THE COMPANY

Reinsurance
Terms

  • Capacity

    The measure of an insurer's financial strength to issue contracts of insurance, usually determined by the largest amount of insurance issuable for a given risk or, in certain other situations, by the maximum volume of insurance (or reinsurance) business it is prepared to accept. See Underwriting Capacity.

  • Captive Insurance Company

    An insurer which is wholly-owned by another organization (generally noninsurance), the main purpose of which is to insure the risks of the parent organization.

  • Carpenter Plan

    A form of excess of loss reinsurance in which a reinsured company spreads its losses over a three-to-five-year period, first introduced in the U.S. by a broker of that name. See Spread Loss Reinsurance.

  • Carrier, Reinsurance

    An organization assuming insurance liability of another insurer.

  • Cash Call

    A reinsurance contract provision, common in proportional contracts, which allows a reinsured company to make claim and receive immediate payment for a large loss without waiting for the usual periodic payment procedures to occur.

  • Casualty Catastrophe Cover

    Reinsurance which is not exposed on a policy limit basis, i.e., the deductible on the treaty is equal to or exceeds the reinsured's maximum net exposure on any one policy. Therefore, such treaties protect against the infrequent loss involving two or more insureds in the same loss occurrence and are referred to as clash covers. See Clash Cover and Two-Risk Warranty.

  • Catastrophe Number

    Whenever a catastrophe occurs which produces losses within a prescribed period of time in excess of a certain amount (such as $1 million), the amount of such losses is recorded separately from non-catastrophe losses, is numbered by the Property Claims Service (in Rahway, New Jersey).

  • Catastrophe Reinsurance

    A form of excess of loss reinsurance which, subject to a specified limit, indemnifies the reinsured company for the amount of loss in excess of a specified retention with respect to an accumulation of losses resulting from a catastrophic event or series of events. The actual reinsurance document is referred to as "a catastrophe cover."

  • Cede

    In pro rata reinsurance, to pass on to another insurer (the reinsurer) all or part of the financial interests of insurance policies written by an insurer (the ceding insurer) with the object of reducing the cedent's possible liability by sharing with the reinsurer the insurance liability, premiums, and losses from the reinsured business. See Cession.

  • Ceding Commission

    Primarily in pro rata reinsurance, an allowance (usually a percentage of the reinsurance premium) made by the reinsurer for part or all of a ceding company's acquisition and other costs. The ceding commission may also include a profit factor for the reinsured. See Turn.

  • Ceding Company

    1. Correctly used as the reinsured in pro rata reinsurance, where the reinsurer shares in the insurance liability, premium, and losses from the ceded policies of the reinsured.
    2. Informally referred to as the reinsured in excess of loss reinsurance, where the reinsurer indemnifies the reinsured for losses in excess of the reinsured's retention.
      See Cede.
  • Certificate of Reinsurance

    A short-form documentation of a reinsurance transaction, used especially for facultative reinsurance transactions.

  • Cession

    1. The unit of insurance passed (or ceded) to a pro rata reinsurer by a primary company or cedent which issued a policy to the original insured. A cession may accordingly be the whole or a portion of single risks, defined policies, or defined divisions of business, all as agreed in the reinsurance contract.
    2. The act of ceding where such act is necessary to invoke the pro rata reinsurance protection.
  • Claim Expenses

    The costs incurred in processing claims: court costs, interest upon awards and judgment, the company's allocated expense for investigation and adjustments and legal expenses (excluding, however, ordinary overhead expenses of the company such as salaries, monthly or annual retainers, and other fixed expenses which are defined as unallocated loss adjustment expenses). Also known as Loss Expenses or Loss Adjustment Expenses.

  • Claims-made Basis

    The provision in a contract of insurance or reinsurance that coverage applies only to losses which occur and claims that are made during the term of the contract. (Losses occurring before the contract term are sometimes covered by the addition of "prior-acts" coverage to the contract, which may be subject to a retroactive date limiting the period in which the covered losses may have occurred. Losses reported after the contract term are sometimes covered by the addition of "tail" coverage, which may be subject to a sunset provision.) Once the policy period is over in claims-made covers, the approximate extent of the underwriter's liability is known. On the other hand, the traditional "occurrence" liability insurance method provides coverage for losses from claims which occurred during the policy period, regardless of when the claims are asserted. With the traditional "occurrence" liability coverage method, the underwriter may not discover the extent of liability for years to come from losses asserted to have occurred within the policy period. With claims-made covers which are renewed, however, losses which occurred during any period when the policy was in force are again covered if reported during the renewal term. In summary, the traditional method is similar to claims-made if the latter has added to it both "prior-acts" and "tail" coverage.

  • Clash Cover

    A reinsurance casualty excess contract requiring two or more coverages or policies, issued by the reinsured and involved in a loss, for coverage to apply The attachment point of the reinsurance contract is usually above the limits of any one policy. See Casualty Catastrophe Cover and Two-Risk Warranty.

  • Combination Plan Reinsurance

    A form of quota share and excess of loss reinsurance combined which provides that, in consideration of a premium at a fixed percent of the ceding company's subject premium on the business covered, a) the reinsurer will indemnify the ceding company for the amount of loss on each risk in excess of a specified retention, subject to a specified limit, and b), after deducting the excess recoveries on each risk, the reinsurer will indemnify the ceding company for a fixed quota share percent of all remaining losses.

  • Commission

    1. Agent Commission - In insurance an amount paid an agent for insurance placement services.
    2. Brokerage Commission - An amount paid a broker for insurance or reinsurance placement services.
    3. Ceding Commission - In reinsurance, an allowance (usually a percentage of the reinsurance premium) made by the reinsurer for part or all of a ceding company's acquisition and other costs. The ceding commission may also include a profit factor for the reinsured.
    4. Overriding Commission - a) A fee or percentage of money which is paid to a party responsible for placing a retrocession of reinsurance. b) In insurance, a fee or percentage of money which is paid by the insurer to an agent or general agent for premium volume produced by other agents in a given geographic territory.
    5. Overwriting Commission - Another name for Overriding Commission.
    6. Producer Commission - The same as Brokerage Commission.
    7. Reinsurance Commission - The same as Ceding Commission.
  • Commutation Clause

    A clause in a reinsurance agreement which provides for estimation, payment, and complete discharge of all obligations, including future obligations between the parties for reinsurance losses incurred. This clause is often found in contracts reinsuring workers compensation and may be optional (which is usual) or mandatory.

  • Company

    In reinsurance, the reinsured insurance company (although a reinsurer can also be a reinsured in a retrocession agreement).

  • Conflagration

    A massive fire which destroys many contiguous properties.

  • Conflagration Area

    A geographic territory in which many properties are subject to damage by a sweeping fire.

  • Contingency Cover

    Reinsurance protection against the unusual combination of losses. See Clash Cover.

  • Contingent Commission

    An allowance from the reinsurer to the reinsured based on a predetermined percentage of the profit realized by the reinsurer on the business ceded by the reinsured. Also known as Profit Commission.

  • Contributing Excess

    A type of facultative excess of loss reinsurance wherein the reinsured company's policy applies in excess of other valid insurance, reinsurance, or self-insured retention, and the limit(s) of liability of the reinsurer(s) apply(ies) proportionately to all loss within said excess policy's limit, as in the percentage(s) set forth in the Declarations Page.

  • Convention Blank

    Another name for the Annual Statement form prescribed by NAIC (National Association of Insurance Commissioners) of Kansas City, Missouri. See Annual Statement.

  • Coreinsurance

    1. A provision in an excess of loss reinsurance contract requiring the reinsured to retain net and unreinsured otherwise (or to co-reinsure) a part of the loss above the contract's retention, the purpose of which is to promote good claims handling by the reinsured. For example, when the reinsurer covers 95% of an excess of loss layer, the reinsured's 5% share of the excess losses is co-reinsurance, a proportional sharing of the layer losses.
    2. When several reinsurers are independently sharing a reinsurance contract (pro rata or excess, treaty or facultative), each reinsurer is a co-reinsurer (as can be illustrated by another term, contributing excess).
      See Contributing Excess.
  • Counsel and Concur

    A phrase stating the reinsured company's obligation to obtain the counsel and concurrence of the reinsurer in making claims decisions. Most typically applied to claims decisions made in connection with extra contractual obligations or judgments (loss) in excess of policy limits coverages.

  • Counterclaim (Noun)

    The assertion of an amount owed by one party to a second party arising out of one agreement or transaction in response to a claim asserted by the second party against the first party arising out of a different agreement or transaction for the purpose of determining the net amount due to the first party. See also Setoff and Recoupment.

  • Cover Note

    A written statement issued by an intermediary, broker, or direct writer, indicating that coverage has been effected. Also known as The Slip. See Binder.

  • Credibility

    The measure of credence or belief that is attached to a particular body of statistical experience for rate-making purposes, frequently defined in terms of specific mathematical formulas. Generally, as the body of experience increases in volume, the corresponding credibility also increases.

  • Credit for Authorized Reinsurance, Annual Statement

    The legal right of a licensed insurer to increase its Annual Statement policyholder surplus when purchasing pro rata reinsurance from a reinsurer authorized or approved by the domiciliary state insurance department of the insurer. The increase is achieved by the insurer's ceding the unearned premium reserve on the insurance policies affected, and possibly other reserves as well, to the authorized reinsurer, which pays the insurer a ceding commission as an allowance for the insurer's original acquisition costs, thus increasing the policyholder surplus. If excess of loss reinsurance is purchased, where no unearned premium reserve is involved, the credit is achieved by the statutory recognition of loss recoverables from the reinsurer, as is the case for loss recoverables from a pro rata reinsurer. See Policyholder Surplus, Ceding Commission, and Penalty for Unauthorized Reinsurance.

  • Cumulative Liability

    The accumulation of liability of a reinsurer under several policies from several reinsureds covering similar or different lines of insurance, all of which are involved in a common event or disaster.

  • Cut-Off Cancellation or Termination

    A provision included in the termination clause (or endorsement) which provides that the reinsurer shall not be liable for losses occurring after the termination date. See also Run-Off Cancellation or Termination. (Editor's Note: Cutoff is one word when used as a noun, two words as a verb transitive, and hyphenated as a compound adjective, e.g., a cutoff cuts off insurance business in force on a cut-off basis.)

  • Cut-Through Endorsement

    An addition to an insurance policy between an insurance company and a policyholder which requires that, in the event of the company's insolvency, any part of a loss covered by reinsurance be paid directly to the policyholder or mortgagee by the reinsurer. The cut-through endorsement is so named because it provides that the reinsurance claim payment "cuts through" the usual route of payment from reinsured company-to-policyholder, followed by reinsurer-to-reinsured company, substituting instead the payment route of reinsurer-to-policyholder-or-mortgagee. The effect is to revise the route of payment only, and there is no intended increased risk to the reinsurer, although endorsement terms may provide otherwise. Similar to the Guaranty Endorsement, the cut-through endorsement is also known as an Assumption Endorsement.