ARM 56B Flashcards
Retrospective rating plan
A rating plan that adjusts the insured’s premium for the current policy period based on the insured’s loss experience during the current period; paid losses or incurred losses may be used to determine loss experience.
Experience rating
A rating plan that adjusts the premium for the current policy period to recognize the loss experience of the insured organization during past policy periods.
Maximum premium
The most an insured organization is required to pay under a retrospective rating plan, regardless of the amount of incurred losses.
Minimum Premium
The least an insured organization is required to pay under a retrospective rating plan, regardless of the amount of incurred losses.
Loss Limit
The level at which a loss occurrence is limited for the purpose of calculating a retrospectively rated premium.
Basic Premium
A fixed cost element of the retrospective rating formula that includes acquisition expenses, loss control services, premium audit, general administration of the insurance, an adjustment for limiting the retrospective premium to a stated maximum, and a provision for the insurer’s profits and contingencies.
Insurance charge
A component or basic premium that provides the insured with premium to compensate it for the risk that the calculated retrospective rating insurance premium may be higher than the maximum premium or lower than the minimum premium.
Converted losses
An element of the retrospective rating formula that includes the actual losses incurred increased by a factor (loss conversion factor) that reflects loss adjustment expenses.
Loss Conversion factor
A factor applied to incurred losses so that the converted losses reflect unallocated loss adjustment expenses.
Excess loss premium
A component of the retrospective rating insurance premium formula that compensates the insurer for the risk that an individual loss will exceed the loss limit.
Tax multiplier
An element of the retrospective rating insurance premium formula that covers the insurer’s cost for state premium taxes, license fees, insurance organization assessments, and residual market loadings that the insurer must pay on all written and collected premiums.
Incurred loss retrospective rating plan
A retrospective rating plan in which the insured pays a deposit premium during the policy period, the insurer adjusts the premium based on the insured’s actual incurred losses.
Paid loss retrospective rating plan
A retrospective rating plan in which the insured pays a deposit premium at the beginning of the policy period and makes additional payments, usually monthly, to reimburse the insurer for the insured’s losses as they are paid and in which the total amount paid is subject to the minimum and maximum premium.
Reinsurance
The transfer of insurance risk from one insurer to another through a contractual agreement under which one insurer ( the reinsurer) agrees, in return for a reinsurance premium, to indemnify another insurer (the primary insurer) for some or all of the financial consequences of certain loss exposures covered by the primary’s insurance policies.
Primary insurer
In reinsurance, the insurer that transfers or cedes all or part of the insurance risk it has assumed to another insurer in a contractual agreement.
Reinsurer
The insurer that assumes some or all of the potential costs of insured loss exposures of the primary insurer in a reinsurance contractual agreement.
Reinsurance agreement
Contract between the primary insurer and reinsurer that stipulates the form of reinsurance and the type of accounts to be reinsured.
Insurance risk
Uncertainty about the adequacy of insurance premiums to pay losses.
Reinsurance premium
The consideration paid by the primary insurer to the reinsurer for assuming some or all of the primary insurer’s insurance risk.
Retention
The amount retained by the primary insurer in the reinsurance transaction.
Retrocession
A reinsurance agreement whereby one reinsurer (the retrocedent) transfers all or part of the reinsurance risk it has assumed or will assume to another reinsurer (the retrocessionaire).
Ceding commission
An amount paid by the reinsurer to the primary insurer to cover part or all of the primary insurer’s policy acquisition expenses.
Retrocedent
The reinsurer that transfers or cedes all or part of the insurance risk it has assumed to another reinsurer.
Retrocessionaire
The reinsurer that assumes all or part of the reinsurance risk accepted by another reinsurer.
Large-line capacity
An insurer’s ability to provide larger amounts of insurance for property loss exposures, or higher limits of liability for liability loss exposures, than it is otherwise willing to provide.
Line
The maximum amount of insurance or limit of liability than an insurer that an insurer will accept on a single loss exposure.
Surplus relief
A replenishment of policyholder’s surplus provided by the ceding commission paid to the primary insurer by the reinsurer.
Policyholder’s surplus
Under statutory accounting principles (SAP), an insurer’s total admitted assets minus its total liabilities.
Portfolio reinsurance
Reinsurance that transfers to the reinsurer liability for an entire type of reinsurance, territory, or book of business after the primary insurer has issued the policies.
Novation
An agreement under which one insurer or reinsurer is substituted for another.
Professional reinsurer
An insurer whose primary business purpose is serving other insurer’s reinsurance needs.
Direct writing reinsurer
A professional reinsurer whose employees deal directly with primary insurers.
Reinsurance intermediary
An intermediary that works with primary insurers to develop reinsurance programs and that negotiates contracts between the primary insurer and reinsurer, receiving commission for placement and other services rendered.
Reinsurance pools, syndicates, and associations
Groups of insurers that share the loss exposures of the group, usually through reinsurance.
Reinsurance pool
A reinsurance association that consists of several unrelated insurers or reinsurers that have joined to insure risks the individual members are unwilling to individually insure.
Syndicate
A group of insurers or reinsurers involved in joint underwriting to insure major risks that are beyond the capacity of a single insurer or reinsurer; each syndicate member accepts predetermined shares of premiums, losses, expenses, and profits.
Association
An organization of member companies that reinsure by fixed percentage the total amount of insurance appearing on policies issued by the organization.
Treaty reinsurance
A reinsurance agreement that covers an entire class or portfolio of loss exposures and provides that the primary insurer’s individual loss exposures that fall within the treaty are automatically reinsured.
Facultative reinsurance
Reinsurance of individual loss exposures in which the primary insurer chooses which loss exposures to submit to the reinsurer, and the reinsurer can accept or reject any loss exposures submitted.
Adverse selection
The decision to reinsure those loss exposures that have an increased probability of loss because the retention of those loss exposures is undesirable.
Facultative certificate or reinsurance
An agreement that defines the terms of the facultative reinsurance coverage on a specific loss exposure.
Pro rata reinsurance
A type of reinsurance in which the primary insurer and reinsurer proportionately share the amounts of insurance, policy premiums, and losses (including loss adjustment expenses).
