THE COMPANY

Reinsurance
Terms

  • Rate

    The percent or factor applied to the ceding company's subject premium to produce the reinsurance premium, or the percent applied to the reinsurer's premium to produce the commission payable to the primary company (or, if applicable, the reinsurance intermediary).

  • Rate On Line

    Premium divided by indemnity. A British term for the rate which, when multiplied by the indemnity, would produce the premium. This term is used extensively in judging the adequacy of rates for per occurrence excess covers, and is the inverse of the American terms, Amortization Period and Payback Period.

  • Recapture

    Used often in life reinsurance as the action of a ceding company to take back reinsured risks previously ceded to a reinsurer.

  • Reciprocity

    The mutual exchange of reinsurance, often in equal amounts, from one party to another, the object of which is to stabilize overall results.

  • Recoupment (noun)

    The application of debits and credits arising out of an agreement or transaction for the purpose of determining the amount due to or from a party under the agreement or transaction. Under recoupment, the debits and credits are applied without regard to whether they represent mutual debts since the debits and credits are limited to those arising under the same transaction or contract and the purpose of recoupment is to determine the amount which the party owes or is owed under that contract or transaction. The term is to be contrasted with setoff, which is the reduction of the amount owed by one party to a second party under one agreement or transaction by the amount which the second party owes to the first party under a different contract or transaction for the purpose of determining the amount due, if any, to or from the first party. See also Counterclaim and Setoff.

  • Recovery

    In reinsurance, an amount received by the reinsured company from reinsurance, salvage of damaged property, or subrogation against third parties. If the amount is receivable (due but not yet paid to the company), the term used us recoverable, which is comparable to an account receivable.

  • Reimbursement Priority

    In a reinsured company's excess of loss reinsurance, from which loss payments have been made to the company, the distribution of salvage and subrogation recoveries received subsequently by the company to reinsurers, beginning with the reinsurer of the highest layer and progressing to the lowest, before benefiting the company. Each reinsurer thereby pays only that portion of the post-recovery, reduced loss it would have paid if the recovery had been received prior to any reinsurance payment.

  • Reinstatement

    The restoration of the reinsurance limit of an excess property treaty to its full amount after payment by the reinsurer of loss as a result of an occurrence.

  • Reinsurance

    1. The transaction whereby the reinsurer, for a consideration, agrees to indemnify the reinsured company against all or part of the loss that the company may sustain under the policy or policies that it has issued.
    2. When referred to as "a reinsurance," the term means the reinsurance relationship between reinsured(s) and reinsurer(s).
  • Reinsurance Assumed

    That portion of one or more risks the reinsurer accepts from the original insurer or ceding company.

  • Reinsurance Ceded

    That portion of one or more risks that the ceding company transfers to the pro rata reinsurer.

  • Reinsurance Premium

    1. An amount paid by the ceding company to the pro rata reinsurer in consideration for sharing insurance policy liability, premium, and losses, beginning with the first dollar.
    2. An amount paid by the reinsured company to the excess of loss reinsurer for indemnity of the reinsured's losses above the agreed loss retention.
  • Reinsured

    1. In pro rata reinsurance, an insurer which has ceded parts of or all of one or more policies to a reinsurer in the process of sharing insurance liability, premiums, and losses. Also known as Ceding Company.
    2. In excess of loss reinsurance, an insurer which is to be indemnified by a reinsurer for losses from one or more policies in excess of the insurer's (reinsured's) loss retention.
  • Reinsurer

    An insurer which assumes the insurance liability of another by way of reinsurance, either pro rata sharing or indemnifying the reinsured for losses in excess of the reinsured's loss retention.

  • Reinsuring Clause

    Language that describes the coverage agreed upon by the parties, i.e., what is covered and when. The key components are three: 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.

  • Reserve Strengthening

    Increasing estimated loss reserve liabilities, which requires either the reduction of policyholder surplus as more assets are earmarked to offset increasing liabilities or the inflow of assets from outside the corporation.

  • Retainage

    Contract balances held in suretyship by an obligee for payment to a contractor upon completion of the contract.

  • Retention

    The amount of insurance liability (in pro rata, for participation with the reinsurer) or loss (in excess of loss, for indemnity of excess loss by the reinsurer) which an insurer assumes (or retains) for its own account. In pro rata contracts, the retention of liability will be a percentage of the policy limit. In excess of loss contracts, the retention of loss is 1) a dollar amount of loss (comparable to a deductible used in primary insurance), 2) a percentage amount of each layer of insurance liability, 3) an amount of loss which exceeds the reinsurance in place, or 4) all three. See Attachment Point and Priority.

  • Retrocedent

    The ceding reinsurer in a retrocession, where the assuming reinsurer is known as the retrocessionnaire.

  • Retrocession

    The reinsuring of reinsurance. Retrocession is a separate contract and document from the original reinsurance agreement between a primary insurance company (as the reinsured) and the original reinsurer. A retrocession is placed to afford additional capacity to the original reinsurer or to contain or reduce the original reinsurer's risk of loss, and is either specific or blanket. A specific retrocession may be a single risk only or a carefully defined group of risks, structured as pro rata or excess of loss reinsurance. A blanket retrocession covers the original reinsurer's entire net portfolio of reinsured business (i.e., net in being less any specific retrocession protection) and is normally structured as excess of loss reinsurance, arranged separately by major line of reinsured business (i.e., property, casualty, ocean marine, aviation, accident and health, among others).

  • Retrocessionnaire

    The assuming reinsurer in a retrocession, where the ceding reinsurer is known as the retrocedent.

  • Retrospective Rating Plan

    The formula in a reinsurance contract for determining the reinsurance premium for a specified period on the basis of the loss experience for the same period (as opposed to prospective rating, which is based on loss experience for a prior period). Also known as Experience Rating.

  • Return Portfolio

    The reassumption by a ceding company of a portfolio of risks previously assumed by a reinsurer. See Assumed Portfolio.

  • Reversal Expenses

    Expenses incurred in the appellate process in an effort to reverse a trial court decision or to obtain a reduction of the damages award. Because appellate expense often inures largely to the benefit of the excess of loss reinsurer, it is customary for the reinsurer to share the corresponding burden of that expense in proportion to the benefit received from the appeal through a reduction in the amount of the court verdict.

  • Risk

    Defined variously as uncertainty of loss, chance of loss, or the variance of actual from expected results. Also, the word is used to identify the object of insurance protection, e.g., a building, an automobile, a human life, or exposure to liability. In reinsurance, each reinsured company customarily makes its own rules for defining a risk.

  • 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 company.

  • Run-Off Cancellation or Termination

    A provision in the termination clause (or endorsement) of a reinsurance contract stipulating that the reinsurer shall remain liable for loss under reinsured policies in force at the date of termination, as a result of occurrences taking place after the date of termination, until their natural expiry (and often that the run-off period may not exceed twelve months from the date of termination). See Cut-Off Cancellation or Termination. (Editor's Note: Runoff is one word when used as a noun, two words as a verb transitive, and hyphenated as a compound adjective e.g., a runoff runs off insurance business in force on a run-off basis.