• Law of Large Numbers

    A mathematical concept which postulates that the more times an event is repeated (in insurance, the larger the number of homogeneous exposure units), the more predictable the outcome becomes. In a classic example, the more times one flips a coin, the more likely that the results will be 50% heads, 50% tails.

  • Layer

    The total amount of excess of loss reinsurance protection which a company needs to protect a given set of exposures is usually not written in one contract. Instead, the total amount is split into pieces or layers and separate contracts are written which fit on top of each other and have similar or identical terms but separate limits which sum to the total amount required. Each of the separate contracts in the series is called a layer or level in the total program.

  • Layer Rating

    The prediction of loss frequency within a given layer (or band) of insurance.

  • Lead (or Leading) Underwriter

    The individual (or organization) with a major role in negotiating the terms and conditions of a reinsurance cover and whose reputation and standing are such that other underwriters respect his or her ability, skills, and judgment and will often follow the terms and conditions set by the lead without further negotiation.

  • Leveraged Effect

    The disproportionate result produced by inflation on a reinsurer's liability in- excess of loss reinsurance compared with the reinsured's liability. In other words, inflationary increases in average claim costs of a reinsured usually produce greater increases for the excess of loss reinsurer, since an increase affecting all losses (those within the retention limit and those above it) multiplies itself when affecting the excess of loss portion above that retention limit. The effect is leveraged in that such increases fall more on the reinsurer, proportionately at least, than the reinsured.

  • Line

    1. Either the limit of insurance to be written which a company has set for itself on a class of risk (line limit), or the actual amount which it has accepted on a single risk or other unit.
    2. A class or type of insurance (fire, marine, or casualty, among others), also known as Line of Business.
    3. In surplus share reinsurance, line is used to describe the amount of the reinsured's retained insurance liability in a reinsured policy before loss, in comparison with the reinsurer's share of that polity's liability (which is surplus to the reinsured's liability) and which is usually expressed as a multiple of the reinsured's retained line. Thus, a "two-line" surplus share treaty affords reinsurance for twice the reinsured's retained liability enabling the reinsured to write three times as much insurance as was possible before reinsurance. For example, if the reinsured retained a maximum of $100,000 liability per policy in a given class of insurance, but wished to write policies for a maximum of $500,000 per policy, a 4-line surplus share treaty would accomplish the objective: provide $400,000 share reinsurance, with losses shared 1/5 by the reinsured and 4/5 by the reinsurer, beginning with the first dollar of loss.
  • Line Guide

    A list of the maximum amounts of insurance which a company is prepared to write on various classes of risks. Within the primary company, a line guide will usually include a suggested net retention of liability for each class of risk and is used to instruct its agents and underwriters. Also known as Line Sheet.

  • Line of Business

    The general classification of insurance written by insurers, i.e., fire, allied lines, and homeowners, among others.

  • Line Sheet

    Another name for Line Guide.

  • Lloyd's (or Lloyds)

    A kind of organization for underwriting insurance or reinsurance in which a collection of individuals assume policy liabilities as the individual obligations of each. When spelled with an apostrophe, the term refers to Lloyd's of London, the formal name of which is Underwriters at Lloyd's, London.

  • Long-Tail Liability

    A term used to describe certain types of third-party liability exposures (e.g., malpractice, products, errors and omissions) where the incidence of loss and the determination of damages are frequently subject to delays which extend beyond the term the insurance or reinsurance was in force. An example would be contamination of a food product which occurs when the material is packed but which is not discovered until the product is consumed months or years later.

  • Loss Cost

    In crop-hail insurance, the ratio of incurred loss to liability, or the dollars of loss per $100 of insurance in force. In reinsurance, the total value of all losses divided by an exposure base. Also referred to as Pure Premium. See also Burning Cost.

  • Loss Development

    The process of changing the amount of estimated loss reserves as a policy or accident year matures, as measured by the difference between the paid losses and estimated outstanding losses at one point in time and the paid losses and estimated outstanding losses at some previous point in time. In common usage it might refer to development on reported cases only, whereas a broader definition would also take into account the IBNR claims.

  • Loss in Excess of Policy Limit (XPL)

    A loss sustained by a reinsured company when required by a court to pay an amount of loss in excess of the policy's limit (which loss would have been included in the policy's coverage if the policy limit were higher) and resulting from an error or omission by the reinsured company in defending its policyholder, thereby exposing the policyholder to a loss in excess of the policy limit.

  • Loss Loading "Multiplier"

    A factor used to convert losses to premium and provide for the reinsurer's loss adjustment expense, overhead risk, and profit margin. Also known as Loss Conversion Factor.

  • Losses Outstanding

    Losses (reported or not reported) which have occurred but have not been paid.

  • The amounts paid to claimants as insurance claim settlement.

  • Loss Ratio

    Losses incurred expressed as a percentage of earned premiums.

  • Loss Reserve

    For an individual loss, an estimate of the amount the insurer expects to pay for the reported claim. For total losses, estimates of expected payments for reported and unreported claims. May include amounts for loss adjustment expenses. See Incurred But Not Reported (IBNR), Incurred Losses, and Loss Development.