Selected Insurance Terms
Agent —An intermediary
appointed by an insurer to procure applications for insurance, receiving
a commission from the insurer for policies written.
Assume —To accept from the primary insurer
or reinsurer all or a portion of the liability underwritten by such
primary insurer or reinsurer.
Automobile Liability
Insurance —Insurance which is primarily concerned with
the losses related to bodily injury or property damage caused by
an automobile and the resulting legal liability imposed on the insured.
Broker —An intermediary who negotiates policies
of insurance with insurers on behalf of the insured, receiving a
commission from the insurer for placement and other services rendered.
Casualty Insurance
—Generally used to describe an area of insurance not particularly
or directly concerned with life insurance or property insurance.
It is insurance which is primarily concerned with the losses caused
by injuries to third persons (in other words, persons other than
the policyholder) and the resulting legal liability imposed on the
insured.
Catastrophe Reinsurance
—A form of excess of loss reinsurance that, subject to a specified
limit, indemnifies the ceding company for the amount of loss in
excess of a specified retention with respect to an accumulation
of losses resulting from a covered catastrophe, such as a hurricane
or hailstorm.
Cede; Cedant; Ceding
Company —When a party reinsures its
liability with another, it ‘‘cedes’’ business and is referred to
as the ‘‘cedant’’ or ‘‘ceding company’’.
Claim —The amount demanded under a policy
of insurance or reinsurance arising from the loss relating to an
insured event. A claim is also referred to as a loss.
Claim Expenses
—The expenses of settling claims, including legal and other fees
and the portion of general expenses allocated to claim settlement
costs. Claim expenses are also referred to as loss adjustment expenses.
Claims Incurred
—The aggregate of all claims paid during an accounting period adjusted
by the change in claims reserve for that accounting period together
with the related claim expenses. Claims incurred are also referred
to as losses incurred.
Claims Ratio —
Claims incurred, net of reinsurance, expressed as a percentage of
net premiums earned. Claims ratio is
also referred to as loss ratio.
Combined Ratio
— A combination of the claims ratio and the expense ratio, determined
in accordance with either statutory accounting principles (SAP)
or Canadian GAAP. A combined ratio below 100% generally indicates
profitable underwriting prior to the consideration of investment
income. A combined ratio over 100% generally indicates unprofitable
underwriting prior to the consideration of investment income.
Expense Ratio —The
commission expense, premium tax expense and all general and administrative
expenses incurred in operating the business expressed as a percentage
of net earned premiums.
General Liability Insurance
—Insurance which is primarily concerned with losses caused by negligent
acts and/or omissions resulting in bodily injury and/or property
damage on the premises of a business, injury resulting from the
use of a product manufactured or distributed by a business, or injury
occurring in the general operation of a business.
Gross Premiums
written or gross premiums —The total premiums, net of credits and
cancellations, on insurance underwritten by an insurer or reinsurer
during a specified period, before deduction of reinsurance premiums
ceded.
IBNR Reserve —Reserves
for estimated claims that have been incurred by insureds but not
yet reported to the insurer including unknown future developments
on claims which are known to the insurer.
Independent Agent or
Independent Producer
—A person or firm who produces applications for insurance for an
insurer either directly or through an MGA, but is not legally affiliated
to the company or the MGA, except to the extent of the agency contract.
Liability Insurance
—Insurance which serves to protect the insured from the financial
consequences of damages claimed by third parties.
Managing General Agent (MGA) —A person or
firm authorized by an insurer to transact insurance business who
may have authority to bind the insurer, issue policies, appoint
producers, adjust claims and provide administrative support for
the types of insurance coverage pursuant to an agency agreement.
Net Premiums Earned
—The net premiums written of an insurer relating to that portion
of the term of its insurance policies which fall within a given
period.
Net Premiums Written
or Net Premiums
—The total gross premiums written by an insurer for a given period
less premiums ceded to reinsurers during such period.
Non-standard Automobile
Insurance —Insurance provided to individuals
who do not qualify for standard automobile insurance coverage because
of their payment history, driving record, place of residence, age,
vehicle type or other factors, including market conditions.
Premium Tax —A
tax paid by insurance companies to state or provincial governments
calculated as a percentage of gross premiums written.
Producer —A broker or agent from whom an
insurer receives applications for insurance coverages.
Property Insurance
—Insurance which provides coverage to a person with an insurable
interest in tangible property for that person’s property loss, damage
or loss of use.
Provisions for Unpaid
Claims —Provisions or reserves established
by insurers and reinsurers to reflect the estimated cost of claims
payments and the related expenses that the insurer or reinsurer
will ultimately be required to pay in respect of insurance or reinsurance
it has written. Provisions are established for claims and for claim
adjustment expenses. Provisions for unpaid claims are also referred
to as claim or loss reserves.
Reinsurance —An arrangement in which an insurance
company, the reinsurer, agrees to indemnify another insurance or
reinsurance company, the ceding company, against all or a portion
of the insurance or reinsurance risk underwritten by the ceding
company under one or more policies.
Risk Excess of Loss
Reinsurance —A form of excess of loss
reinsurance that covers a loss of the reinsured on a single ‘‘risk’’
in excess of its retention level of the type reinsured, rather than
to aggregate losses for all covered risks, as does catastrophe excess
of loss reinsurance. A ‘‘risk’’ in this context might mean the insurance
coverage on one building or a group of buildings or the insurance
coverage under a single policy, which the reinsured treats as a
single risk.
Statutory Accounting
Principles (SAP) —Recording transactions
and preparing financial statements in accordance with the rules
and procedures prescribed or permitted by insurance regulatory authorities
including the NAIC, which in general reflect a liquidating, rather
than going concern, concept of accounting.
Surety Bonds —A promise
by a professional surety insurer to pay should the principal default
or commit a wrongful act. A written guarantee that a party will
perform an expressed obligation.
Surplus (as regards
to policyholders) —The amount remaining
after all liabilities, including loss reserves, are subtracted from
all admitted assets as determined in accordance with SAP. Admitted
assets of an insurer are assets permitted by a jurisdiction to be
taken into account in determining the insurer’s financial condition
for statutory purposes. Surplus as regards to policyholders is also
referred to as statutory surplus.
Treaty Reinsurance
—The reinsurance of a specified type or category of risks defined
in a reinsurance agreement (a ‘‘treaty’’) between a primary insurer
or other reinsured and a reinsurer. Typically, in treaty reinsurance,
the primary insurer or reinsured is obligated to offer and the reinsurer
is obligated to accept a specified portion of all such type or category
of risks originally written by the primary insurer or reinsured.
Underwriting —The insurer’s or reinsurer’s
process of reviewing applications submitted for insurance coverage,
deciding whether to insure all or part of the coverage requested
and determining the applicable premiums.
Underwriting Capacity
—The maximum amount that an insurance company can underwrite. The
limit is generally determined by the company’s retained earnings
and investment capital. Reinsurance serves to increase a company’s
underwriting capacity by reducing its exposure from particular risks.
Underwriting Expenses
—The aggregate of policy acquisition costs, including commissions,
and the portion of administrative, general and other expenses attributable
to underwriting operations.
Underwriting Profit
—The difference between net premiums earned and the sum of claim
expenses and underwriting expenses. Because underwriting profit
excludes investment income, it is a commonly used method of evaluating
the performance of a property and casualty insurance company.
Unearned Premiums
—The net premiums written of an insurer relating to that portion
of the term of its insurance policies which fall within subsequent
periods and which is deferred to such subsequent periods.
Top