Reserves, Cat Risk and Reinsurance Glossary · Insurance

Accident year: the year a loss occurred, the usual origin period of a P&C loss triangle (Loss Reserving & Development).
Actual cash value (ACV): replacement cost less depreciation; many policies pay it first and the holdback on replacement (Homeowners & Renters).
Adverse development cover (ADC): excess of loss reinsurance on reserves for specified accident years, paying if they develop beyond an attachment (Loss Reserving & Development).
Aggregate exceedance probability (AEP): the annual probability that the sum of all catastrophe losses in a year exceeds an amount (Catastrophe Models & Their Regulators).
Aggregate excess of loss: reinsurance that pays when total subject losses over a period exceed an aggregate retention (Reinsurance Structures).
Appointed Actuary: the qualified actuary a P&C insurer's board appoints to sign its Statement of Actuarial Opinion on reserves (Loss Reserving & Development).
Average annual loss (AAL): the expected catastrophe loss per year, the sum over modeled events of annual rate times mean loss (Catastrophe Models & Their Regulators).
Basis risk: the difference between what an index or parametric cover pays and the sponsor's actual loss (Cat Bonds, ILS & State Cat Funds).
Bornhuetter-Ferguson method: a reserving method that sets IBNR to expected losses times the share of ultimate not yet reported, weighting experience by maturity (Loss Reserving & Development).
Broad IBNR: all unpaid claims other than case reserves: development on known claims, reopenings, pure IBNR and claims in transit (Loss Reserving & Development).
Cash call: a treaty clause letting the cedent bill a large loss immediately instead of in the periodic account (Reinsurance Operations).
Cat code: the catastrophe event a claim is assigned to, used to count, staff, reserve and recover the event's losses (Catastrophe Events).
Catastrophe bond: reinsurance issued as a security by a special purpose insurer, with the limit held in a collateral trust and principal lost if a trigger is met (Cat Bonds, ILS & State Cat Funds).
Catastrophe excess of loss: reinsurance that pays the part of one loss occurrence's total losses above a retention, up to a limit (Reinsurance Structures).
Cede, cedent: to transfer risk to a reinsurer; the insurer that does so (Reinsurance Structures).
Ceding commission: the percentage of ceded premium a proportional reinsurer pays the cedent for acquisition and administration costs, flat or sliding with the loss ratio (Reinsurance Structures).
Certified reinsurer: a reinsurer from a qualified jurisdiction, rated by the commissioner, that posts collateral by its rating from 0% (Secure-1) to 100% (Vulnerable-6) (Reinsurance Operations).
Chain ladder (development technique): a reserving method projecting losses to ultimate with age-to-age factors from earlier accident years (Loss Reserving & Development).
Collateralized reinsurance: a reinsurance contract whose full limit is funded in trust by investors (Cat Bonds, ILS & State Cat Funds).
Commutation: a lump-sum settlement of all future obligations under a reinsurance contract (Reinsurance Operations).
Credit for reinsurance: the extent to which a cedent may count reinsurance on its statutory balance sheet, set by the reinsurer's category and collateral (Reinsurance Operations).
Cumulative development factor (CDF): the product of age-to-age factors from an age to ultimate (Loss Reserving & Development).
Defense and cost containment (DCC), adjusting and other (A&O): the NAIC's split of loss adjustment expense since 1998: defense litigation and medical cost containment, and all other claim adjusting expense (Loss Reserving & Development).
Event loss table (ELT): a catastrophe model's output listing each simulated event with its annual rate and the portfolio's loss (Catastrophe Models & Their Regulators).
Exceedance probability (EP) curve: the annual probability that losses exceed each amount, on an occurrence (OEP) or aggregate (AEP) basis (Catastrophe Models & Their Regulators).
Exposure snapshot: a frozen set of insured locations with values, characteristics and terms sent to a catastrophe model (Catastrophe Models & Their Regulators).
Facultative reinsurance: reinsurance of a single risk, negotiated individually (Reinsurance Structures).
Florida Commission on Hurricane Loss Projection Methodology: the 12-member panel whose accepted hurricane and flood models Florida insurers must use, unmodified, in residential rate filings (Catastrophe Models & Their Regulators).
Florida Hurricane Catastrophe Fund (FHCF): Florida's mandatory state reinsurance fund reimbursing 45%, 75% or 90% of residential hurricane losses above a statutory retention (Cat Bonds, ILS & State Cat Funds).
Hours clause: a reinsurance contract's definition of one loss occurrence as losses within a set number of hours from one cause (Catastrophe Events).
IBNER: incurred but not enough reported: future development on known claims (Loss Reserving & Development).
IBNR: incurred but not reported; in the broad sense, all unpaid claims other than case reserves (Loss Reserving & Development).
Indemnity trigger: a cat bond or reinsurance trigger that pays on the sponsor's own losses (Cat Bonds, ILS & State Cat Funds).
Industry index trigger: a trigger that pays on an industry loss estimate, such as Verisk PCS's (Cat Bonds, ILS & State Cat Funds).
Industry loss warranty (ILW): reinsurance that pays based on the industry's total insured loss from an event rather than the buyer's own (Cat Bonds, ILS & State Cat Funds).
Inuring order: the contractual order in which reinsurance recoveries reduce the losses subject to other covers (Reinsurance Structures).
Layer: an excess of loss cover between an attachment and attachment plus limit, written as "limit xs attachment" (Reinsurance Structures).
Loss development triangle: losses by origin period and development age, each diagonal a valuation date (Loss Reserving & Development).
Loss portfolio transfer (LPT): a cession of existing reserves and the assets backing them to a reinsurer (Loss Reserving & Development).
Occurrence exceedance probability (OEP): the annual probability that the largest single catastrophe event exceeds an amount (Catastrophe Models & Their Regulators).
Parametric trigger: a trigger that pays on a measured physical parameter such as wind speed or magnitude (Cat Bonds, ILS & State Cat Funds).
PCS catastrophe: an event Verisk Property Claim Services designates and numbers when it expects more than US$25 million of US insured damage affecting many policyholders and insurers (Catastrophe Events).
Per risk excess of loss: reinsurance that pays the part of a loss on one risk above a retention (Reinsurance Structures).
Probable maximum loss (PML): the loss at a stated return period on a stated EP curve (Catastrophe Models & Their Regulators).
Provision for reinsurance: a Schedule F liability reducing surplus for unsecured, overdue or under-collateralized recoverables (Reinsurance Operations).
Quota share: proportional reinsurance ceding a fixed percentage of every policy's premium and losses (Reinsurance Structures).
Rate on line (ROL): an excess of loss layer's premium divided by its limit (Reinsurance Structures).
Reciprocal jurisdiction reinsurer: a reinsurer from the EU, the UK, an accredited US state or a qualifying jurisdiction that may post no collateral under the 2019 NAIC revisions (Reinsurance Operations).
Reinstatement premium protection (RPP): a cover that pays the reinstatement premium a cedent would owe after a loss (Reinsurance Structures).
Reinstatement (reinsurance): restoration of an excess of loss layer's limit after a loss, usually for an additional premium pro rata as to amount (Reinsurance Structures).
Reinsurance recoverable: an amount a reinsurer owes the cedent on paid or unpaid losses (Reinsurance Operations).
Retention (attachment): the amount of loss a cedent bears before an excess of loss layer responds (Reinsurance Structures).
Return period: the reciprocal of an annual exceedance probability: a 1% probability is the 1-in-100-year loss (Catastrophe Models & Their Regulators).
Risks attaching, losses occurring: the two bases deciding which losses belong to a reinsurance contract: policies written in its period, or losses happening in it (Reinsurance Structures).
Schedule F: the annual statement schedule of a P&C insurer's reinsurance by counterparty, with recoverables, collateral and the provision for reinsurance (Reinsurance Operations).
Schedule P: the annual statement's ten-year loss and expense development schedules by line, "the actuarial portion of the Annual Statement" (Loss Reserving & Development).
Sidecar: a vehicle funded by investors that takes a quota share of a reinsurer's or insurer's book for a period (Cat Bonds, ILS & State Cat Funds).
Statement of Actuarial Opinion: the Appointed Actuary's annual opinion on whether carried reserves make a reasonable provision for unpaid losses and LAE (Loss Reserving & Development).
Surplus share: proportional reinsurance ceding a per-risk share set by the risk's size in multiples (lines) of the cedent's retention (Reinsurance Structures).
Terrorism Risk Insurance Program (TRIP): the federal program sharing 80% of certified terrorism losses above a 20% insurer deductible, authorized through December 31, 2027 (Cat Bonds, ILS & State Cat Funds).
Treaty reinsurance: reinsurance covering a defined class of business automatically for a period (Reinsurance Structures).