claim. The Company with which the public insure is called a Direct or Ceding office and the Company accepting business from the Ceding office is called a Reinsurer. Reinsurance ceded is the unit of insurance transferred to a reinsurer by a ceding company. In India, Reinsurance of General Insurance is being governed by IRDA General Insurance – Reinsurance Regulations, 2000.
Reinsurance, Admitted Reinsurer: A Company is deemed to be “admitted” in India when it has been licensed and accepted by IRDA. In determining its financial condition, a ceding insurer is allowed to take credit for the unearned premiums and unpaid claims on the risks reinsured if the reinsurance is placed in an admitted reinsurance company.
Reinsurance, Agency Reinsurance: A contract of reinsurance that is confined to business produced by a named agent of the insurer generated by that agent and administered directly with the reinsurer as allowed by the insurer. While there are other reasons for such practice, the facility allows an agent to issue larger policies that his insurer would otherwise restrict. Usually, agency reinsurance is written on pro-rata basis for property or other first party insurances.
Reinsurance, Aggregate Excess of Loss: A form of Excess of Loss Reinsurance that indemnifies the ceding company against the amount by which its losses incurred during a specific period, usually 12 months, exceed either (01) a predetermined amount, or (02) a percentage of the company’s premium (loss ratio) for that period. This is commonly referred to as Stop Loss Reinsurance or Excess of Loss Ratio Reinsurance.
Reinsurance, Alternative Risk Financing: Use of the capacity available on capital markets to cover insurance to cover insurance risks e.g. through the securitization of natural catastrophe risks. Refer: “Risk Management: Alternate Risk Transfer (ART).”
Reinsurance, Alternative Risk Transfer: Refer: “Risk Transfer, Alternate: Alternate Risk Transfer: (ART)”
Reinsurance, Anniversary Reinsurance: This is the date for renewal of a reinsurance contract whether the contract actually expires or is continuous. The date is usually twelve months from the effective date of the contract. In provisions dealing with run off of contracts the anniversary date is that of the underlying policies and not the reinsurance contract.
Reinsurance, Arbitration Clause: Language providing a means of resolving differences between the reinsurer and the reinsured without litigation. Usually, each party appoints and arbiter. The two thus appointed select a third arbiter, or umpire, and a majority decision of the three becomes binding on the parties to the arbitration proceedings.
Reinsurance, As If: This is a method for recalculation of prior years of reinsurance experience to demonstrate what the underwriting results of a particular program would have been if the proposed program had been “as if” in force during that period.
Reinsurance, assume (Also, Accept), Reinsurance: Accept all or part of reinsurer’s insurance or reinsurance on a risk or exposure through various forms of reinsurance.
Reinsurance, Assumption Certificate: A statement of coverage by the reinsurer under which payment is guaranteed to a party not in privity with the reinsurance contract. Same as Cut-Through Clause.
Reinsurance, Atomic Energy Reinsurance Pool (Mutual Atomic Energy Reinsurance Pool): A group of mutual insurance companies which reinsure Liability policies written on private nuclear energy reactors. Most insurance contracts exclude this coverage, and it can usually only be provided by a pool.
Reinsurance, Authority India: Authority means the Insurance Regulatory and Development Authority.
Reinsurance, Automatic Treaty: Reinsurance of specified types of risks which is automatically ceded and accepted within the terms of the contract, called a treaty, without consideration of each one individually. The reinsurance takes effect as soon as the original contract is in force. Same as Obligatory Reinsurance.
Reinsurance, Balance of a Treaty: The ratio of the total premiums receivable by a reinsurer under a surplus treaty to the reinsurer’s maximum liability for any one claim, based on EML.
Reinsurance, Balanced Portfolio: The total business of an insurer that has been so arranged by selection and reinsurance as to safeguard the financial equilibrium of the Company.
Reinsurance, Binder: A record of reinsurance arrangements pending the issuance of a formal reinsurance contract which then replaces the binder.
Reinsurance, Blind Treaty: A Reinsurance treaty where Insurers are not given details of individual risks ceded to them.
Reinsurance, Block Rating: A method used for calculating the premium in an excess of loss Reinsurance contract.
Reinsurance, Bordereau: (Plural Bordereaux): A tabular statement of risk, premiums and/or losses supplied by a Ceding office to a Reinsurer under the contract.
Reinsurance, Brokers: Intermediaries who place Reinsurance business with Reinsurers on behalf of Ceding companies.
Reinsurance, Broker’s Open Cover: The facility for a Reinsurance Broker to arrange automatic Reinsurance.
Reinsurance, Burning Cost: A term most frequently used in spread loss property reinsurance to express pure loss cost or more specifically the ratio of incurred losses within a specified amount in excess of the ceding company’s retention to its gross premium over a stipulated number of years.
Reinsurance, Cancellation (a) Run – off basis: Run off basis means that the liability of the reinsurer under policies, which became effective under the treaty prior to the cancellation date of such treaty, shall continue until the expiration date of each policy; (b) Cut off basis: Cut off basis means that the liability of the reinsurance under policies which became effective under the treaty prior to the cancellation date of such treaty, shall cease with respect to losses resulting from accidents taking place on and after said cancellation date. Usually the reinsurer will return to the company the unearned premium portfolio, unless the treaty is written on an earned premium basis.
Reinsurance, Cancelling Returns only: A provision found chiefly in Marine Hull reinsurance that no return of premium will be allowed except where the policy is cancelled.
Reinsurance, Capacity: (i) Largest amount of Insurance or Reinsurance available from an Insurer or group of Insurers. In a broader sense, the largest amount of Insurance or Reinsurance available in the market. (ii) Maximum amount of Insurance that a Company will write on a single risk.(iii) The percentage of surplus or the rupee amount of exposure that an insurer or reinsurer is willing to place at risk. Capacity may apply to a single risk, a program, a line of business, or an entire book of business.
Reinsurance, Carpenter Cover: (01) The working cover subject to a prospective rating plan. (02) A form of excess reinsurance wherein each year’s premium rate is determined by the amount of the ceding insurer’s excess losses for a specified number of preceding years. A form of experience rating. Refer: “Spread Loss Reinsurance.”
Reinsurance, Cash Loss: It is a provision common in proportional contracts which facilitate a reinsured to make a claim and receive immediate settlement for a large loss outside of the usual periodic accounting and settlement procedure.
Reinsurance, Catastrophe or Per Event Covers: Which protect a Company against very large losses caused by events like conflagrations, cyclone, floods etc. The distinction between a ‘per event’ cover and a ‘per risk’ cover is that in the former, the loss may cover one or more than one risk, but when it affects more than one risk, it should have arisen from one event. Refer: “Per risk or working cover.”
Reinsurance, Cedant: This is another way to refer to the reinsured or ceding insurer.
Reinsurance, Ceding Commission: The cedant’s acquisition costs and overhead expenses, taxes, licenses and fees, plus a fee representing a share of expected profits – sometimes expressed as a percentage of the gross reinsurance premium.
Reinsurance, Ceding Company: (i) Insurance Company that places Reinsurance business of its original risk with a Reinsuring Company. (ii) An Insurer who purchases and is entitled to indemnification under a contract of Reinsurance (also known as the Reinsured).
Reinsurance, Certificate: Issued in evidencing Reinsurance between companies.
Reinsurance, Certificate of Reinsurance: A short-form documentation of a reinsurance transaction.
Reinsurance, Cession: (01) An Exactly stated yielding of a property or right under a Reinsurance agreement. A Reinsurance. An amount ceded as Reinsurance. (02) The amount given off by way of Reinsurance and therefore amount accepted by the Reinsurer.
Reinsurance, Cession, IRDA: As per IRDA Cession means the unit of insurance passed to a reinsurer by the insurer which issued a policy to the original insured, and accordingly, a cession may be the whole or a portion of a single risk, defined policies or defined divisions of business, as agreed in the reinsurance contract.
Reinsurance, Cession, Priority: A priority cession is Reinsurance which is ceded before Ceding to the Company’s normal treaties.
Reinsurance, Claim A demand made by an insurer on its reinsurer(s) to be paid under a reinsurance contract. A claim is payable under an insurance or reinsurance contract if it is caused by an insured peril and it is not excluded under the terms of that contract.
Reinsurance, Claim Control Clause: A clause in a Reinsurance contract requiring the Reinsured to give immediate advice to the Reinsurance of any claim that will attach to the Reinsurance contract before he settles it on the original Policy. The clause may require that the Reinsurer’s approval be obtained before the original claim is settled. The Reinsured will be expected to cooperate with the Reinsurer in defending the original claim at the Reinsurer’s option.
Reinsurance, Claim Ratio: The ratio of paid or incurred claims to earned premiums over a defined period. Alternatively it may be the ratio of paid or incurred claims on business written in an underwriting period to the written premiums for that period. It may be either net or gross of reinsurance. Also, often called the loss ratio.
Reinsurance, Claiming Cash: A Right which insurers may have to ask reinsurers for immediate settlement of a substantial claim rather than wait for the regular periodical settlement.
Reinsurance, Claim-Made basis (Policy attaching basis): A form of reinsurance under which the date of claim reported is deemed to be the date of the loss event. Claims reported during the term of the reinsurance agreement are therefore covered, regardless of when they occurred. A claims made agreement is said to “cut of the tail” on liability business by not covering claims reported after the term of reinsurance agreement – unless extended by special agreement. See. Occurrence basis.
Reinsurance, Claims Cooperation Clause: A clause in a reinsurance treaty providing for early notice of possible claims and cooperation in the defence of claim that may affect the reinsurer and stipulating that the insurers shall not admit liability for such a claim without the reinsurer’s consent.
Reinsurance, Closed Year: A year for which provisions for all future claims arising in the year are established. Also A year of account that has been closed into another year of account by means of a reinsurance to close contract. Historically most Lloyd’s syndicates have operated a three year underwriting account according to which the profit or loss of an underwriting account is determined by the managing agent 36 months after the beginning of that account which is always the start of a calendar year. According to this system the normal closure date of the 2014 year of account (which commenced on 1 January 2014) was 31 December 2016, with the calculation of the reinsurance to close as at that date being finalized in or about February/March 2016.
Reinsurance, Closing an account: Making a Reinsurance provision to cover outstanding losses, so that reserves and profit can be released.
Reinsurance, Closing Particular: Final advice on full particulars of risk for which placement with reinsurer is completed.
Reinsurance, Co-Insurance: A treaty provision calling for the sharing of obligations between or among two or more Reinsurers.
Reinsurance, Combination Plans: A form of combined reinsurance which provides that in consideration of a premium, which is a fixed percentage of the ceding company’s subject premium on the business covered, the reinsurer will indemnify the ceding company for the amount of loss of each risk in excess of a specified retention and subject to a specified limit and after deducting the excess recoveries on each risk, the reinsurer will indemnify the ceding company against a fixed quote share percent of all remaining losses.
Reinsurance, Commission: Commission allowed by the Reinsurer to the Ceding Company on the premium ceded. Besides, covering the original acquisition cost of the Ceding Company, a margin is allowed for expenses.
1. Profit Commission or Contingent Commission: An additional commission payable by the Reinsurers to the Ceding Company as a percentage of profits derived from the business. It is a pre-determined percentage of the reinsurer’s net profits after a charge for the reinsurer’s overhead, derived from the subject treaty.
2. Overriding Commission: Commission payable in addition to the original commission particularly under retrocession treaties.
3. Sliding Scale Commission: A ceding commission which varies inversely with the loss ratio under the reinsurance agreement, the scales are not always one to one; for example, as the loss ratio decreases by 1%, the ceding commission might increase only 5%.
4. Super Profit Commission: Overriding profit commission payable in addition to the original profit commission particularly under retrocession and/or reciprocal treaties.
Reinsurance, Commission Reinsurance Intermediary: (a) Agent’s commission: A percentage of premium paid to an agent for insurance placement services (b) Brokerage: A percentage or a fee paid to a broker for insurance or reinsurance placement services.
Reinsurance, Commutation Clause: A Clause in a reinsurance agreement, which provides for estimation, payment and complete discharge of all future obligations for reinsurance losses incurred regardless of the continuing nature of certain losses such as unlimited medical and lifetime be Worker’s Compensation.
Reinsurance, Contingent (or Profit) Commission: An allowance payable to the ceding insurer, in addition to the normal ceding commission, based on the net profit derived from a reinsurance treaty.
Reinsurance, Contributing Excess: Where there is more than one reinsurer sharing a line of insurance on a risk in excess of a specified retention, each such reinsurer shall contribute towards any excess loss in proportion to his original participation in such risk.
Reinsurance, Co-Reinsurance: Similar to co-insurance, but referring to reinsurance of risk rather than insurance.
Reinsurance, Cover Limit: The maximum amount for which the Reinsurer is liable to the Ceding Company in the event of a loss, in excess of the deductible.
Reinsurance, Cover Note: This is a statement in writing indicating that coverage is in place. In reinsurance this is also evidenced by the Slip.
Reinsurance, Cut Off: The termination provision of a reinsurance contract stating that the reinsurer shall not be liable for loss as a result of occurrences taking place after the date of termination.
Reinsurance, Cut-Through Clause: The clause provides that in the event of the reinsured’s insolvency any part of a loss covered by reinsurance be paid directly to the original insured by the reinsurer. This is an exception to the legality of privity of contract.
Reinsurance, Cut-Through Endorsement: Guarantee of coverage by a Reinsurer to a third party who is not a party to the Reinsurance contract
Reinsurance, Deposit Premium: This arises when the actual premium awaits the outcome of the completion of the treaty or contract period. AT inception the reinsurer therefore receives premium as a deposit subject to its adjustment on completion of treaty or contract period.
Reinsurance, Development Statistics: A statement by an original insurer showing details of every claim falling within a proposed reinsurance with figures for the amounts paid and outstanding at the end of each year from the date of occurrence until final settlement.
Reinsurance, Direct Written Premium: This is all the premium income of an insurer, adjusted for additional or return premiums, prior to any reinsurance ceded or reinsurance assumed.
Reinsurance, Discovery Cover: A reinsurance treaty covering losses that are discovered during the term of the treaty regardless of when they were sustained.
Reinsurance, Earned Premium: (01) That part of the premium applicable to the expired part of the policy period, including the short-rate premium on cancellation, the entire premium on the amount of loss paid under some contracts, and the entire premium on the contract on the expiration of the policy. (02) That portion of the reinsurance premium calculated on a monthly, quarterly or annual basis which is to be retained by the reinsurer should there cession be cancelled. (03) When a premium is paid in advance for a certain time, the company is said to “earn” the premium as the time advances. For example, a policy written for three years and paid for in advance would be one-third “earned” at the end of the first year.
Reinsurance, Equitas: Equitas is the general label given to a group of companies linked to Lloyd’s of London. It was set up in 1996 specifically to reinsure liabilities that had accumulated in the syndicates at Lloyd’s of London on policies written from the 1930s up to and including 1992. This business was reinsured by Equitas Reinsurance Limited, which was also appointed as run-off agent. The liabilities were retroceded to Equitas Limited, to which Equitas Reinsurance Limited has also delegated its run-off function. The proposal to set up the structure was accepted by 90% of the 34,000 ‘Names’ who under-wrote policies at Lloyd’s, and it became mandatory for all members to reinsure their liabilities into Equitas. When it started it had £15 bn of liabilities at net present value, which were expected to take up to 40 years to settle. It also had assets amounting to 105% of the liabilities, making it the largest start-up company to date. It is not allowed to take on fresh business but it remains the largest solvent run-off reinsurer globally. Equitas is run by directors. It is owned by trustees who hold the shares on behalf of those who reinsured their liabilities into it.
Reinsurance, Errors and Omission Clause: A provision in reinsurance agreement which is intended to neutralize any change in liability or benefits as a result of an inadvertent error by either party.
Reinsurance, Ex Gratia Payment: A payment made for which company is not liable under the terms of the Policy. Usually made in lieu of incurring greater legal expenses in defending a claim. Rarely encountered in reinsurance as the reinsurer by custom and for practical reasons follows the fortunes of the ceding company.
Reinsurance, Excess Line Broker: A reinsurance broker who places a surplus line.
Reinsurance, Excess of Average Loss: Excess of loss ratio reinsurance where the excess point is recalculated annually as a moving average of the loss ratio experienced over an agreed number of preceding years and the ceding company is required to bear an agreed share of any loss in excess of that average.
Reinsurance, Excess of Line: The marine insurance equivalent of surplus reinsurance.
Reinsurance, Excess of Loss Cover to Protect an Excess of Loss Portfolio: A Company may have in its books an inward Reinsurance portfolio of excess of loss covers involving not only considerable limits of liability on individual covers accepted, but also inevitable accumulation of liability, in that a number of such covers may be affected by a single event. An excess of loss protection may be arranged to limit such accumulations to a definite figure in respect of any one event.
Reinsurance, Excess of Loss Ratio (Aggregate Excess of Loss Reinsurance): Excess of loss Reinsurance that indemnifies the Ceding Insurer against the amount by which its losses incurred during a specific period, usually twelve months, exceed either (i) a predetermined rupee amount, or (ii) a percentage of the Insurer’s premium for that period. Commonly referred to as “stop loss Reinsurance” or “excess of loss ratio Reinsurance”.
Reinsurance, Excess of Loss Reinsurance: Generic term describing Reinsurance which subject to a specified limit, indemnifies the Ceding Insurer for amounts of loss in excess of specified retentions. (ii) Reinsurance which indemnifies the Ceding Company for the portion of any loss resulting from a single occurrence, however defined, that exceeds a predetermined amount, which is known as a first loss retention or deductible.
Reinsurance, Excess Per Risk Insurance: A form of Excess of Loss Reinsurance which, subject to a specified limit, indemnifies the ceding company against the amount of loss in excess of a specified retention with respect to each risk involved in each occurrence.
Reinsurance, Excess Point: Term used in excess of loss reinsurance for the point at which the reinsurance comes into effect.
Reinsurance, Expense Ratio: The percentage of premium used to pay all the costs of acquiring, writing and servicing insurance and reinsurance.
Reinsurance, Experience: (01) The loss record of an insured or of a class of coverage. (02) Classified statistics of events connected with insurance, of outgo or of income, actual or estimated. (03) What figures show to have happened in the past. Experience may be compiled on different bases to provide various means of appraisal, viz., Accident Year Calendar Year or Policy Year but for underwriting purposes should always compare earned premium with incurred losses after the latter have been modified by an allowance for loss development and incurred but not reported losses (IBNR).
Reinsurance, Expiration: This is cessation of cover if not renewed following the anniversary date. A treaty written on a “continuous until cancelled” basis does not expire automatically. This would need to be looked at for a cancellation provision.
Reinsurance, Expona Clauses: Clauses in reinsurance treaties that define the extent if any to which exposure to liability in North America is included.
Reinsurance, Extended Wait: A form of reinsurance under which, after the ceding insurer has paid monthly benefits to the claimant for a given number of months under a Disability Insurance Contract, further benefits will be paid by the reinsurer.
Reinsurance, Extra Contractual Obligations (ECO): Damages awarded by a court against an insurer which are outside the provisions of the insurance policy, due to the insurer’s bad faith, fraud, or gross negligence in the handling of a claim. Examples are punitive damages and losses in excess of policy limits.
Reinsurance, Facility: (i) Organization established by Insurers and Reinsurers, whereby Insurers can obtain Reinsurances for exposures that individual Reinsurers would not readily accept hence, a “residual market” organization for Reinsurance. Reinsurers participating in the Reinsurance association typically take pro-rata shares of all Reinsurance placed in the facility. (ii) A market device that provides insurance for individuals or other entities that cannot obtain coverage from an insurer on a voluntary basis, by sharing premiums and losses for such entities among participating insurers. (iii) Organization, analogous to Lloyd’s of London or a stock exchange, for the voluntary offering and buying of Reinsurance.
Reinsurance, Facultative Obligatory Reinsurance: The Ceding Company is not bound’ to automatically cede to the treaty but has the right of making cessions, where it chooses to do so. the Reinsurer, for his part undertakes to accept all the cessions, within the limits of a certain number of lines and/or a maximum amount.
Reinsurance, Facultative or Specific Reinsurance: Reinsurance by offer and acceptance of individual risks, wherein the reinsurance retains the “faculty” to accept and reject each risk offered by the ceding.
Reinsurance, Facultative Reinsurance, IRDA: As per IRDA’s General Insurance-Reinsurance Regulations, 2000 “Facultative” means the reinsurance of a part or all of a single policy in which cession is negotiated separately and that the reinsurer and the insurer have the option of accepting or declining each individual submission.
Reinsurance, Facultative Treaty: A contract setting out how facultative reinsurance shall be handled by an insurer and a reinsurer.
Reinsurance, Figures: The statistical record showing the premium income and claims attaching to an Insurance, or a Reinsurance, long term contract.
Reinsurance, Financial Reinsurance: This is a form of reinsurance involving less underwriting risk transfer and more investment or timing risk transfer from the cedant. These contacts are often on a multi-line, multi-year basis. They typically absorb at least the cost associated with claims differing from expected claims experience, and often carry excess of loss terms and multiple options Premiums usually reflect the time value of money to a large extent than traditional excess of loss contracts.
Reinsurance, Finite Risk Insurance or Reinsurance: A form of financial reinsurance which provides a defined upper limit to the total amount of payment.
Reinsurance, First Surplus: The first amount allocated to reinsurance in excess of the original insurer’s net retention.
Reinsurance, Fixed Rate Treaty: A reinsurance treaty under which the rate of premium is fixed at the outset as a percentage of the ceding insurer’s premium income less premiums paid for reinsurance effected in priority to reinsurance under the treaty.
Reinsurance, Fixed Share Treaty: The Reinsurers agree to accept automatically a fixed proportion of all Insurances of a defined type, say one-half of all fidelity guarantee Insurances accepted by the Direct Insurers.
Reinsurance, Fixed Treaty: A reinsurance treaty under which the original insurer binds himself to cede, and the reinsurer binds himself to accept, the risks specified.
Reinsurance, Flat Line: Reinsurance of a fixed amount, whether whole or part of the insurer’s line.
Reinsurance, Flat Rate: In Reinsurance, a percentage rate applied to a ceding company’s premium writings for the classes of business reinsured to determine the reinsurance premiums to be paid the reinsurer. (ii) A reinsurance premium rate based on the entire premium income received by the ceding company from business ceded to the reinsurer, as distinguished from a rate applicable only to the excess limits premium.
Reinsurance, Follow the Fortunes: A clause in a reinsurance treaty whereby the reinsurer undertakes to follow the fortunes of the insurer. Thus, if the insurer settles a claim ex-gratia, the reinsurer may be expected not to deny liability for his share in the settlement.
Reinsurance, From the Ground Up: A statement of an original insurer’s experience of a class of business offered for reinsurance is said to be from the ground up when it shows the number and distribution by amount of all claims however small even though reinsurance is required for large claims only. Also, ground up loss distributions are used to evaluate the impact of different levels of deductible on other insurances such as motor. Analyses often entail simulation techniques to evaluate (re)insured loss distributions.
Reinsurance, Fronting Company: Insurance which, for a fee or percentage of the premium, agrees to issue an Insurance Policy with the prior knowledge that the Policy will be substantially Reinsured by the insured’s captive or by a Reinsurer selected by the insured. Fronting arrangements are designed to comply with the letter of regulations requiring that certain exposures be commercially insured while, at the same time, permitting the insured to retain, or control the Reinsurance or transfer of that exposure. (2) An arrangement whereby one licensed insurer issues a policy on a risk for an at the request of one or more other unlicensed insurers with the intent of passing the entire risk by way of reinsurance to the other insurer(s). Such an arrangement may be illegal if the purpose is to frustrate regulatory requirements.
Reinsurance, Full Reinsurance Clause: A clause in a facultative reinsurance contract, where all or nearly all risk is reinsured, to give the reinsurer control over claim settlement.
Reinsurance, Full Signed Line: Indicates that the Reinsurance covers the whole of the line signed on the original Insurance.
Reinsurance, Full Written Line: Indicates that a Reinsurance order is for the full line written on the slip covering the original Insurance; effectively this is the same as G.S.L., because the written line will be transposed to a signed line when the original risk is closed.
Reinsurance, Gross Line: The amount of a ceding insurer’s loss irrespective of any reinsurance recoveries due.
Reinsurance, Gross Loss: The amount of a ceding insurer’s loss irrespective of any reinsurance recoveries due.
Reinsurance, Gross Net Premium Income: To indicate the original gross premium of the portfolio protected by the treaty less the premium ceded by way of Reinsurance in priority to and for the benefit of the excess of loss treaty.
Reinsurance, Ground-up Loss: In Reinsurance, the term refers to the gross amount of loss occurring to the reinsured, beginning with the first rupee of los and after the application of deductions required by the reinsurance agreement (which can be several in number) (a) the reinsured’s retention in excess of loss covers, (b) other inuring reinsurance says, such as quota share, surplus share, per risk excess, facultative, or common account coverage, or (c) the uncollectibility of any reinsurance. For example, ground up losses subject to a per risk excess treaty protecting the reinsured’s net retention would equal the net loss beginning with the first rupee after reduction of the gross loss by recoveries from other treaties such as surplus covers and facultative placements, but before the application of the deductible in the per risk excess cover itself.
Reinsurance, Guarantee: Facultative Reinsurance.
Reinsurance, Hard Market: In Reinsurance, a hard market is characterized by prudent underwriting and adequate pricing, whereas a soft market reflects sloppy underwriting and deficient pricing.
Reinsurance, Honorable Undertaking: This is stated in the reinsurance contract: “This agreement is considered by the parties hereto as an honorable undertaking, the purpose of which is not to be defeated by a strict or narrow interaction of the language thereof”.
Reinsurance, Hours Clause: A clause within a catastrophe reinsurance treaty which specifies the limited period during which claims can be aggregated for the purpose of one claim on the reinsurance contract. Commonly 24 or 72 hours.
Reinsurance, Hours Clause: The colloquial term which limits the time period during which claims resulting from a given occurrence may be included as part of the loss subject to the cover. The time period is usually measured in consecutive hours and most often applies to property Reinsurance, e.g., a windstorm, conflagration, or earthquake, and less frequently in occupational disease and other aspects of casualty.. Commonly 24 or 72 hours.
Reinsurance, Incurred But Not Reported (IBNR): The liability for future payments on losses which have already occurred but have not yet been reported in the reinsurer’s records. This definitely may be extended to include expected future development on claims already reported. Thus, technically IBNR covers the field from (a) those individual losses that have occurred but have not been reported to the insurer or reinsurer to (b) that amount of loss that may arise from a known loss which has been reported as an event but which has not been recorded in full to its ultimate loss value (known as loss development).
Reinsurance, Incurred Loss Ratio: The percentage of losses incurred to premiums earned.
Reinsurance, Index or Stability clause: A clause in liability excess of loss Reinsurance tying treaty limits to an appropriate price or earnings index.
Reinsurance, Indian Reinsurer: As per IRDA’s General Insurance-Reinsurance Regulations, 2000 “Indian re-insurer” means an insurer which has been granted a certificate of registration under sub-section (2A) of Section 3 by the Authority to carry on exclusively the re-insurance business in India and is approved in this behalf by the Central Government.
Reinsurance, Inflation Factor: A loading to provide for increased medical costs and loss payments in the future due to inflation.
Reinsurance, Insolvency Clause: A clause that holds that a reinsurer is liable for his share of a loss assumed under a treaty even through the primary insurer has become insolvent.
Reinsurance, Intermediary: A third party (usually a Reinsurance Broker) in the design, negotiation, and administration of a reinsurance agreement. Intermediaries recommend to cedant the type and amount of reinsurance to be purchased and negotiate the placement of coverage with reinsurers.
Reinsurance, Intermediary Clause: A provision in reinsurance agreements which identifies the specific intermediary or broker involved in negotiating the contract, communicating information, and transmitting funds. The clause should state clearly whether payment to the broker does or does not constitute payment to the other party of the reinsurance contract. Currently a widely used clause provides that payments by the reinsured insurer to the intermediary shall be deemed to constitute payment to the reinsurer(s) and the payments by the reinsurer(s) to the intermediary shall be deemed to constitute payment to the reinsured insurer only to the extent that such payments are actually received by the reinsured insurer.
Reinsurance, Inwards: Reinsurance business accepted or written by an insurer or reinsurer, as opposed to outwards reinsurance which is ceded to a reinsurer.
Reinsurance, Jurisdiction Clause: A clause inserted in a treaty wording defining the laws under which any dispute shall be resolved.
Reinsurance, Layer: The total amount of excess of loss reinsurance portion which an insurer needs to protect a given set of exposures is usually not written in one contract. Instead, the total amount is split into pieces or layers and separate contracts are written which fit on top of each other and have similar or identical terms but separate limits which sum to the total amount required. Each of the separate contracts in the series is called a layer or level in the total program.
Reinsurance, Layering: The Ceding office retains the bottom layer of risk itself and the Reinsurer only have to pay claims above this level. For example, if the cedant had retained Rs. 1,00,000 of a Rs. 10,00,000 risk, the cedant would bear the first Rs. 1,00,000 of each and every loss and the Reinsurers would pay only that part of any claim in excess of RS. 1,00,000.
Reinsurance, Lead Reinsurer: The reinsurer who negotiates the terms, conditions and premium rates and first signs on to the slip. Reinsurers who subsequently sign on the slip under those terms and conditions are considered following reinsurers.
Reinsurance, Letter of Credit (LOC):A financial guarantee issued by a bank that permits the party to which it is issued to draw funds from the bank in the event of a valid unpaid claim against the other party; in Reinsurance, typically used to permit reserve credit to be taken with respect to non-admitted reinsurance; and alternative to funds withheld and modified coinsurance.
Reinsurance, Limits: The maximum amounts of interest insured. The word can be used to describe a cedant’s retention, a cedant’s gross capacity or the maximum amount which may be reinsured under a reinsurance contract.
Reinsurance, Line (of Insurance): (i) Particular type of Insurance, such as the liability “line.” (ii) All types of Insurance written for a property owner, such as all lines for ABC Manufacturing. (iii) Amount of Insurance on a given property, such as a Rs. 10,00,000 line on XYZ manufacturing’s building. (iv) Gross line – total amount of Insurance accepted by an insure on individual risk, including the amount Reinsured. (v) Net Line: amount of coverage retained by the Ceding Insurer on an individual risk in a surplus Reinsurance treaty or the maximum amount of loss on a particular risk to which an Insurer will expose itself without Reinsurance.
Reinsurance, Line: Either the limit of insurance to be written which an insurer has set for itself on a class of risk (line limit), or the actual amount which it has accepted on a single risk or other unit. A class of type of insurance (fire, marine or casualty, among others), also known as Line of Business.
Reinsurance, London Market: Insurance and reinsurance business carried out on a face-to-face basis in the city of London.
Reinsurance, London Market Excess of Loss (LMX) or LMX on LMX: Outwards excess of loss reinsurance in the London Market.
Reinsurance, Long Tail Liability: A term used to describe certain type of third party liability exposures (e.g., malpractice, products, error and omissions) where the incidence of loss and the determination of damage are frequently subject to delays which extend beyond the term the insurance or reinsurance was in force. An example would be contamination of a food product which occurs when the material is packed but which is not discovered until the product is consumed months or years later.
Reinsurance, Loss Adjustment Expense: All expenditure of an insurer associated with its adjustment, recording and settlement of claims, other than claim payment itself. The term encompasses both allocated loss adjustment expenses (ALAE) which are loss adjustment expenses identified by a claim file in the insurer’s records, such as attorney’s fees and unallocated loss adjustment expenses (ULAE) which are operating expenses not identified by claim file, but functionally associated with settling losses, such as salaries of claims department.
Reinsurance, Loss Development: The difference between the original loss as originally reported to the reinsurer and its subsequent evaluation at a later date or at the time of its final disposal. A serious problem to reinsurers who, being involved in the more serious cases, must frequently wait many years for the final disposition of a loss.
Reinsurance, Loss Event: The total losses to the ceding company or to the reinsurer resulting from a single cause such as a windstorm.
Reinsurance, Loss Expense Reserve: Another name for claims reserve. The expression is also often used in association with the reserve deposited by a reinsurer with the cedant to cover in part outstanding claims (exact terms would indicate which party received the investment income on associated assets).
Reinsurance, Loss Loading: A factor applied to the pure loss cost to produce a reinsurance rate of premium.
Reinsurance, Loss Ratio: Losses incurred expressed as a percentage of earned premiums.
Reinsurance, Loss Ratio: Proportionate relationship of incurred losses to earned premiums expressed as a percentage.
Reinsurance, Loss Ratio Stabilising Clause: Refer: ”Reinsurance, Stop Loss”.
Reinsurance, Losses Occurring During Basis: Excess of loss contracts are generally arranged for a period of one year, say from 1st January to 31st December. If any loss occurs during the specified period, it will fall within the scope of the contract though the policies under which such losses arise may have incepted prior t the date of commencement of excess of loss cover. The Ceding Company would normally arrange for the renewal of the contract to ensure continued protection for the run-off portfolio and for new risks attaching during the next annual period.
Reinsurance, Losses Outstanding: Losses (reported or not reported) which have occurred but have not been paid.
Reinsurance, Losses Paid: The amount paid by reinsurer to the cedant company on account of losses incurred.
Reinsurance, Multi-Line / Multi Year Package: Refer: Risk Transfer, ART Instruments, Multi-Line Multi-Year Programmes.”
Reinsurance, Net Absolute(ly): Term used in Facultative Aviation Reinsurance when no reinsurance commission is allowable.
Reinsurance, Net Line: The amount of insurance the primary insurer carries on a risk after deducting reinsurance from its “gross” line.
Reinsurance, Net Retained Line: The amount of coverage retained by the ceding company on an individual risk in a Surplus reinsurance treaty. This term can also be used to mean the maximum amount of loss on a particular risk to which an insurer will expose itself without reinsurance.
Reinsurance, Net Retained Line Clause: Explains that the loss subject to the reinsurance agreement is net of all other reinsurances, whether collectible or not, as well as net of salvages and all other reinsurance recoveries due to the reinsured.
Reinsurance, on-Admitted: Reinsurance for which no credit is given in a ceding company’s annual statement because the reinsurer is not licensed or authorized to transact that particular line of business in the jurisdiction in question. 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.
Reinsurance, Non-Proportional: Reinsurance arrangements, where the claims are not shared proportionately between the cedant and reinsurer.
Reinsurance, Non-Proportional Contracts: In non-proportional business the Ceding office retains the bottom layer of risk itself and the Reinsurers only have to pay claims above this level. The most common type of non-proportional Reinsurance is called excess of loss Reinsurance. Refer: “Excess of loss Reinsurance.”
Reinsurance, Obligatory Treaty: A reinsurance contract (usually pro-rata) under which the subject matter business must be ceded by the ceding insurer in accordance with contract terms and must be accepted by the reinsurer.
Reinsurance, 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 vents having a common cause and sometimes within a specified time frame, for example 72 hours, as being one occurrence. This definition prevents multiple retentions and reinsurance limits from being exposed in a single catastrophe loss.
Reinsurance, Offset Clause: A provision in reinsurance agreements which permits each party to net amount due against those payable before making payment ; especially important in the event of insolvency of one party which ceases to remit amounts due to the other.
Reinsurance, One Disaster or Casualty Clause.: A clause in a reinsurance treaty to provide that all losses during a short period, usually 72 hours, shall be considered as caused by one disaster or casualty, e.g., a riot, a cyclone, or an earthquake, for the purpose of applying the limit of liability under the reinsurance.
Reinsurance, Open Cover: An open cover performs the same tasks as a facultative obligatory treaty from a technical point of view and the two can be considered as synonymous. However, open cover is more of a facility in a certain branch or category than the more general and wider treaty. Thus, an open cover may be confined to petrochemical risks or highly fluctuating stock risks in certain specific commodities such as cotton, or to certain types of cargo risks. Moreover, the Ceding Company has the liberty to make cessions up to a certain agreed amount without the maximum liability being expressed as a number of lines.
Reinsurance, Or as Original: Term used by a reinsurer to indicate that he accepts not only the risk as it is presented to him but also any variation that may exist in the original policy. The wording protects the ceding insurer in case an error has arisen in transmission of the facts about the risk.
Reinsurance, Original Conditions: A term used in both treaty and facultative reinsurance which incorporates by reference all of the terms (as well as amendments, modifications, alteration, and waivers) of the original policy written by the insurer that are not modified in the reinsurance contract, i.e., the location of the property and the rate, among others.
Reinsurance, Original Deductions/Discounts: The deductions or discounts allowed by a ceding insurer on a policy which is the subject of reinsurance.
Reinsurance, Original Gross Premium Income (OGPI): The gross premium income received by an insurer in relation to business that is covered by a non-proportional reinsurance treaty. The reinsurance premium is calculated as a percentage of this OGPI.
Reinsurance, Original Insured: The insured under a policy which becomes the subject of reinsurance.
Reinsurance, Original Insurer: The insurer which writes a policy for a policyholder (which may or may not create the need for reinsurance).
Reinsurance, Original Net Premium Income: The net premium income of a ceding insurer.
Reinsurance, Original Policy: The policy written by the original insurer.
Reinsurance, Original Rate: The rate of premium charged on an insurance which has become the subject of reinsurance.
Reinsurance, Original Terms: A reinsurance expression signifying that the reinsurance is granted on the same conditions and at the same rate of premium as the original insurance.
Reinsurance, Outstanding Claims Advance: A reinsurance treaty may provide that if claims payable by the reinsurer exceed the reserve held by the original insurer for the payment of claims the reinsurer shall make an immediate payment, or advance, without waiting for the claims to appear in the periodic statements.
Reinsurance, Outstanding Claims Portfolio: An amount payable by a cedent to a reinsurer in consideration of the reinsurer accepting liability arising under a contract of reinsurance in respect of reinsurance claims incurred and arising prior to a fixed date.
Reinsurance, Outwards Reinsurance: Reinsurance ceded by an insurer, as opposed to inwards reinsurance accepted.
Reinsurance, Overdue Market: A market for the reinsurance of a marine insurance where a ship is overdue or has suffered a serious casualty which may result in a total loss, and thus a means for original underwriters of quantifying, and possibly cutting, their loss.
Reinsurance, Over-line: An amount of insurance or reinsurance that exceeds the normal capacity of the insurer or reinsurer after allowing for automatic reinsurance facilities. An insurer who finds himself with more risk than he considers it prudent to bear is said to be over lined.
Reinsurance, Over-Riding Commission: Additional commission paid by a reinsurer to an insurer ceding proportional business, as a contribution towards expenses. The term is often used on primary business written through agents or brokers and refers to any addition to basic commission rates either for volume or profitable business.
Reinsurance, Oversight Clause: A provision in a reinsurance treaty that either party may correct a failure to comply with the agreement due to oversight or misunderstanding.
Reinsurance, Paramount War Clause (Cargo): A clause in a Marine Cargo reinsurance contract which stipulates either that war risks cover is subject to terms and conditions no wider than those of the relevant London Institute War Clauses or that the reinsured shall apply the limitations of the U.K. Waterborne Agreement; and that war risks shall be cancellable at seven days’ notice by either party.
Reinsurance, Part Of: A reinsurance term used to make it clear that the reinsurer is accepting part only of the risk covered by the original insurance and that in the event of a short closing he will not be saddled with the whole risk.
Reinsurance, Participating or Pro-Rata Reinsurance: These are contracts where in the event of a loss, the amounts payable by a Direct Insurer and the Reinsurer are in proportion which are arranged before the loss. In other words, under proportional Reinsurance there is a common apportionment between the Ceding Company and the Reinsurer of original sum insured, of premiums and of losses according to a pre-determined percentage. 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.
Reinsurance, Pay as you may be paid: A reinsurance term providing that the reinsurer will not question payment of any claim for which the insurer is liable under the original insurance.
Reinsurance, Per Risk Excess: Reinsurance in which the retention and the cession apply per risk rather than per accident, per event, or on an aggregate basis.
Reinsurance, Peril: This terms refers to the causes of possible loss in the property field – for insurance: Fire, Windstorm, Collision, Hail, etc. In the casualty field the term “hazard” is more frequently used.
Reinsurance, PML: The anticipated maximum property fire loss that could result, given the normal functioning of protective features (firewalls, sprinklers, a responsive fire department, etc.,) as opposed to MFL (Maximum Foreseeable Loss), which would be a similar valuation, but on a worst case basis with respect to the functioning of the protective features. Underwriting decisions would typically be influenced by PML evaluations, and the amount of reinsurance ceded on a risk would normally be predicted on the PML valuation.
Reinsurance, Policies Incepting Basis: A basis for a reinsurance treaty whereby the test of the reinsurer’s liability is when the original insurance was effected rather than whether the loss occurred or was notified during the reinsurance period.
Reinsurance, Policy Year: The year commending with the effective date of the reinsurance policy or with an anniversary of that date.
Reinsurance, Pool: A pool is a form of Reinsurance arrangement between member companies by which one or more classes of business is pooled and then retrocede to members in an agreed proportion or volume of business ceded. In certain cases, business may be ceded to non-members of the pool. Such pools may be privately arranged between member companies or may be a national pool initiated by government or regional pools of member countries. As per IRDA’s General Insurance-Reinsurance Regulations, 2000 “pool” means any joint underwriting operation of insurance or reinsurance in which the participants assume a pre-determined and fixed interest in all business written.
Reinsurance, Portfolio: A detailed body of (a) insurance policies in force known as a premium portfolio (b) outstanding losses known as a loss portfolio, or (c) insurer investments (known as an investment portfolio). The reinsurance of all existing insurance as well as new and renewal business is therefore described as a running account reinsurance with portfolio transfer or assumption.)
Reinsurance, Portfolio Claims: Used in proportional reinsurance. The outstanding claims that, together with the portfolio premiums, make up the reinsurance premium required for a portfolio transfer; usually used to transfer obligations from one year of accident to the next.
Reinsurance, Portfolio Entry: Part of the mechanics of instituting a reinsurance treaty. It may be arranged on varying basis, such as new and renewal business or business in force, any and all of which are referred to as the portfolio entry.
Reinsurance, Portfolio Premiums: The unearned premium that together with the portfolio claims make up the reinsurance premium required for a portfolio transfer.
Reinsurance, Portfolio Reinsurance: A type of reinsurance which refers to all the risks of the reinsurance transaction. For example, if one company reinsurers all of another’s outstanding Automobile business, the reinsuring company is said to assume the, “portfolio” of Automobile business and it is paid the total of the unearned premium on all the risks so reinsured (less some agree commission).
Reinsurance, Portfolio Return: Reassumption by a ceding company of a portfolio which has formerly been reinsured.
Reinsurance, Portfolio Run-Off: The opposite of Return of Portfolio – permitting premiums and losses in respect of in-force business to run to their normal expiration upon termination of a reinsurance treaty.
Reinsurance, Portfolio Transfer: The reinsurance of an entire portfolio at a premium relating to the estimated outstanding claims and unearned premium under that portfolio. Usually used by a reinsurer wanting to close a treaty year and pass on the liability to the following year for administrative reasons.
Reinsurance, Portfolio: This refers to unearned premiums and outstanding claims-entry and withdrawal of which made under treaties operating on clean cut basis whereas treaties written on Underwriting year basis in force in business is allowed to run to their normal expiration even on termination.
Reinsurance, Premium (Written/Unearned/Earned): Written premium is premium registered on the books of an insurer or reinsurer at the time a policy is issued and paid for. Premium for a future exposure period is said to be unearned premium for an individual policy, written premium minus unearned premium equals earned premium. Earned premium is income for the accounting period, while unearned premium will be income in a future accounting period.
Reinsurance, Premium Deposit: When the terms of a policy provide that the final earned premium be determined at some time after the policy itself has been written companies may require tentative or “deposit” premiums at the beginning which are readjusted when the actual earned charge has been later determined.
Reinsurance, Premium Income, Reinsurance, Lloyd’s: The amount of premium that Lloyd’s Name may write in a given year, determined by the size of the Name’s wealth, deposit and whether or not incorporated.
Reinsurance, Premium Pure: The portion of the premium calculated to enable the insurer to pay losses and in some cases, allocated claim expenses or the premium arrived at by dividing losses by exposure and in which no loading has been added for commission, taxes and expenses.
Reinsurance, Premium Trust Fund, Reinsurance, Lloyd’s: A fund into which all premiums for a Lloyd’s syndicate in a given underwriting year are paid. No moneys may be released from the fund other than any profit on closure and ongoing claims and expenses.
Reinsurance, Primary Reinsurance Clause: A clause whereby the Reinsurer agrees that he will be Directly liable to the original assured in the event that the reassured is unable to pay a loss.
Reinsurance, Priority Cession: A priority cession is Reinsurance which is ceded before Ceding to the Company’s normal treaties.
Reinsurance, Professional Reinsurer: A terms used to designate a company whose business is confined solely to reinsurance and the peripheral services offered by a reinsurer to its customers as opposed to primary insurers who exchange reinsurance or operate reinsurance departments as adjuncts to their basic business of primary insurance. The majority of professional reinsurers provide complete reinsurance and service at one source directly to the ceding company.
Reinsurance, Profit Commission: Commission paid by a reinsurer to a ceding office under a proportional reinsurance treaty that is dependent upon the profitability of the total business ceded during each accounting period. Also used, in other arrangements, as any commission contingent on the claims experience.
Reinsurance, Profit Margin: As a pricing factor (along with expenses and losses) the return the reinsurer expects from the degree of net risk taken. As with any investment, the reinsurer expects a larger return from risky than safe investments.
Reinsurance, Proportional Contracts: Pro-rata or Risk Sharing Treaty: Which provide for sharing of risk between the Ceding Company and the Reinsurer, on lines similar to those under the facultative method.
Reinsurance, Pro-rata Reinsurance: A generic term describing all forms of reinsurance in which the reinsurer shares a pro-rata portion of the losses and premiums of the ceding company. Also called Share and Participating Reinsurance. Pro rata Reinsurance includes Quota Share Reinsurance and Surplus Reinsurance.
Reinsurance, Pure Loss Cost Ratio: (i) The ratio of reinsurance losses incurred to the ceding company’s subject premium. (ii) The ratio of the reinsurance losses incurred and allocated, less expense to the ceding company’s gross earned premium.
Reinsurance, Quantum: Latin for amount. Where an insured or reassured makes a claim it must first be established whether the insurer or reinsurer is legally liable to pay the claim (i.e. it must be shown the relevant loss is covered under the insurance or reinsurance). If the insurer or reinsurer is liable to pay the claim it must then be established how much is the insurer must pay. For example, there may be deductions for an excess, under insurance or depreciation.
Reinsurance, Quota Share Treaty: The Ceding Company binds herself to retain for own account a fixed proportion of all its business in a class, up to a limit, and cede a fixed proportion of all business up to an agreed amount to the Reinsurer, and give the corresponding proportion of the premium income.
Reinsurance, R/I Closing Form: A form on which a direct insurer sets out closing details and which he sends the broker in order that the broker may close the reinsurance with the reinsurers.
Reinsurance, R/I or Direct: Term used on a broker’s slip when the broken has an order to place a risk but does not know whether it will be a direct insurance of a reinsurance.
Reinsurance, R/I Treaty Standard Slip: A standard form for us by brokers in the placing of a reinsurance treaty.
Reinsurance, Rate: The percent or factor applied to the ceding company’s subject premium to produce the reinsurance premium or the percent applies to the reinsurer’s premium to produce the commission.
Reinsurance, Rate on Line: A rate of premium for a reinsurance which if applied to the liability accepted by the reinsurer will produce an annual premium sufficient to meet expected losses over a number of years.
Reinsurance, Reassured: The company that purchases reinsurance
Reinsurance, Recapture: The action of a ceding company taking back from a reinsurer insurance previously ceded.
Reinsurance, Reciprocity: Practice of requiring incoming Reinsurance in ex-change for Reinsurance ceded or vice versa based on either premium to premium or profit to profit.
Reinsurance, Reinstatement Clause: When the amount of reinsurance coverage provided under a treaty is reduced by the payment of a reinsurance loss as the result of one catastrophe, the reinsurance cover is automatically reinstated usually by the payment of a reinstatement premium.
Reinsurance, Reinstatement Premium: A pro-rate reinsurance premium is charged for the reinstatement of the amount of reinsurance coverage that was reduced as the result of a reinsurance loss payment under a catastrophe cover.
Reinsurance, Reinsurance Order: Instructions to a broker requesting him to effect a Reinsurance contract.
Reinsurance, Recoverable to Policy Holder Funds: Measures a company’s dependence upon its reinsurers and the potential exposures to adjustments on such reinsurance. Its determined from the total coded reinsurance recoverable due for paid losses, unpaid losses, losses incurred by not reported (IBNR), unearned premiums and commissions less funds held from reinsurers expressed as a percent of policyholder surplus.
Reinsurance, Reinsurance to Close (RITC): The reinsurance premium, under the Lloyd’s system of three year accounting, payable to the following open syndicate year, to cover all outstanding claims liabilities closing the year of account. This reinsurance may also be provided by another syndicate or arrangement as with Equitas accepting the 1992 and prior liabilities of Lloyd’s syndicates in 1996.
Reinsurance, Contingent Capital: Refer: “Risk Transfer, ART Instruments, Contingent Surplus Notes (Contingent Capital).”
Reinsurance, Surplus: A form of pro rata reinsurance indemnifying the ceding insurer against loss to the extent of the surplus insurance liability ceded, on a share basis similar to quote share. Essentially, this can be viewed as a variable quote share contract wherein the reinsurer’s pro-rata share of insurance on individual risks will increase as the amount of insurance increases, given the same reinsurer’s retained line, in order that the primary insurer can limit its net exposure to one line, regardless of the amount of insurance written.
Reinsurance, Reinsurer: The Company (or the syndicate in case of Lloyd’s) which accepts Reinsurance from the Ceding Company.
Reinsurance, Reinsurers’ Association: Group of Reinsurers acting as a cooperative in offering Reinsurance and sharing among themselves, on specified terms, certain Reinsured business.
Reinsurance, Reinsuring Clause: Language that describes the coverage agreed upon by the parties, i.e., what is covered and when. The key components are thee: The indemnity aspect of the agreement, the type of business covered, and the method of determining whether a loss falls within the scope of the agreement. Also known as Cover Clause, Business Reinsured Clause and Application of Agreement Clause.
Reinsurance, Remainder: The amount of a risk to be reinsured after deducting the amount the ceding company is keeping in its own account.
Reinsurance, Retainer Clause: A clause stating how much a company placing reinsurance intends to retain.
Reinsurance, Retention: As per IRDA’s General Insurance-Reinsurance Regulations, 2000 “retention” means the amount which an insurer assumes for his own account. In proportionate contracts the retention may be a percentage of the policy limit. In excess of loss contracts, the retention is an amount of loss.
Reinsurance, Retention: The amount of liability the Ceding Company keeps for its account on a risk.
Reinsurance, Retrocession: A Reinsurance of a Reinsurance i.e., where the Insurers desires to limit his liability on Reinsurance accepted and in turn gives off part of his acceptance to another Company.
Reinsurance, Retrocession: As per IRDA’s General Insurance-Reinsurance Regulations, 2000 Retrocession means the transaction whereby a reinsurer cedes to another insurer or reinsurer all or part of the reinsurance it has previously assumed.
Reinsurance, Retrocessionnaire: The assuming reinsurer in a retrocession, where the ceding reinsurer is known as the retrocedent. Reinsurer of a Reinsurer.
Reinsurance, Retrospective Rating: A plan or method which permits adjustment of the final reinsurance ceding commission or premium on the basis of the actual loss experience under the subject reinsurance treaty – subject to minimum and maximum limits
Reinsurance, Retrosurance: There is said to be retrosurance when, after reinsurer A has retroceded all or part of his risk to reinsurer B, reinsurer B then further cedes all or part of his risk to a third reinsurer.
Reinsurance, Return Commission: A commission paid by a reinsurer to the ceding company for proportional reinsurance business to recompense the cedant for acquisition expenses.
Reinsurance, Risk Attaching Basis: A basis under which reinsurance is provided for claims arising from policies commencing during to the period to which the reinsurance relates.
Reinsurance, Risk Based Capital: The amount of capital needed to absorb the various risks of operating an insurance business. For example, a higher risk business requires more capital than one with lower risks. The calculation is intended to be unique to each insurer.
Reinsurance, Risk Excess of Loss: Excess of loss reinsurance that related to individual losses affecting only one insured risk at any one time.
Reinsurance, Risks: A term used to denote the physical units of property at risk or the object of insurance protection and not Perils or Hazard. Reinsurance by tradition permits each insurance company to frame its own rules for defining units of Risks. The word is also defined as chance of loss or uncertainty of loss.
Reinsurance, Runoff, Cancellation or Termination: A termination provision in a reinsurance contract stipulating that the reinsurer shall remain liable for loss under each reinsured policy in force until its expiration date.
Reinsurance, Salvage and Subrogation Those rights of the insured which, under the terms of the policy, automatically transfer to the insurer upon settlement of a loss. Salvage applies to any proceeds from the repaired, recovered, or scrapped property. Subrogation refers to the proceeds of negotiations or legal actions against negligent third parties and may apply to either property or casualty coverage.
Reinsurance, Second Surplus Reinsurance: Reinsurance accepted by a second reinsurer in a Surplus Treaty. It is that amount which exceeds the total of the original insurer’s net retention and the full limit of the first surplus treaty.
Reinsurance, Selection (of Risk): A phrase used in reinsurance referring to the practice of ceding poorer business to a reinsurer while retaining good risks.
Reinsurance, Self-Insurance: Setting aside of funds by an individual or organization or ceding company to meet his or its losses and to absorb fluctuations in the amount of loss, the losses being charged against the funds so set aside or accumulated
Reinsurance, Setoff: The reduction of the amount owed by one party to a second party under one agreement or transaction by crediting the first party with amount the second party owes the first party under other agreements or transactions for the purpose of determining the amount, if any, the first party owes to the second.
Reinsurance, Slip: A binder often including more than one reinsurer. At Lloyd’s of London, the slip is carried from underwriter to underwriter for initialing and subscribing to a specific share of the risk.
Reinsurance, Slip: A document showing details of Reinsurance proposed to be offered which is circulated to the Reinsurers by the brokers/Ceding Company.
Reinsurance, Solvency Clause: A clause that may be included in a non-proportional reinsurance treaty, providing for the indexation of monetary limits (i.e., excess point and/or the upper limit) in line with a specified index of inflation.
Reinsurance, Special Acceptance: The facultative extension of a reinsurance treaty to embrace a risk not automatically included within its terms.
Reinsurance, Spread Loss (01) The working cover subject to a prospective rating plan. (02) A form of excess reinsurance wherein each year’s premium rate is determined by the amount of the ceding insurer’s excess losses for a specified number of preceding years. A form of experience rating.
Reinsurance, Stop Loss Reinsurance or Stop Excess of Loss: An aggregate excess of loss reinsurance that provides protection based on the total claims, from all perils, arising in a class or classes over a period. The Excess Point and the Upper Limit are sometimes expressed as a percentage of cedant’s premium income rather than in monetary terms, e.g. cover might for a claim ratio in excess of 110% up to a limit of 140%. Where this form of reinsurance exists in practice, it is usual for the cedant to be required to retain a proportion of the risk in the reinsured layer called the coinsurance proportion, to avoid any moral hazard. Also, refer “Reinsurance, Aggregate Excess of Loss.”
Reinsurance, Strike Through Clause: A clause providing that in the event of the insolvency of a ceding insurer, the reinsurer continues to be liable for its share of losses, which will then be payable directly to the insured rather than to the liquidator of the insolvent ceding insurer.
Reinsurance, Subject Premium: A cedant’s premium (written or earned) to which the reinsurance premium rate is applied to calculate the reinsurance premium. Often, subject premium is gross / net written premium income (GNWPI) or gross/net earned premium income (GNEPI), where the term “gross/net” means gross before deducting reinsurance premiums for the reinsurance agreement under consideration; but net after all other adjustments, e.g., cancellations, refunds, or other reinsurance. Normally, subject premium refers to premium on subject business. Also, known as base premium.
Reinsurance, Surplus: Reinsurance of amounts over a specified amount of insurance, premiums and losses being shared proportionately between insurer and reinsurer.
Reinsurance, Surplus Line: Reinsurance of a risk in excess of the reinsured’s retention the reinsurer taking a line, or part of a line, of the business equal to the reinsured’s retention limit.
Reinsurance, Surplus Share: A form of proportional reinsurance where the reinsurer assumes pro-rata responsibility for only that portion of any risk which exceeds the company’s established retentions.
Reinsurance, Surplus Treaty: A reinsurance treaty whereby one or more reinsurers agree to accept amounts of Reinsurance, called lines, in a certain range of values over a specified amount (line) retained by the original insurer, the losses being shared proportionately by the original insurer and the reinsurer(s).
Reinsurance, Surplus Treaty and Quota Share Combined: The Ceding Company agrees upon a quota share of every risk subject to a limit, so that it retains a part of the quota and cedes the balance to the Reinsurers. Any surplus over and above the quota share limit is ceded as a surplus, which again is subject to an agreed limit. Thus, the two covers are combined under the treaty.
Reinsurance, Surplus Treaty, First Surplus: The Ceding Company decides the limit of liability which it wishes to retain on any one risk or class of risk and Reinsurers only those amounts surplus over and above its own net retention. It is generally handled on a pro-rata basis.
Reinsurance, SWIFT: SWIFT is an acronym for “Single Window International Facultative and Treaty.”
Reinsurance, Syndicate, Lloyd’s: A group of Lloyd’s Underwriting members (Names) who jointly offer their security for risks accepted on their behalf by an active Underwriting agency. Each name in the syndicate has an individual liability and is not responsibility for the liabilities of his fellow members
Reinsurance, Time and Distance Reinsurance: A type of financial Reinsurance, which had widespread use in the London Market and Lloyd’s, whereby an insurer pays a single premium in return for a fixed schedule of future payments matched to the estimated dates and amounts of the insurer’s claims outgo. The purpose of such contracts was to achieve the effect of discounting in arriving at the reserves for outstanding claims. Since Lloyd’s changed its rules so that the credit allowed for tie and distance policies in a syndicate’s accounts was limited to the present value, such policies have become less popular.
Reinsurance, Total Loss Only: A term used in Marine Hull Insurance and reinsurance limiting cover to payment for a total loss. A clause is likely to define whether the cover is to include arranged or compromised total losses and whether sue and labour charges and salvage charges are recoverable.
Reinsurance, Treaties, Bouquet Of: A group of treaty arrangements offered by a Ceding Company as a package deal to reinsures. The Reinsurer is required to take an equal share in all the treaties (across the board), which may mean Writing some business which is normally not accepted, unbalanced or unattractive individually.
Reinsurance, Treaty: Reinsurance under treaties relating to specified classes of policies.
Reinsurance, Treaty Balance: The sum due from a reinsurer to an original insurer or vice versa, under an account of premium and claims payment relating to a reinsurance treaty.
Reinsurance, Treaty Reinsurance: An agreement made between the Ceding Company and the Reinsurer under which the former agrees to cede obligatorily a portion of risk up to agreed limit to the Reinsurer, who in turn agrees to accept such cessions.
Reinsurance, Two Plane Warranty: A provision in an aviation excess of loss reinsurance which relieves the reinsurer of liability unless two or more aircrafts are involved in the same occurrence.
Reinsurance, Two Rig Warranty: A provision in a marine excess of loss reinsurance which relieves the reinsurer of liability unless two or more rigs are involved in the same loss occurrence.
Reinsurance, Two Risks Warranty: A provision in a property reinsurance Catastrophe treaty that the reinsurer will be liable only in respect of claims where at least two risks are involved in one accident.
Reinsurance, Two Vessel Warranty: A provision in a Marine Hull Excess of loss reinsurance which relieves the reinsurer of liability unless two or more vessels are involved in the same loss occurrence.
Reinsurance, Uberrimae Fidei: Literally, of the utmost good faith. A defining characterization or quality of some (contractual) relationships of which reinsurance is universally recognized to be. Among other difference from ordinary relationships, the nature of reinsurance transactions is dependent upon a mutual trust and a lively regard for the interests of the other party, even if inimical to one’s own. A breach of utmost good faith, especially in regard to full and voluntary disclosure of the elements of risk of loss, is accepted as grounds for any necessary reformation or redress, including rescission.
Reinsurance, Ultimate Net Loss: The total sum paid by the Ceding Company in settlement of its liabilities, other expenses excluding office expenses and salaries, jess salvage/recoveries and all other Reinsurance recoveries.
Reinsurance, Umbrella Cover: (1) Cover providing excess limits over the normal limits of liability policies and giving additional excess cover for perils not insured by the primary liability policies. (2) In reinsurance cover against an accumulation of losses under one or more classes of insurance arising out of a single event.
Reinsurance, Umbrella Covers or Whole Account Covers or Clash Covers: To protect accumulations of net loss from a number of classes of business but arising from one event, after the operation of all specific Reinsurances in the separate departments.
Reinsurance, Underlying: The amount of loss which attaches before the next higher excess layer of insurance or reinsurance attaches.
Reinsurance, Underwriting and Claims Control Clause: A clause in a reinsurance treaty reserving control of underwriting and claims negotiation to the reinsurer.
Reinsurance, Underwriting or Working or Per Risk Covers: To provide protection in the event of loss caused to one risk or loss arising from one event as the case may be. In contrast to Catastrophe or per event covers.
Reinsurance, Underwriting Year Basis: In rating the use of all premium written as arising from all policies written or renewed during the year and all losses relating to those same policies, whenever they occur.
Reinsurance, Underwriting Year Experience: Simplistically, the segregation of all premiums and losses attributable to policies having an inception or renewal date within a given 12 month period.
Reinsurance, Unearned Premium: That portion of the original premium that applies to the unexpired portion of risk A fire or casualty insurer or reinsurer must carry a reserve against all unearned premiums as a liability in its financial statement, for if the policy should be cancelled, the company would have to pay back the unearned part of the original premium.
Reinsurance, Unlicensed Reinsurance: Reinsurance effected with a reinsurer not licensed to do business in the Country or area of jurisdiction concerned.
Reinsurance, Utmost Good Faith: Firm adherence to promises made to another, including disclosure of all relevant facts, and complete trust in the fidelity of the other. Black’s Law Dictionary states: ”The most abundant good faith, absolute and perfect candor, openness and honesty; the absence of any concealment or deception, however, slight.”
Reinsurance, Valued as Original: A marine reinsurance term making it clear that the reinsurance policy is a valued policy and that the value is the same as in the original policy though not all the cover is necessarily reinsured.
Reinsurance, Values Policy: A form of marine reinsurance under which the reinsurer undertakes to pay a fixed amount if a ship in excess of a specified value becomes a total loss.
Reinsurance, Whole Account Treaty: A reinsurance treaty covering all the insurances written in a section of the ceding insurer’s business. Thus, if an underwriter has reinsured his marine account on a whole account basis the reinsurance would apply to incidental non-marine business written in his marine account.
Reinsurance, Work Program: In contract Bond Reinsurance, a clause specifying that reinsurance attached at a specified level of a principal’s total volume of work, rather than on the conventional basis of individual contract or bond amount.
Reinsurance, Workers Compensation Catastrophe Policy: Excess of Loss Reinsurance purchased by primary insurers to cover their unlimited medical and compensation liability under the compensation laws of the land.
Reinsurance, Working Cover: A contract covering an area of excess reinsurance in which loss frequently is anticipated.
Reinsurance, Working Excess: A contract covering a type of excess reinsurance (per risk) in which loss frequency is anticipated as opposed to loss severity. Thus a working cover would usually have a low indemnity and would attach above a relatively low retention.
Reinsurance, Working Layer: The first layer above the cedant’s retention wherein moderate to heavy loss activity is expected by the cedant and reinsurer. Working layer reinsurance agreements often include adjustable features to reflect actual underwriting results.
