Chapter 5 Glossary Flashcards
Ceding company (cedant)
An insurer or reinsurer that passes (or cedes) a risk to a reinsurer. The insurer or reinsurer may be a company or a Lloyd’s syndicate.
Co-reinsurance
Similar to co-insurance, but referring to reinsurance of a risk rather than insurance.
Facultative-obligatory reinsurance
A reinsurance facility where the cedant has the option to reinsure the risk, but the reinsurer is obligated to accept the risk if the insurer chooses to reinsurer the risk.
Facultative reinsurance
A reinsurance arrangement covering a single risk as opposed to a treaty arrangement; commonly used for very large risks or portions of risk written by a single insurer.
Inwards reinsurance
Reinsurance business accepted or written by an insurer or reinsurer, as opposed to outwards reinsurance which is ceded to a reinsurer.
Letter of credit
A financial guarantee issued by a bank that permits the party to which it is issued to draw funds from the bank in the event of a valid unpaid claim against another party.
Losses-occurring policy
A reinsurance policy cover for losses occurring in the defined period no matter when they are reported, as opposed to a claims-made policy or a risks-attaching policy.
Net premium
Usually, the premium net of the cost of reinsurance, although it could mean net of premium tax, or net of acquisition expenses and/or commission. Premium net of both reinsurance and acquisition expenses is sometimes referred to as net net premium.
Non-proportional reinsurance
Reinsurance arrangements, where the claims are not shared proportionately between the cedant and the reinsurer.
Outwards reinsurance
Reinsurance ceded by an insurer or reinsurer, as opposed to inwards reinsurance, which is reinsurance accepted.
Primary insurer
An insurer providing cover directly to the insured policyholder, as distinct from a reinsurer. Also referred to as the direct insurer.
Proportional reinsurance
A reinsurance arrangement where the reinsurer and cedant share the claims proportionally. Usually, premiums follow the same proportion but commissino rates may differ. Two types commonly arise: quota share and surplus.
Reciprocity
An arrangement between two insurers who agree to reinsure risks with each other. Commonly used with quota share reinsurance to diversify the insurers’ overall portfolios.
Replacement
A basis of cover under which the insurer pays the cost of replacing the insured item with a similar but new item. Also referred to as “replacement as new” or “new for old” and contrasts with “the principle of indemnity”.
Retention
The amount of risk retained by the cedant under a reinsurance arrangement or the insured under an insurance arrangement.
Although, in the case of non-proportional insurance covering a band from R (retention) to U (upper limit), the cedant may be said to retain not only the risk from 0 to R but also the risk above U, it is R that would be termed the retention.
