Glossary

Glossary of terms

Absolute liability
The principle that a person may be held liable for damages even without a finding of fault or negligence.
Source: Conning

Accident and health insurance
A form of insurance covering death or personal injury by accident, as well as sickness or bodily injury.
Source: Conning

Accident year
The twelve-month period during which losses occurred, regardless of when they are reported.
Source: Conning

Accumulation risk
Risk that arises when a large number of individual risks are correlated such that a single event will affect many or all of these risks.
Source: Swiss Re

Acquisition costs
Cost of acquiring, maintaining and renewing insurance business: it includes the intermediaries’ commission, the company’s sales expense, and other related expenses.
Source: Swiss Re

Act of God
An event that occurs without human intervention or culpability. It serves as a defence to tort liability.
Source: Conning

Actuary
A person who uses mathematical analysis of past loss data and other statistics to determine rates and estimate an insurer's future liabilities.
Source: Conning

Add-on tax
The additional amount of federal income tax payable by mutual life insurers due to the disallowance as a deduction of a portion of policyholder dividends.
Source: Conning

Adjuster
An individual employed by a property/casualty insurer to evaluate losses and settle policyholder claims. These adjusters differ from public adjusters, who negotiate with insurers on behalf of policyholders, and receive a portion of a claims settlement. Independent adjusters are independent contractors who adjust claims for different insurance companies.
Source: Insurance Information Institute
http://www.iii.org

Administrative services only (ASO)
A fee-based programme in which an insurance company or other third-party administrator performs administrative, clerical or managerial services only and does not assume any risk. Services usually include claims processing, but also may include other services, such as actuarial analysis, utilisation review, and so on. Businesses or self-funded health plans may use an ASO.
Source: Conning

Admitted assets
Assets of an insurer permitted by insurance regulatory authorities to be taken into account in determining the insurer's financial condition under statutory accounting practices.
Source: Conning

Admitted insurer
An insurer licensed to write certain types of insurance within a given state; also known as an authorised insurer.

Admitted paper
Policies issued by an admitted insurer.
Source: Conning

Adverse selection
The process by which an insurer is left with a disproportionate share of unwanted, higher-risk business. Particularly common in the life and health lines, adverse selection can occur when higher-than-expected claims experience leads an insurer to raise rates, which in turn causes the migration of "good" risks to companies charging less. Adverse selection may be attributable to improper underwriting and risk selection by the insurer or by superior knowledge of the risk by the insured. Among applicants for a given group or individual program, the tendency for those with an impaired health status, or who are prone to higher-than-average utilisation of benefits, to be enrolled in disproportionate numbers and lower deductible plans.
Source: Conning

Agent
A person who solicits insurance on behalf of an insurer.
Source: Conning

Aggregate deductible
The aggregate losses occurring within a given policy period that must be exceeded before an insurer becomes liable for losses.
Source: Conning

Aggregate limits of liability
The maximum amount payable by an insurer upon all claims arising within a single policy period.
Source: Conning

Alien reinsurer
A non-US-domiciled reinsurer writing reinsurance in the US.

All-risk insurance
Insurance in which coverage is not limited to specific events or named perils.
Source: Conning

Alliance of American Insurers
A Downers Grove, Illinois-based trade organisation representing primarily the smaller property-casualty insurers.
Source: Conning

Alternative market
Self-insurers, captive insurers and risk retention groups. These entities provide insurance protection in competition with traditional insurance companies.
Source: Conning

American Association of Managing General Agents (AAMGA)
A Kansas City, Missouri-based trade organisation representing managing general agents.
Source: Conning

American Council of Life Insurance (ACLI)
A Washington, DC-based trade organisation representing primarily the larger life insurers.
Source: Conning

American Insurance Association (AIA)
A Washington, DC-based trade organization representing primarily the larger property-casualty insurers.
Source: Conning

American Lloyd's
Associations of individual underwriters permitted to operate within a limited number of states within the US. These associations have no legal or other relationship with Lloyd's of London.
Source: Conning

Annuitant
A person who receives payment pursuant to an annuity contract.
Source: Conning

Annuity
A contract that provides for a fixed or variable periodic payment to a person (the annuitant), made from a stated or contingent date and continued for a specified period, such as for a number of years or for life. An annuity may be bought by means of instalments, or it may be bought by means of a single lump sum payment.
Source: Conning

Arbitration
A procedure to resolve a dispute between two parties without resorting to litigation.
Source: Conning

Arbitration clause
A provision in a contract in which the parties agree to arbitrate disputes. Most contracts between insurers and reinsurers contain an arbitration clause.
Source: Conning

Asset-backed securities
Security backed by notes or receivables against assets such as auto loans, credit cards, royalties, student loans and insurance.
Source: Swiss Re

Asset-liability management (ALM)
Management of a business in a way that coordinates decisions on assets and liabilities. Specifically, the ongoing process of formulating, implementing, monitoring and revising strategies related to assets and liabilities in an attempt to achieve financial objectives for a given set of risk tolerances and constraints.
Source: Swiss Re

Asset-liability matching
An investment strategy particularly appropriate for insurers in which the asset manager attempts to match the maturities of fixed-income securities to the schedule of claims and other payments anticipated by the insurer.
Source: Conning

Assigned risk
An insured whose insurance is provided through an assigned risk pool or plan.
Source: Conning

Association for Cooperative Operations Research and Development (Acord)
A global, non-profit standards development organisation serving the insurance industry and related financial services industries. Acord facilitates the development and use of data standards for the insurance and related financial services industries.

Association of Run-Off Companies (ARC)
The UK market body for insurance and reinsurance legacy management professionals.

Assume
The act of accepting a risk from a cedant in consideration of payment of a premium.
Source: Conning

Assumed premiums
Refers primarily to premiums arising from reinsurance policies issued by an insurer or reinsurer. Also may refer to premiums accepted by an individual company under a pooling arrangement.
Source: Conning

Assumption reinsurance
A transaction in which one insurer transfers its liabilities under existing or in-force contracts to an assuming insurer. The transfer is intended to extinguish the assignor's liabilities under the contracts being assigned.
Source: Conning

Assurance
A synonym for insurance.
Source: Conning

Attachment point
The level above which insurance or reinsurance becomes applicable.
Source: Conning

Authorised reinsurance
Reinsurance provided by a reinsurer recognised by a particular state regulator.
Source: Conning

Aviation insurance
Insurance of accident and liability risks, as well as hull damage, connected with the operation of aircraft.
Source: Swiss Re

B
Bad faith claim
A claim based upon wrongful conduct, usually asserted by an insured against an insurer. Such claims may give rise to punitive damages far in excess of the actual damages suffered by the claimant.
Source: Conning

Bank
An informal, non-contractual multi-year summing up of the total premiums ceded to reinsurers less losses paid by reinsurers over the duration of a layer or program - usually a catastrophe program. For instance, cessions of $10,000 in premiums for each of five loss-free years would be said to constitute a $50,000 bank.

Basic limits
The minimum limits of liability that may be purchased by an insured.
Source: Conning

Basis point
0.01% of the yield of a mortgage, bond or note. The smallest measure used.
Source: Insurance Information Institute
http://www.iii.org

Beneficiary
The person named in an insurance policy as the recipient of the proceeds of the policy. Also refers to any person eligible as either a subscriber or a dependent for a managed care service in accordance with a contract.
Source: Conning

Binder
Temporary authorisation of coverage issued prior to the issuance of an insurance policy.
Source: Conning

Blanket contract
A health insurance contract that provides coverage on a group basis, for example employees within a business organisation.
Source: Conning

Bodily injury (BI) liability insurance
A form of insurance that provides protection against losses resulting from the imposition of a liability claim against an insured for bodily injury to a third party. Bodily injury can include losses of a purely economic nature, such as loss of wages.
Source: Conning

Bond
A security that obligates the issuer to pay interest at specified intervals and to repay the principal amount of the loan at maturity. In insurance, a form of suretyship. Bonds of various types guarantee a payment or a reimbursement for financial losses resulting from dishonesty, failure to perform and other acts.
Source: Insurance Information Institute
http://www.iii.org

Bonding company
An insurer authorised to issue surety bonds.
Source: Conning

Book
Refers to an insurer's in-force business.
Source: Conning

Broker
An intermediary who represents the insured in its dealings with an insurer and/or shops for coverage on behalf of the insured. Also, organisations that sell Lloyd's policies to insureds.
Source: Conning

Brokerage market
Reinsurers that write business through reinsurance intermediaries. Reinsurers who do not generally accept such business are referred to as the direct market.

Business interruption insurance
Insurance covering the loss of earnings resulting from, and occurring after, destruction of property; also known as “loss of profits” or “business income protection insurance”.
Source: Swiss Re

Business process reform
An initiative to increase the speed and efficiency with which business is transacted at Lloyd’s and also to reduce of the cost of doing business at Lloyd’s. It includes the promotion of contract certainty.
Source: Insurance Information Institute
http://www.iii.org


C

Capacity
Maximum amount of risk that can be accepted in insurance. One factor in determining capacity is government regulations that define minimum solvency requirements. Capacity also refers to the amount of insurance coverage allocated to a particular policyholder or in the marketplace in general.
Source: Swiss Re

Captive agent
An insurance agent who has agreed to provide exclusive representation to one insurer. A captive agent usually is an employee of the insurer.
Source: Conning

Captive insurer
An insurer controlled by an insured or a group of insureds, formed for the purpose of insuring risks associated with the activities of its stockholders or members.
Source: Conning

Carrier
A synonym for insurer
Source: Conning

Case reserves
Reserves established with respect to specific reported claims that are intended to reflect the ultimate liability and expense of settling a claim.
Source: Conning

Cash flow underwriting
The process of underwriting in which the insurer seeks to compensate for underwriting losses by investment income derived from the cash flow of its premiums
Source: Conning

Casualty insurance
Branch of insurance, mainly comprising accident and liability business, which is separate from property, engineering and life insurance. In the US this term is used for non-life insurance other than fire, marine and surety business.
Source: Swiss Re

Catastrophe
A loss or series of losses expected to exceed $25m in insured property damage. The definition was revised from a $5m threshold, effective January 1 1997.
Source: Conning

Catastrophe bonds (cat bonds)
Insurance-linked securities that allow (re)insurance companies to transfer peak insurance risks, including natural catastrophes, to the capital markets in the form of bonds. Catastrophe bonds help to spread peak exposures.
Source: Swiss Re

Catastrophe model
Using computers, a method to mesh long-term disaster information with current demographic, building and other data to determine the potential cost of natural disasters and other catastrophic losses for a given geographic area.
Source: Insurance Information Institute
http://www.iii.org

Catastrophe reinsurance
A form of reinsurance, usually in the form of excess-of-loss reinsurance, that indemnifies the ceding insurer from losses arising from a natural disaster. The actual reinsurance document is referred to as a "catastrophe cover”.
Source: Conning

Cedant
A term for an insurer that has underwritten insurance and transfers all or part of its risk to a third party by purchasing reinsurance; also known as a reinsured.
Source: Conning

Cede
The act of purchasing reinsurance.

Ceded premiums
Primarily, refers to premiums paid for reinsurance policies and transferred to the reinsurer. May also refer to premiums transferred by an individual company under a pooling arrangement.
Source: Conning

Ceding commission
An amount payable by a reinsurer to a cedant to cover its acquisition costs plus an anticipated profit margin.
Source: Conning

Cession
Insurance that is reinsured: the passing of the insurer’s risks to the reinsurer against payment of a premium. The insurer is referred to as the ceding company or cedent.
Source: Swiss Re

Chief risk officer
The executive accountable for enabling the efficient and effective governance of risks, and related opportunities, to a business and it's various segments.

Claim
Demand by an insured for indemnity under an insurance contract.
Source: Swiss Re

Claim adjuster
An individual or firm, whose functions typically include the on-site examination, evaluation and settlement of insurance claims. May be an independent contractor or employee of an insurance company.
Source: Conning

Claimant
One who submits a claim or suffers a loss.
Source: Conning

Claims handling
Activities in connection with the investigation, settlement and payment of
claims from the time of their occurrence until settlement.
Source: Swiss Re

Claims incurred and claim adjustment expenses
All claims payments plus the adjustment in the outstanding claims provision as well as expenses for evaluating and settling claims.
Source: Swiss Re

Claims-made policy
An insurance policy covering only those claims that occur and are reported during the policy period. In certain instances, a claims-made policy may cover claims arising prior to the policy's inception date.
Source: Conning

Claims ratio
Sum of claims paid, change in the provisions for unpaid claims and claim adjustment expenses in relation to premiums earned.
Source: Swiss Re

Clash reinsurance or cover
A form of reinsurance that indemnifies the ceding insurer for losses affecting multiple policies. Such coverage is designed to protect the cedant from multiple catastrophic losses.
Source: Conning

Coinsurance
Arrangement by which a number of insurers and/or reinsurers share a risk.
Source: Swiss Re

Combined ratio
Sum of the non-life claims ratio and the expense ratio
Source: Swiss Re

Comite Europeen des Assurances (CEA)
The European insurance and reinsurance federation. Through its 33 member bodies, the national insurance associations, the CEA represents all types of insurance and reinsurance undertakings, e.g. pan-European companies, monoliners, mutuals and SMEs. The CEA represents undertakings that account for approximately 94% of total European premium income.

Commercial lines insurance
Insurance that covers commercial and governmental activities.
Source: Conning

Commercial general liability insurance
A broad commercial policy that covers all liability exposures of a business that are not specifically excluded. Coverage includes product liability, completed operations, premises and operations, and independent contractors.
Source: Insurance Information Institute
http://www.iii.org

Commission
Remuneration paid by the insurer to its agents, brokers or intermediaries, or by the reinsurer to the insurer, for costs in connection with the acquisition and administration of insurance business.
Source: Swiss Re

Commutation
Transaction in which policyholders or insurers surrender all rights and are relieved from all obligations under an insurance or reinsurance contract in exchange for a single current payment.
Source: Swiss Re

Compensatory damages
Damages awarded to a claimant that compensate the claimant for losses sustained and are designed to make the injured party "whole." This contrasts with punitive damages, which are intended not merely to compensate the claimant but to punish the wrongdoer as well.
Source: Conning

Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA, or Superfund)
Legislation enacted by the federal government to provide funds to clean up hazardous waste sites. The legislation, which was amended and extended in 1986, also holds certain responsible parties liable for the expenses of cleaning up hazardous waste sites. Through the legislation's "joint and several liability" provisions, insurers have been required to pay for the cost of clean-up in certain instances.
Source: Conning

Compulsory insurance
Insurance coverage that is required by law, such as automobile liability insurance for drivers or workers' compensation insurance for employers.
Source: Conning

Consequential loss
A loss resulting from, but not caused directly by, an act. This contrasts with the proximate cause of a loss, which refers to an event that is the direct and immediate cause of a loss.
Source: Conning

Contingent commission
A supplemental commission payable by an insurer based upon the loss ratio or experience of the business being placed.
Source: Conning

Contingent liability
A liability that may occur in the future but has not yet occurred.
Source: Conning

Contributory plan
A group life or health policy in which the beneficiary pays a portion of the premium.
Source: Conning

Corporate Name
A new participant in Lloyd's of London, started in 1994, where liability is limited and capital is provided on a corporate basis.
Source: Conning

Corporation of Lloyd's
Provides administrative support functions for all Lloyd's syndicates, and is paid for by all syndicates.
Source: Conning

Co-surety
One of two or more sureties participating in a surety bond and sharing liability.
Source: Conning

Council of Lloyd's
The 28-member governing body of Lloyd's.
Source: Conning

Cover
Insurance and reinsurance protection based on a contractual agreement.
Source: Swiss Re

Coverholder
A company or partnership authorised by a managing agent to enter into a contract or contracts of insurance to be underwritten by the members of a syndicate managed by it, in accordance with the terms of a binding authority.
Source: Lloyd’s

Credit default swap
A contract used to insure the holder of a bond against default by the bond issuer.

Credit insurance
Insurance against financial losses sustained through the failure, for commercial reasons, of policyholders’ clients to pay for goods or services supplied to them.
Source: Swiss Re

Credit rating
A grade assigned to a bond, bond issuer, insurance company, or other entity or security to indicate its riskiness.

Crop-hail insurance
A form of insurance that provides protection from damage to crops by hail and certain other named perils, such as fire, lightning and wind. Also referred to as multiple peril crop insurance.
Source: Conning

Cycle turn
A change in the property-casualty underwriting cycle suggesting the arrival of either a hard insurance market or a soft insurance market.
Source: Conning

D

Deductible
The up-front amount of a loss for which the insured is responsible before benefits are paid; also known as a self-insured retention. The insurer's liability begins when or if the deductible is exhausted.
Source: Conning

Demand surge
The increasing cost of repair work in the wake of a catastrophe because of a shortage in materials and labour. Leads to higher claims.

Derivatives
Contracts that derive their value from an underlying financial asset, such as publicly-traded securities and foreign currencies. Often used as a hedge against changes in value.
Insurance Information Institute
http://www.iii.org

Direct writer
An insurer whose products are sold directly to the public by a sales force consisting of employees or exclusive agents of the insurer; it also refers to a reinsurer that provides reinsurance directly to primary companies without using a reinsurance broker.
Source: Conning

Direct premiums written (DPW)
Premiums written by an insurer before any ceding.
Source: Conning

Directors' and officers' liability insurance (D&O)
Liability insurance for directors and officers of an entity, providing cover for their personal legal liability towards shareholders, creditors, employees and others arising from wrongful acts such as errors and omissions.
Source: Swiss Re

Dividend
An amount payable by an insurer from earnings to policyholders by mutual, reciprocal and stock insurers, and to stockholders by stock insurers.
Source: Conning

Disability insurance
Insurance against the incapacity to exercise a profession as a result of sickness or other infirmity.
Source: Swiss Re

Diversification
Risk reduction technique that limits the risk of accumulation by spreading an organisation’s risks across different geographical locations as well as across different lines of business, in order to increase the number of mutually independent risks.
Source: Swiss Re

Domestic insurer
An insurer transacting business in the jurisdiction in which it is domiciled.
Source: Conning

Double indemnity
A benefit available as an endorsement to certain life insurance policies. It provides that twice the face amount of the policy shall be payable if death is accidental; also known as accidental death benefit.
Source: Conning

Drop down
An insurance policy that covers a loss either because an underlying policy's limits are exhausted or because an underlying insurer is unable, by reason of insolvency or otherwise, to provide coverage.
Source: Conning

Dual regulation
The prospect of divided and possibly conflicting regulation of insurers cited by opponents of federal regulation as a reason for maintaining the current state-based regulatory system.
Source: Conning

E

Electronic Claims File (ECF)
An electronic filing cabinet that enables claims and premium-related documents to be sent electronically.

Embedded value
Actuarially determined estimate of the economic value of the in-force life and health insurance operations of an insurance company (excluding any value attributable to future new business). Embedded value earnings, defined as the change in embedded value over the year (after adjustment for any capital movements such as dividends and capital injections), provide a measure of the performance of the life and health operations of an insurance company.
Source: Swiss Re

Employers' liability insurance
Insurance taken out by employers covering employees against injuries arising out of their employment.
Source: Swiss Re

Engineering insurance
Insurance covering the construction and erection of objects, and the insurance of machinery in operating plants.
Source: Swiss Re

Enterprise Risk Management (ERM)
A risk-based approach to managing an enterprise, integrating concepts of strategic planning, operations management, and internal control. ERM provides a framework for risk management, which typically involves identifying particular events or circumstances relevant to the organization's objectives (risks and opportunities), assessing them in terms of likelihood and magnitude of impact, determining a response strategy, and monitoring progress.

Environmental impairment liability coverage
A form of insurance designed to cover losses and liabilities arising from damage to property caused by pollution.
Source: Insurance Information Institute
http://www.iii.org

Equitas
A reinsurance company that was formed by the Society of Lloyd’s for the purpose of accepting reinsurances to close of non-life syndicates for the 1992 and prior years of account in 1996.
Source: Lloyd’s

Errors and omissions (E&O) insurance
A form of insurance that covers an insured's liability for any actual or alleged breach or neglect of duty committed in the conduct of the insured's business activities.
Source: Conning

European medium term note (EMTN)
Vehicle for raising funds by borrowing from the capital markets or from private investors. The EMTN programme itself is effectively a platform, under a standard documentation framework, from which to launch such issues on an ongoing basis.
Source: Swiss Re

Excess and surplus (E&S) lines insurance
A form of insurance that covers risks for which insurance is unavailable from admitted insurers.
Source: Conning

Excess and surplus (E&S) lines insurer
An insurer that, although not licensed to transact business within a given state, writes excess and surplus insurance as a non-admitted insurer with greater freedom from regulatory restrictions applicable to admitted insurers.
Source: Conning

Excess of loss reinsurance
A contract between an insurer and a reinsurer, whereby the insurer agrees to pay a specified portion of a claim and the reinsurer to pay all or a part of the claim above that amount.
Source: Insurance Information Institute
http://www.iii.org

Excess surplus
The amount of surplus over and above that required to meet defined required surplus standards.
Source: Conning

Exclusion
A provision in an insurance policy that eliminates coverage for certain risks, persons, classes of property or locations. In an all-risks policy, excluded items are listed explicitly in the policy. In a named-perils policy, exclusions are understood to be all those risks not listed as being covered.
Source: Conning

Expense ratio
Sum of acquisition costs and other operating costs and expenses in relation to premiums earned.
Source: Swiss Re

Expiration date.
The date on which insurance coverage ends.
Source: Conning

Exposure
A unit of measurement of risk being assumed by the insurer.

Exxon Valdez
A notable casualty loss resulting from the grounding of the oil supertanker, Exxon Valdez, off the coast of Alaska in 1989.
Source: Conning

F

Facultative reinsurance
Reinsurance of the insurer’s risks on an individual basis. The reinsurance company looks at each individual risk and determines whether to accept or decline coverage.
Source: Swiss Re

Federation of European Risk Management Associations (Ferma)
A European-wide trade body, which exists to widen and raise the culture of risk management throughout Europe to its members and to the risk management and insurance community.

Fidelity bond
An instrument that provides protection to an employer against loss caused by the dishonest or fraudulent acts of employees.
Source: Conning

Fiduciary bond
A surety bond required of executors, trustees and other fiduciaries that guarantees the performance of their duties; also known as a probate bond.
Source: Conning

Financial Accounting Standards Board (FASB)
A self-regulatory organization that establishes financial accounting and reporting standards.
Source: Conning

Financial guaranty
Insurance which indemnifies an insured claimant, obligee or indemnitee for financial loss resulting from (a) default or insolvency, (b) changes in interest rate levels, (c) changes in currency exchange rates, (d) restrictions imposed by foreign governments, or (e) changes in the value of specific assets or commodities.

Financial reinsurance
Reinsurance that combines risk transfer with elements of risk finance.
Source: Swiss Re

Financial strength rating
A current opinion of the financial security characteristics of an insurance organisation with respect to its ability to pay under its insurance policies and contracts in accordance with its terms.
Source: Standard & Poor’s

Finite risk insurance
A form of insurance or reinsurance transaction in which only a limited amount of risk is transferred. As is the case with financial reinsurance, a primary objective of such a transaction is to provide financial benefits to the cedant or insured.
Source: Conning

Fire insurance
Insurance against fire, lightning or explosion; it can also include insurance against windstorm, earthquake, flood and other natural hazards or political risks.
Source: Swiss Re

Fixed annuity
An annuity, either deferred or immediate, where the deposits are accumulated at a fixed rate of interest or immediate payments are constant for the duration of the contract. Also, referred to as "book value" products. The insurance company is liable for payment of the accumulated value less any surrender charge at any time.
Source: Conning

Float
Funds set aside by an insurance company to pay incurred losses which have not yet been paid.

Flood insurance
A form of insurance covering losses from floods.
Source: Conning

Florida Hurricane Catastrophe Fund (FHCF)
A tax exempt state trust fund under the direction of the State Board of Administration. It acts as the reinsurer of last resort for the state of Florida.

Foreign insurer
An insurer transacting business in a jurisdiction other than the state in which it is domiciled.
Source: Conning

Frequency
The number of losses occurring within a given time period. Thus, an insurer is said to have a "frequency problem" if its operating results are adversely affected by a large number of relatively small losses.
Source: Conning

Fronting
The issuance of insurance policies by an insurer as an accommodation to another insurer. Usually, the insurer providing the fronting facility cedes all or substantially all the risk, as well as a significant percentage of the premium, to the insurer being accommodated. This device often is used to enable an insurer to underwrite risks in a jurisdiction in which it is not licensed.
Source: Conning
 
Funded cover
Reinsurance contract under which the ceding company pays premiums to build a fund from which to pay expected claims. The premium less the reinsurance charge is paid out to the ceding company in the future as claim payments, returned premiums, or contingent commissions.
Source: Swiss Re

Funds at Lloyd's
Funds of an approved form that are lodged and held in trust at Lloyd's as security for a member’s underwriting activities. They comprise the members deposit, personal reserve fund and special reserve fund and may be drawn down in the event that the member’s syndicate level premium trust funds are insufficient to cover his liabilities. The amount of the deposit is related to the member's premium income limit and also the nature of the underwriting account.
Source: Lloyd’s

G

Generally Accepted Accounting Principles (Gaap)
Standards of accounting established by the American Institute of Certified Public Accountants or the Financial Accounting Standards Board and in other recognised accounting literature.
Source: Conning

Gross premiums written (GPW)
The sum of an insurer's direct premiums written and assumed premiums.
Source: Conning

Group life insurance
Life insurance provided on a group basis, usually for employees within a business organization, through a single master policy.
Source: Conning

Guaranteed minimum death benefit (GMDB)
Feature of variable annuity business. The benefit is a predetermined minimum amount that the beneficiary will receive upon death.
Source: Swiss Re

H

Hard insurance market
The period of the property-casualty insurance market cycle that is characterised by a shortage of capital and a lack of competition, causing price increases and decreased availability of coverage in certain lines of business.
Source: Conning

Health insurance
Generic term applying to all types of insurance indemnifying or reimbursing for losses caused by bodily injury or sickness or for expenses of medical treatment necessitated by sickness or accidental bodily injury
Source: Swiss Re

Homeowners insurance
A form of insurance that provides coverage for damage to residences and their contents from a broad range of perils, including fire, lightning, windstorm and theft. Personal liability insurance coverage also is provided.
Source: Conning

Hull coverage
Insurance covering damage to a vessel or aircraft but not to its contents or cargo.
Source: Conning

Hurricane Andrew
A Category 5 hurricane that made US landfall on August 26 1992. Andrew caused $26.5bn in damage and ranked as the costliest Atlantic hurricane in US history until surpassed by Hurricane Katrina in 2005. Insurance losses totaled $15.5bn.

Hurricane Ike
Ike made landfall at Galveston, Texas, on Saturday September 13 2008 as a strong category 2 hurricane with maximum sustained winds of 110mph. Total insured loss is estimated at $20bn.

Hurricane Katrina
Hurricane Katrina made its first landfall as a category one storm in south Florida on August 25 2005. Katrina went back out to sea and gathered force as it moved toward the US Gulf coast over the next few days, reaching category five intensity. It hit land again on August 29 as a category four storm and carved through Louisiana, Mississippi and Alabama. Preliminary damage estimates were well in excess of $100bn, eclipsing the damage wrought by Hurricane Andrew in 1992 The storm is estimated to have been the costliest tropical cyclone in US history and caused insurance losses of $40bn.

I

Impairment charge
Adjustment in the accounting value of an asset.
Source: Swiss Re

In force
The aggregate amount of insurance in effect as of a certain date for an insurer.
Source: Conning

Inception date
The date coverage under an insurance policy begins.
Source: Conning

Incurred but not reported (IBNR)
Provision for claims incurred but not reported by the balance sheet date. In other words, it is anticipated that an event will affect a number of policies, although no claims have been made so far, and is therefore likely to result in liability for the insurer.
Source: Swiss Re

Indemnity
A principle of insurance that an insured should be fully reimbursed for a loss.
Source: Conning

Industry loss warranties (ILW)
Index-linked catastrophe contracts with a dual trigger that require a minimum industry loss to occur before the coverage responds to the individual company loss.
Source: Swiss Re

Initial public offering (IPO)
The process by which a private company advertises and sells shares of stock in order to become publicly held.
Source: Conning

Insurance Information Institute (III)
A New York City-based educational and public relations organization representing primarily property-casualty insurers.
Source: Conning

Insurance-linked securities (ILS)
In risk securitisation, bonds for which the payment of interest and/or principal depends on the occurrence or severity of an insurance event. The underlying risk of the bond is a peak or volume insurance risk.
Source: Swiss Re

Insurance Services Office (ISO)
A New York City-based rating organization that prepares forms and provides loss cost data for property-casualty insurers.
Source: Conning

Intermediary
A broker, agent or other entity through which insurance arrangements are established.
Source: Conning

Internal reinsurance
The act whereby parent companies reinsure the risks of their subsidiaries.

International Association of Insurance Supervisors (IAIS)
Established in 1994, the IAIS represents insurance regulators and supervisors of some 190 jurisdictions in nearly 140 countries, constituting 97% of the world's insurance premiums. Its objectives are to cooperate to contribute to improved supervision of the insurance industry on a domestic as well as on an international level in order to maintain efficient, fair, safe and stable insurance markets for the benefit and protection of policyholders, promote the development of well-regulated insurance markets and contribute to global financial stability.

International Insurance Society (IIS)
A trade body which provides a world forum for leading insurance executives, academicians and others interested in insurance to share interests and ideas on timely global issues.

Invested assets
Those assets of an insurance company that are invested in cash, bonds, common and preferred stock, mortgages and real estate.
Source: Conning

K

Key man life insurance
A type of life insurance policy that protects a business organisation from losses arising from the death or disability of a senior executive or other employee important to the success of the business.
Source: Conning

KRW
The ‘three sisters’ hurricanes Katrina, Rita and Wilma, which hit the US in 2005

L

Layer
Section of cover in a non-proportional reinsurance programme in which total coverage is divided into a number of consecutive layers starting at the retention or attachment point of the ceding company up to the maximum limit of indemnity. Individual layers may be placed with different (re)insurers.
Source: Swiss Re

Lead insurer
An insurer that sets the terms of coverage and pools a portion of the risk with other insurers.
Source: Conning

Letter of credit
A financial guaranty 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; an alternative to funds withheld and modified coinsurance.

Liability insurance
Insurance for damages that a policyholder is obliged to pay because of bodily injury or property damage caused to another person or entity based on negligence, strict liability or contractual liability.
Source: Swiss Re

Life insurance
Insurance that provides for the payment of a sum of money upon the death of the insured. In addition, life insurance can be used as a means of investment or saving.
Source: Swiss Re

Lloyd's of London
A London-based insurance marketplace, whose underwriting members (or Names) have considerable worldwide influence in property-casualty markets, particularly those dealing with marine and aviation insurance.
Source: Conning

Lloyd's Act 1982
The most recent of seven private Acts of Parliament that define the powers of the Society of Lloyd’s. The Council of Lloyd’s was made the governing body of Lloyd’s under this Act.
Source: Lloyd’s

Lloyd’s Exchange
A messaging hub service that will enable the market to send risk information using Acord standard electronic messages.

Lloyd’s Franchise Board
The board established by the Council of Lloyd’s which is responsible for developing and directing the implementation of the franchise policy to create an maintain a commercial environment at Lloyd’s in which the long term return to all capital providers is maximised. The Council delegates certain of its powers to the Board which may operate within limitations set by Council.
Source: Lloyd’s

LMX spiral
The practice once prevalent within Lloyd's and other London markets of retroceding a portion of the reinsurance assumed. Thus, once a loss occurs, it works its way (or "spirals") through the various layers of retrocessionaires.
Source: Conning

Loss development
An actuarial method used to predict ultimate net losses (UNL) and IBNR. The growth of paid losses and case reserves is observed at regular intervals to arrive at age-to-age development percentages. Also known as "triangulation" for the characteristic shape of the tabular data employed.

Loss ratio
The ratio of incurred losses and loss adjustment expenses to earned premiums; may also refer to individual components. The ratio of incurred losses to earned premium is the pure loss ratio.
Source: Conning

Loss reserve
An amount set aside by an insurer to cover outstanding claims - those that have been reported to the insurer, as well as those incurred but not yet reported.
Source: Conning

M

Managing agent
The agency support mechanism behind syndicates on Lloyd's. Employs the underwriting staff and maintains compliance with Lloyd's rules.
Source: Conning

Managing general agent (MGA)
An agent who produces and underwrites business for an insurer and either adjusts or pays claims or negotiates reinsurance on behalf of the insurer.
Source: Conning

Mandatory convertible bond
Bond that has a compulsory conversion or redemption feature. Either on or before a contractual conversion date, the holder must convert the mandatory convertible into the underlying stock.
Source: Swiss Re

Marine insurance
Line of insurance which includes coverage for property in transit (cargo), means of transportation (except aircraft and motor vehicles), offshore installations and valuables, as well as liabilities associated with marine risks and professions.
Source: Swiss Re

Mediation
Non-binding procedure in which a third party attempts to resolve a conflict between two other parties.
Source: Insurance Information Institute
http://www.iii.org

Motor insurance
Line of insurance which offers coverage for property, accident and liability losses involving motor vehicles.
Source: Swiss Re

McCarran-Ferguson Act
Federal legislation enacted in 1945, in which Congress agreed to defer to state regulatory authorities in the regulation of the insurance industry. The legislation specifically provides for a limited federal antitrust exemption.
Source: Conning

Medical malpractice insurance
A form of insurance that covers a health care professional's liability for any actual or alleged breach or neglect of duty committed in the conduct of the insured's duties.
Source: Conning

Members' agent
A Lloyd's underwriting agency; introduces members to an underwriting syndicate but does not manage one.
Source: Conning

Monoline insurer
An insurer that writes only a single line of business. Over time, the term has been expanded to include insurers writing predominantly a single line of business.
Source: Conning

Multiline insurer
An insurer that issues insurance policies covering a wide range of perils. Such insurers may underwrite life, health and property-casualty risks.
Source: Conning

Mutual insurance company
An insurance company owned by its policyholders, in contrast to a stock insurance company, which is owned by its stockholders.
Source: Conning

N

Name
An individual member underwriting at Lloyd’s with unlimited liability. Since March 6 2003 no person has been admitted as a new member to underwrite on an unlimited liability basis.
Source: Conning

Nanotechnology
The study of the control of matter on an atomic and molecular scale.

National Association of Insurance Commissioners (NAIC)
A Kansas City, Missouri-based organization of state insurance commissioners founded in 1871 to study insurance regulatory affairs and assist state insurance departments in carrying out their regulatory responsibilities.
Source: Conning

National Association of Mutual Insurance Companies (Namic)
A US-based trade body that strengthens and supports its members and the property/casualty insurance industry by providing advocacy, member services and public policy development.

Net reinsurance assets
Receivables related to deposit accounting contracts (contracts which do not meet risk transfer requirements) less payables related to deposit contracts.
Source: Swiss Re

National Flood Insurance Program
A programme created by federal legislation and administered by the Federal Insurance Administration to provide flood insurance at subsidized rates to those who reside in designated flood areas.
Source: Conning

Net premiums written (NPW)
An insurer's premiums recorded as written in a specific period, net of premiums assumed and ceded. The difference between written premiums and earned premiums is amortization.
Source: Conning

New York Insurance Exchange
A marketplace established in 1980 to underwrite reinsurance and large or unusual insurance risks. It ceased operation in December, 1991.
Source: Conning

Non-life insurance
All classes of insurance business excluding life insurance.
Source: Swiss Re

Non-admitted insurer
An insurer not licensed to write insurance within a given state.
Source: Conning

Non-proportional reinsurance
Form of reinsurance in which coverage is not in direct proportion to the original insurer’s loss; instead the reinsurer is liable for a specified amount which exceeds the insurer’s retention; also known as “excess of loss reinsurance”.
Source: Swiss Re


Nuclear energy insurance
Property and liability insurance for atomic reactors, power stations or any other plant related to the production of atomic energy or its incidental processes.
Source: Swiss Re


O

Operating revenues
Premiums earned plus net investment income plus other revenues.
Source: Swiss Re


Operational risk
Risk arising from failure of operational processes, internal procedures and controls leading to financial loss.
Source: Swiss Re

Optional Federal Charter (OFC)
A regulatory system that would allow insurers in the US to choose between being regulated at the state level or at the federal level, which would eliminate the need to comply with 51 sets of different regulations.

P

Part VII transfer
A UK law allowing firms to transfer a portfolio of business and associated reinsurance assets to another company within the European Economic Area

Perils AG
An independent Zurich-based company, established to aggregate and provide industry-wide European catastrophe insurance data as a subscription service.

Piper Alpha
A North Sea oil rig operated by Occidental Petroleum that exploded on July 6, 1988, killing 167 men, with only 59 survivors. Total insured loss was about £1.7bn. To date it is the world's worst offshore oil disaster in terms both of lives lost and impact to industry.

Policyholder
A person or entity in whose name an insurance policy has been issued.
Source: Conning

Political risk insurance
A form of insurance that indemnifies exporters and funding sources against losses arising from political events, such as expropriation, war or currency restrictions.
Source: Conning

Pool
An underwriting mechanism in which the participants share premiums, expenses, losses and profits for business written.
Source: Conning

Portfolio
All of an insurer's premiums and reserves in a particular category of insurance. Also refers to an insurer's investments.
Source: Conning

Portfolio transfer
The act of reinsuring or otherwise assigning a portfolio by one insurer to another.
Source: Conning

Premium
The payment, or one of the periodical payments, a policyholder makes for an insurance policy.
Source: Swiss Re

Premiums earned
Premiums an insurance company has recorded as revenues during a specific accounting period.
Source: Swiss Re

Premiums written
Premiums for all policies sold during a specific accounting period.
Source: Swiss Re

Present value of future profits (PVFP)
Intangible asset primarily arising from the purchase of life and health insurance companies or portfolios.
Source: Swiss Re

Primary company.
An insurer that deals directly with the consumer to provide
Source: Conning

Primary uncertainty
The uncertainty about whether an event has occurred.

Pro rata
A form of reinsurance in which premiums and losses are shared proportionately between cedant and reinsurer. One such reinsurance agreement is quota share, in which the same percentage applies to all policies reinsured. Another is surplus share, in which the percentage may vary from policy to policy and usually increases as policy limits increase.

Product liability insurance
Insurance of the liability of the manufacturer or supplier of goods for damage caused by their products.
Source: Swiss Re

Professional indemnity insurance
Liability insurance cover which protects professional specialists such as physicians, architects, engineers, lawyers, accountants and others against third-party claims arising from activities in their professional field; policies and conditions vary according to profession.
Source: Swiss Re

Property insurance
Collective term for fire and business interruption insurance as well as burglary, fidelity guarantee and allied lines.
Source: Swiss Re

Proportional reinsurance
Form of reinsurance in which the premiums and claims of the insurer are shared proportionally by the insurer and reinsurer.
Source: Swiss Re

Protected cell captive (PCC)
A standard limited company that has been separated into legally distinct portions or cells. The revenue streams, assets and liabilities of each cell are kept separate from all other cells. PCCs can provide a means of entry into captive insurance market to entities for which it was previously uneconomic. The overheads of a protected cell captive can be shared between the owners of each of the cells, making the captive cheaper to run from the point of view of the insured.

Protection and indemnity (P&I) insurance
Liability insurance associated with sea vessels and cargoes, covering losses other than those covered by workers' compensation and those arising from collisions.
Source: Conning

Q

Quota-share reinsurance
Form of proportional reinsurance in which a defined percentage of all risks held by the insurer in a specific line is reinsured.
Source: Swiss Re

R

Rate
The price per unit of insurance.
Source: Conning

Rate on line.
A term, typically used in the London markets, referring to the ratio between premiums and coverage limits.
Source: Conning

Rating agency
A firm that assigns credit ratings for insurers, issuers of certain types of debt obligations as well as the debt instruments themselves. Examples include Standard & Poor’s, AM Best, Moody’s Investor Services and Fitch Ratings.

Reconstruction & Renewal
A plan to restructure the Lloyd’s market, unveiled in May 2005, under which Lloyd's sought to put an end to market wide litigation and draw a line under prior year losses by reinsuring the 1992 and prior year business underwritten by its members into Equitas, a UK authorised reinsurer.

Reserves
Liability established by an insurer to reflect the estimated cost of claim payments and related expenses that the insurer ultimately will be required to pay with respect to the insurance it has underwritten.
Source: Conning

Risk and Insurance Management Society (RIMS)
A New York City-based trade organization of risk managers and purchasers of commercial lines insurance.
Source: Conning

Risk management
The practice of evaluating and managing the risks to which a particular business or organization may be exposed.
Source: Conning

Run-off
The process of managing a discontinued line of business.
Source: Conning

Reinsurance
Insurance for insurance companies, which spreads the risk of the direct insurer. Includes various forms such as facultative, financial, non-proportional, proportional, quota-share, surplus and treaty reinsurance.

Reinsurance to close (RITC)
Exit mechanisms favoured by Lloyd’s where the open year liabilities of syndicates are transferred into an acquirers new syndicate.

Reserves
Amount required to be carried as a liability in the financial statements of an insurer or reinsurer to provide for future commitments under outstanding policies and contracts.

Retention
Amount of risk which the policyholder or insurer does not insure or reinsure but keeps for its own account.

Retrocession
Amount of the risk accepted by the reinsurer which is then passed on to other reinsurance companies.

Retrocessionaire
The reinsurer of a reinsurer

Return on equity (ROE)
Net income divided by time-weighted shareholders’ equity

Return on investments (ROI)
Investment result excluding result from assets held for linked liabilities divided by average invested assets. Invested assets include investments, funds held by ceding companies, net cash equivalents and net reinsurances assets. Average assets are calculated as opening balance plus one half of the net asset turnover at average foreign exchange rates.

Return on operating revenues
Life and health business operating result (operating income excluding non-participating realised gains and losses) divided by operating revenues (premiums earned, fee income, net investment income, and participating realised gains and losses).

Return on total revenues
Financial Services operating result (operating revenues less the sum of acquisition costs, claims and claim adjustment expenses and operating costs) divided by operating revenues (premiums earned and net investment income plus trading revenues and fees and commissions).

S

San Francisco Earthquake
The San Francisco earthquake of 1906 was a major earthquake that struck San Francisco, and the coast of Northern California on Wednesday, April 18, 1906. The death toll is estimated at 3,000..

Scheme of arrangement
A tool available in the UK to help firms deal with their run-off portfolios. Policyholders are invited to vote on the settlement they should be paid, and the vote of the majority is binding for all. Schemes of arrangement do not exist in continental Europe.

Secondary uncertainty
Once it has been established that an event has occurred, the uncertainty about how an insured value, such as a building, will respond.

Securitisation
Financial transaction, in which future cash flows from assets (or insurable risks) are pooled, converted into tradable securities and transferred to capital market investors. The assets are commonly sold to a special-purpose entity, which purchases them with cash raised through the issuance of beneficial interests (usually debt instruments) to third-party investors
Source: Swiss Re.

Securities and Exchange Commission (SEC)
The organisation that oversees publicly-held insurance companies. Those companies make periodic financial disclosures to the SEC, including an annual financial statement (or 10K), and a quarterly financial statement (or 10Q). Companies must also disclose any material events and other information about their stock.
Source: Insurance Information Institute
http://www.iii.org

Self-insurance
The retention of risk by a person or business. This usually includes setting up a fund against which claim payments are drawn. Claims processing often is handled through an administrative services contract with an independent organisation. Another method of self-insurance is the organization of a captive insurer.
Source: Conning

Severity
The magnitude of losses occurring within a given time period. Thus, an insurer is said to have a "severity problem" if its operating results are adversely affected by a small number of relatively severe losses. This is in contrast to a "frequency problem.
Source: Conning

Short-tail business
A class of business in which claims are reported and settled in a relatively short period of time.
Source: Conning

Sidecar
Reinsurers that accept business from one company with backing from that company and other investors. Sidecars are used as a temporary vehicle to ease capacity constraints. They became very popular after Hurricane Katrina.

Slip
A document in which a broker sets forth the details of a risk proposed for insurance.
Source: Conning

Society of Lloyd's
An informal term commonly used in Lloyd's of London to encompass all Names.
Source: Conning

Soft insurance market
The period of the property-casualty insurance market cycle that is characterized by excessive capital and competition, causing decreased prices and increased availability of coverage.
Source: Conning

Solvency II
Initiative launched by the European Commission to revise current EU insurance solvency rules. Solvency II focuses on capital requirements, risk modelling, prudential rules, supervisory control, market discipline and disclosure.
Source: Swiss Re

Stamp
A document that sets forth the share of a particular risk taken by each underwriting syndicate at Lloyd's. Underwriting capacity of a syndicate may be referred to as "stamp size.
Source: Conning

Stop-loss reinsurance
Form of reinsurance that protects the ceding insurer against an aggregate amount of claims over a period, in excess of either a stated amount or a specified percentage of estimated benefit costs. An example of this type of cover is employer stop loss (ESL), which is used by US companies to cap losses on self-funded group health benefit programmes. The stop-loss can apply to specific conditions or aggregate losses.
Source: Swiss Re

Storm surge
Sea water being pushed inland by a tropical cyclone.

Subrogation
The process by which an insurer, after payment of a claim, is able to substitute itself for the insured and assert the rights of an insured against a third party. For example, a surety may be subrogated to the rights of an obligee of a surety bond or an automobile insurer may be subrogated to the rights of the insured against a negligent third party.
Source: Conning

Subscription Market
A market where numerous reinsurers would participate on the same risk.

Surety insurance
Sureties and guarantees issued to third parties for the fulfilment of contractual liabilities.
Source: Swiss Re

Surplus reinsurance
Form of proportional reinsurance in which risks are reinsured above a specified amount.
Source: Swiss Re

Syndicate
An underwriting pool. At Lloyd's, the group of underwriters - headed by an "active underwriter" and backed by the capital of Names signed onto the syndicate - that enters into insurance contracts under authority delegated by the individuals providing the capital.
Source: Conning

T

Tail
The period of time that elapses between the writing of an insurance policy and the payment of the claim or between the loss occurrence (or the insurer's knowledge of the loss) and the payment of the claim.
Source: Conning

Term life insurance
Life insurance protection that pays the sum insured only if the insured dies within the term of the policy.
Source: Conning

Tort
A civil wrong or injury, other than that arising from a breach of contract.
Source: Conning

Treaty reinsurance
Participation of the reinsurer in certain sections of the insurer’s business as agreed by treaty, as opposed to single risks.
Source: Swiss Re

U

Umbrella liability policy
An insurance policy providing limits of liability in excess of primary and excess liability insurance and providing coverage for risks not covered by a primary policy. The term umbrella is derived from the fact that it is a separate policy of insurance and provides coverage above the insured's other liability policies.
Source: Conning

Underwriter
A synonym for insurer or an employee of an insurance company whose responsibilities include reviewing applications submitted for insurance coverage, deciding whether to accept or reject all or part of the coverage requested and fixing the terms of coverage.
Source: Conning

Underwriting result
Premiums earned less the sum of claims paid, change in the provision for unpaid claims and claim adjustment expenses and expenses (acquisition costs and other operating costs and expenses).
Source: Swiss Re

Underwriting cycle.
The phenomenon within the property-casualty insurance industry in which prices, profits and availability fluctuate between shortage and abundance.
Source: Conning

V

Value at risk (VaR)
Maximum possible loss in market value of an asset portfolio within a given time span and at a given confidence level. 99% VaR measures the level of loss likely to be exceeded in only one year out of a hundred, while 99.5% VaR measures the loss likely to be exceeded in only one year out of two hundred. 99% Tail VaR estimates the average annual loss likely to occur with a frequency of less than once in one hundred years.
Source: Swiss Re

Variable annuity
An annuity under which the annuitant's payments will vary, depending upon the results of an investment portfolio or in accordance with a formula prescribed in the annuity contract.
Source: Conning

Variable life insurance.
Life insurance under which the benefits will vary, depending upon the investment experience of a separate account supporting such a policy.
Source: Conning

W

Winter Storm Emma
A winter storm that struck Europe in March 2008 and caused insurance losses of $1.4bn.

Winter Storm Kyrill
Kyrill hit Europe on January 18 and 19 2007 and caused insurance losses of $6bn.

Workers' compensation insurance.
A statutory no-fault form of insurance purchased by employers to provide benefits to employees for injuries sustained during employment.
Source: Conning

X

Xchanging
An outsource provider of policy, premium and claims processing services to the Lloyd’s market and others. These services are delivered via its operating subsidiaries, Ins-Sure Services and Xchanging claims services.
Source: Lloyd’s

Y

Year of account
The year in which an insurance or reinsurance contract that is underwritten by a syndicate is allocated for accounting purposes and into which all premiums and claims arising in respect of that contract are payable. Insurance or reinsurance contracts are generally allocated to years of account according to the calendar year of their inception date so that a contract that commences in 2005 will normally be allocated to the 2005 year of account.
Source: Lloyd’s