A method of tracking reinsurance contract experience by matching all losses incurred (regardless of when they occurred) within a given 12-month period, usually beginning on January 1, with all premium earned within the same period. Incurred losses will include the change in IBNR.

[See Accident Year Experience]

The measure of an insurer's financial strength to issue contracts of insurance, usually determined by the largest amount acceptable on a given risk or, in certain other situations, by the maximum volume of business it is prepared to accept.

A company wholly-owned by another organization (generally non-insurance), the main purpose of which is to insure the risks of the parent organization.

An organization assuming insurance liability of another insurer.

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. Also called Clash Cover.

Whenever a catastrophe occurs which produces losses within a prescribed period of time in excess of a certain amount (usually, $1 million), the amount of such losses is recorded separately from non-catastrophe losses, is numbered by the American Insurance Association, and may be treated differently in the statistical experience records of the state used in setting rate levels.

A form of excess of loss reinsurance which, 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 catastrophic event or series of events. The actual reinsurance document is referred to as "a catastrophe cover."

To pass on to another insurer (the reinsurer) all or part of the insurance written by an insurer (the ceding insurer) with the object of reducing the possible liability of the latter.

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.

A reinsured.

A short-form documentation of a reinsurance transaction.

1) The unit of insurance passed to a reinsurer by a primary company which issued a policy to the original insured. A cession may accordingly be the whole or a portion of a 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 reinsurance protection.

The costs incurred in processing claims: court costs, interest upon awards and judgments, 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.

The provision in a contract of insurance or reinsurance that states 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. Losses reported after the contract term are sometimes covered by the addition of "tail" coverage.) 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.

A casualty excess-of-loss agreement with a retention higher than the limits on any one reinsured policy. The agreement is thus only exposed to loss when two or more casualty policies (perhaps from different lines of business) are involved in a common occurrence in an amount greater than the clash cover retention. Also known as Contingency Cover.

A combined form of quota share and excess-of-loss reinsurance which provides that, in consideration for a premium at a fixed percent of the ceding company's subject premium on the business covered:

• 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
• 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.

Another name for Operating Ratio or Trade Ratio.

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.

4) Overriding Commission:

• A fee or percentage of money which is paid to a party responsible for placing a retrocession of reinsurance.
• 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.

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

A massive fire which destroys many contiguous properties.

[See Catastrophe Reinsurance]

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

Reinsurance protection against the unusual combination of losses [see Clash Cover].

An allowance by 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.

Another name for the Annual Statement form of NAIC.

A written statement issued by an intermediary, broker, or direct writer, indicating that coverage has been effected [see Binder].

The measure of credence or belief which is attached to a particular body of statistical experience for ratemaking purposes. Generally, as the body of experience increases in volume, the corresponding credibility also increases. This term would frequently be defined in terms of specific mathematical formulas.

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

The termination provision of a reinsurance contract stipulating that the reinsurer shall not be liable for loss as a result of occurrences taking place after the date of termination or after an agreed date following termination. A cut-off normally involves return of unearned premium in force at the cut-off date.

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 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 and then reinsurer-to-reinsured company, substituting instead the payment route of reinsurer-to-policyholder. The effect is to revise the route of payment only, and there is no intended increased risk to the reinsurer. Similar to the guarantee endorsement, the cut-through endorsement is also known as an Assumption Endorsement.