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.

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

The reinsurer recognized as the one of several reinsurers on a contract responsible for negotiating the initial terms of the contract. There may be joint leaders on a contract, and the contract may specifically provide to the lead reinsurer the power to bind others to limited changes in, or enhancements of, the contract during its term.

The disproportionate result produced by inflation on a reinsurer's liability in excess of loss reinsurance compared with the ceding company's liability. In other words, inflationary increases in average claim costs of a reinsured usually produce even greater increases for its 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. For example, if the reinsured's retention limit average claim cost increases 8%, the reinsurer's increase can be as much as twice or three times that amount, or more. The increase on the reinsurer over the ceding company's increase is referred to as the leveraged effect. The effect is leveraged in that such increases fall more on the reinsurer, proportionately at least, than the reinsured.

1) Either the limit of insurance to be written which a company has fixed 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) The word "line" in reinsurance usually pertains to surplus reinsurance and means the amount of the reinsured's retention as respects each risk. Thus, reference to a "two-line" reinsurance treaty pertains to a treaty which affords reinsurance for 200% of the reinsured's retention.

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 for each class of risk and is used to instruct its agents and underwriters. Also known as Line Sheet.

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

Another name for Line Guide.

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."

A terms 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.

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 a Pure Premium.

The process of change in amount of losses as a policy or accident year matures, as measured by the difference between paid losses and estimated outstanding losses at one point in time and 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.

[See Incurred Losses]

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 incurred expressed as a percentage of earned premiums.

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 9.1 Incurred But Not Reported (IBNR) and 9.4 Incurred Losses].

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

The amounts paid to claimants as insurance claim settlements.