A supplementary treaty to a First Surplus Treaty.

[See Facultative Semiobligatory Treaty]

[See Facultative Reinsurance]

A commission adjustment on earned premiums under a formula whereby the actual commission varies inversely with the loss ratio, subject to stated maximum and minimum percentages.

The increasing of insurance losses caused by higher jury awards, more liberal treatment of claims by workers' compensation boards, legislated rises in benefit levels (in some cases retroactively), and new concepts of tort and negligence, among others.

The specific agreement by the reinsurer to include under a reinsurance contract a risk which is not automatically included within the terms thereof.

A general term used to describe reinsurance agreements written to protect the primary company against certain unusual situations, usually contingent in nature, rather than for the repayment of normal losses suffered under the primary company's policies.

[See Special Acceptance]

A type of excess of loss property reinsurance which provides for a periodic adjustment of the reinsurance premium rate based on the reinsured's experience for preceding years (usually five) plus a loading for the purpose of compensating the reinsurer for a) its expenses, b) the possibility of unusual losses, c) those losses occurring at the end of the period of the treaty which the reinsurer might not have a chance to recoup if the treaty is not renewed, d) a catastrophe possibility, and e) the reinsurer's profit. In casualty reinsurance, adjustments to the above may be required for such other factors as economic and social inflation. Also known as Carpenter Plan.

Those principles required by state law which must be followed by insurance companies in submitting their financial statements to state insurance departments. Such principles differ from generally accepted accounting principles (GAAP) in some important respects, e.g., SAP requires that expense must be recorded immediately and cannot be deferred to track with premiums as they are earned and taken into revenue [see GAAP].

[See Aggregate Excess of Loss Reinsurance]

The ceding company's premiums (written or earned) to which the reinsurance premium rate is applied to produce the reinsurance premium. Also known as Base Premium, Premium Base, Underlying Premium and Subject Matter Premium Income:

That portion of a reinsured company's gross liability on any one risk which exceeds the amount the company is willing to retain net for its own account.

A form of pro rata reinsurance indemnifying the ceding company against loss for the surplus liability ceded. Essentially, this can be viewed as a variable quota share contract wherein the reinsurer's pro rata share of insurance on individual risks will increase as the amount of insurance increases, in order that the primary company can limit its net exposure regardless of the amount of insurance written. First surplus is the amount of surplus on each risk that must apply first to the first surplus contract. Second surplus, third surplus, etc., reinsurances are the remaining portion of the surplus that must apply to each such respective contract after deducting the amount(s) ceded to the underlying surplus contract or contracts.

1) The result of reinsurance ceded on a portfolio basis to offset extraordinary drains on the policyholder surplus.

2) A designation of a reinsurance the main purpose of which is to finance new or in-force business, or both [see Financing Function].

1) The net worth of an insurer as reported in its annual statement. For a stock insurer, the sum of its unassigned surplus and capital.

2) The amount by which the assets of an insurer exceed its liabilities. Another name for policyholders' surplus.

An association of individuals or organizations to pursue certain insurance objectives. For example, individual underwriters in Lloyd's of London associate in separate syndicates to write marine insurance, reinsurance, life insurance, etc., entrusting the administrative details of each syndicate to a syndicate manager [see Pool].