Glossary

47 reinsurance and claims terms in plain English.

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Aggregate limit: The most an insurer or reinsurer will pay in total for all losses in a policy period, however many separate claims there are.
Attachment point: The level of loss at which a layer of excess cover starts to pay. Below it, the cedant keeps the loss.

Bordereau: A regular report, usually monthly or quarterly, listing the policies written or the claims paid under a delegated or reinsurance arrangement.
Broker: The intermediary who places risks with insurers or reinsurers and negotiates terms on behalf of the client.

Case reserve: The amount set aside for a specific reported claim, based on what the claims handler currently expects it to cost.
Cedant: The insurer that buys reinsurance. It "cedes" part of its risk, and part of its premium, to the reinsurer.
Ceding commission: A payment from the reinsurer to the cedant, usually a percentage of ceded premium, to help cover the cedant's costs of writing the business.
Claims control clause: A clause giving the reinsurer the right to take part in, or take over, the handling and settlement of a claim, often above an agreed size.
Claims cooperation clause: A clause requiring the cedant to give the reinsurer prompt notice of claims and the information needed to assess them.
Claims-made: A policy that responds to claims first made against the insured during the policy period, whenever the underlying event happened.
Combined ratio: Loss ratio plus expense ratio. Under 100% means the insurer made an underwriting profit. Over 100% means it paid out more than it took in.
Contribution: The right of an insurer that has paid a loss to recover a fair share from another insurer covering the same risk.
Coverholder: A firm authorised by a Lloyd's syndicate to accept risks and issue policies on its behalf under a binding authority.

Delegated authority: An arrangement in which an insurer lets another firm underwrite or handle claims on its behalf within agreed limits.
Duty of fair presentation: Under the UK Insurance Act 2015, the duty on a business policyholder to disclose what it knows, or ought to know, that is material to the risk, and to do so clearly and accessibly.

ECO and XPL: Extra-contractual obligations (liability beyond the policy terms, for example for bad-faith claims handling) and excess of policy limits (amounts above the policy limit). Whether reinsurance responds depends on the wording.
Excess of loss: Non-proportional reinsurance in which the reinsurer pays the part of a loss, or of the total losses, above an agreed retention, up to a limit.
Exclusion: A part of a policy that takes certain risks or losses out of the cover.

Facultative reinsurance: Reinsurance arranged for a single risk or policy, with the reinsurer deciding each time whether to accept it.
Follow the fortunes: A principle, often written into reinsurance contracts, that the reinsurer follows the cedant's decisions on underwriting and claims, as long as they fall within the cover and are made in good faith.
Follow the settlements: A narrower version of the above. The reinsurer follows the cedant's good-faith settlement of claims that fall within the reinsurance cover. Always read the actual clause, as wording varies.

General average: A marine principle under which everyone with an interest in a voyage shares the cost of a deliberate sacrifice or expense made to save the ship and cargo from a common danger.

IBNR: "Incurred but not reported". An estimate of losses that have happened but have not yet been reported to the insurer, and in some usage the expected growth on claims already reported.
Indemnity: The principle that insurance puts the insured back in the position they were in before the loss, and no better.
Insurable interest: A real financial or legal stake in the thing insured. Without it, the policy is generally not valid.

Layer: A slice of cover between two points, for example £5m excess of £5m. Large programmes are often split into layers placed with different insurers.
Limit: The maximum amount a policy or contract will pay for a loss or series of losses.
Line: The share of a risk an underwriter agrees to take, shown on the slip as a percentage.
Lloyd's: An insurance and reinsurance marketplace in London. It is not itself an insurer. Syndicates, backed by capital providers, write the risks.
Loss ratio: Claims paid and reserved as a percentage of premium earned. A lower figure means a more profitable book, other things being equal.

Managing agent: The firm that runs a Lloyd's syndicate and makes its underwriting and claims decisions.
MGA: Managing general agent. An underwriting business that writes insurance on behalf of an insurer or syndicate under delegated authority.

Non-proportional reinsurance: Reinsurance in which the reinsurer pays only when losses go above an agreed level, for example excess of loss.
Nuclear verdict: A very large jury award. A common rule of thumb is $10 million or more, with "thermonuclear" awards above $100 million.

Occurrence: A policy trigger based on when the loss event happened, whichever date the claim is made.

Proportional reinsurance: Reinsurance in which the reinsurer takes an agreed share of the premiums and of the losses, for example quota share.
Proximate cause: The dominant or effective cause of a loss. It decides whether the loss falls within cover or is excluded.

Quota share: A form of proportional reinsurance where the reinsurer takes a fixed percentage of every policy in a portfolio.

Reinstatement: Restoring the cover after a loss has used some of the limit, usually for an additional premium.
Reinsurance: Insurance for insurers. A reinsurer takes on part of the risk an insurer has written.
Retention: The part of a loss the cedant keeps and pays itself before reinsurance responds.
Retrocession: Reinsurance of a reinsurer. The reinsurer passes part of its own risk on to another reinsurer, called the retrocessionaire.

Slip: The document that brokers use to present a risk to underwriters, who then "write a line" by indicating the share they will take.
Social inflation: The rise in claims costs caused by social and legal trends, such as larger jury awards, wider liability theories, litigation funding and changing attitudes to corporations.
Subrogation: The right of an insurer that has paid a claim to step into the insured's shoes and recover the loss from whoever was responsible.

Treaty reinsurance: A contract covering a whole portfolio or class of business, rather than individual risks.

Utmost good faith: The long-standing duty on both parties to an insurance contract to deal honestly and openly, especially about material facts.