Flashcards_Surplus
Admitted market or standard market
The distribution system consisting of admitted insurers and their producers.
Surplus lines market
The distribution system of surplus lines insurers and intermediaries that provides insurance on risks for which insurance is not available from admitted insurers.
Admitted insurer
An insurer to which a state insurance department has granted a license to do business within that state
Nonadmitted insurer
An insurer not authorized by the state insurance department to do business within that state.
Surplus lines law
A state law that permits any producer with a surplus lines license issued by that state to procure insurance from an eligible surplus lines insurer if the applicant cannot obtain the desired type of insurance in the admitted market.
Distressed risk
A risk characterized by unfavorable attributes that have made it unacceptable to admitted insurers.
Unique risk
A risk that is so specialized or unusual that admitted insurers are unwilling to insure it.
High-capacity risk
A risk that requires high limits of insurance that may exceed the underwriting criteria of admitted insurers.
Export list
A list of coverages or classes of business that can be exported (written in the surplus lines market) without fulfilling the diligent search requirement.
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 primarys insurance policies.
Stock insurer
An insurer that is owned by its stockholders and formed as a corporation for the purpose of earning a profit for the stockholders.
Mutual insurer
An insurer that is owned by its policyholders and formed as a corporation for the purpose of providing insurance to them.
Lloyds (Lloyds of London)
An association of investors grouped in syndicates who are represented by underwriters to write insurance and reinsurance.
Captive insurer or captive
A subsidiary formed to insure the loss exposures of its parent company and the parents affiliates.
Underwriting
The process of selecting insureds pricing coverage determining insurance policy terms and conditions and then monitoring the underwriting decisions made.
Risk control
A conscious act or decision not to act that reduces the frequency and/or severity of losses or makes losses more predictable.
Premium audit
Methodical examination of a policyholders operations records and books of account to determine the actual exposure units and premium for insurance coverages already provided.
Domestic insurer
An insurer doing business in the jurisdiction in which it is incorporated.
Foreign insurer
An insurer licensed to operate in a jurisdiction but incorporated in another jurisdiction.
Alien insurer
An insurer domiciled in a country other than the one in which it seeks to conduct or is conducting business.
National Association of Insurance Commissioners (NAIC)
An association of insurance commissioners from the 50 U.S. states the District of Columbia and the five U.S. territories and possessions whose purpose is to coordinate insurance regulation activities among the various state insurance departments.
Guaranty fund
A state-established fund that provides a system for the payment of some of the unpaid claims of insolvent insurers licensed in that state generally funded by assessments collected from all insurers licensed in the state.
NAIC Annual Statement
The primary financial statement prepared by insurers and required by every state insurance department.
Focused differentiation strategy
A business-level strategy through which a company focuses on one group of customers and offers unique or customized products that permit it to charge a higher price than that of the competition.
Target market niche
A collection of customers with similar characteristics that an organization identifies in order to meet their needs.
Binding authority
An insurance agents authority to effect coverage on behalf of the insurer.
Solvency
The ability of an insurer to meet its financial obligations as they become due even those resulting from insured losses that may be claimed several years in the future.
Foreign insurer
An insurer licensed to operate in a state but incorporated in another state.
Alien insurer
An insurer domiciled in a country other than the United States.
Reciprocal insurance exchange (interinsurance exchange)
An insurer owned by its policyholders formed as an unincorporated association for the purpose of providing insurance coverage to its members (called subscribers) and managed by an attorney-in-fact. Members agree to mutually insure each other and they share profits and losses in the same proportion as the amount of insurance purchased from the exchange by that member
Market conduct regulation
Regulation of the practices of insurers in regard to four areas of operation: sales practices underwriting practices claims practices and bad-faith actions.
Unfair trade practices law
State law that specifies certain prohibited business practices.
Reserve
The amount the insurer estimates and sets aside to pay on an existing claim.
Solvency surveillance
The process conducted by state insurance regulators of verifying the solvency of insurers and determining whether their financial condition enables them to meet their financial obligations and to remain in business.
Insurance Regulatory Information System (IRIS)
An information and early-warning system established and operated by the NAIC to monitor the financial soundness of insurers.
Stamping office
An organization that facilitates and encourages compliance with state laws and regulations regarding surplus lines placements.
Ten Guiding Principles
Standards that states use to regulate rather than eliminate surplus lines insurance.
International Insurers Department (IID)
An organization that collects and reviews information from nonadmitted alien insurers about their financial conditions trust funds and deposits.
Diligent search
A surplus lines regulatory requirement establishing that coverage for the risk is unavailable from admitted insurers.
Affidavit
A signed statement summarizing efforts to find coverage from admitted insurers.
Policyholders surplus
Under statutory accounting principles (SAP) an insurers total admitted assets minus its total liabilities.
Premium-to-surplus ratio or capacity ratio
A capacity ratio that indicates an insurers financial strength by relating net written premiums to policyholders surplus.
Residual market
The term referring collectively to insurers and other organizations that make insurance available through a shared risk mechanism to those who cannot obtain coverage in the admitted market.
Automobile insurance plan
Plan for insuring high-risk drivers in which all auto insurers doing business in the state are assigned their proportionate share of such drivers based on the total volume of auto insurance written in the state.
Fair Access to Insurance Requirements (FAIR) plans
An insurance pool through which private insurers collectively address an unmet need for property insurance on urban properties especially those susceptible to loss by riot or civil commotion.
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.
Underwriting cycle
A cyclical pattern of insurance pricing in which a soft market (low rates relaxed underwriting and underwriting losses) is eventually followed by a hard market (high rates restrictive underwriting and underwriting gains) before the pattern again repeats itself.
Managing general agent (MGA)
An authorized agent of the primary insurer that has underwriting authority on behalf of the insurer usually in a specific geographic area.
Treaty reinsurance
A reinsurance agreement that covers an entire class or portfolio of loss exposures and provides that the primary insurers 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.
Hard market
Market conditions in which insurer competition diminishes buyers have difficulty finding coverage premiums increase and insurer profitability rises.
Soft market
Market conditions in which insurer competition is intense and is indicated by widely available coverage lower premiums and decreased insurer profitability.
Capacity
The amount of business an insurer is able to write usually based on a comparison of the insurers written premiums to its policyholders surplus.
Lead user
A customer who currently has needs that are likely to become more widespread in the future.
Risk purchasing group (RPG)
A group of insurance buyers collectively negotiating the terms of coverage with insurers.
Target market
A homogeneous market segment to which a unique product is directed or with which a unique approach is used.
Niche marketing
A type of marketing that focuses on specific types of buyers who are a subset of a larger market.
Competitive strategy
A formal plan for achieving a favorable competitive position in an industry.
Competitive advantage
The ability of one company to gain market share over its competitors by providing either lower prices or more unique products or services than those of its competitors.
Marketing mix
The combination of marketing attributes that an organization offers to a customer in hopes of solving the customers problem.
Managing general agency (MGA)
An independent business organization that functions almost as a branch office for one or more insurers and that appoints and supervises independent agents and brokers for insurers using the independent agency and brokerage system.
Underwriting guidelines (underwriting guide)
A written manual that communicates an insurers underwriting policy and that specifies the attributes of an account that an insurer is willing to insure.
Binding authority
A method of placing insurance in which a surplus lines intermediary can bind coverage for a particular submission that falls within the parameters of the binding authority contract without prior submission to the surplus lines insurer
Program business
An insurers offering of a policy or combination of policies with special coverages prices or both to insureds with similar characteristics.
Program manager
A surplus lines intermediary that has created a special or niche program that fits a particular market.
Subsidiary
A company owned or controlled by another company
Lloyds broker
An insurance broker who procures coverage in the Lloyds market on behalf of insureds.
Producer
Any of several kinds of insurance personnel who place insurance and surety business with insurers and who represent either insurers or insureds or both.
Agent
In the agency relationship the party that is authorized by the principal to act on the principals behalf.
Agency
A legal consensual relationship that exists when one party the agent acts on behalf of another party the principal.
Principal
The party in an agency relationship that authorizes the agent to act on that partys behalf.
Actual authority
Authority (express or implied) conferred by the principal on an agent under an agency contract.
Express authority
The authority that the principal specifically grants to the agent.
Implied authority
The authority implicitly conferred on an agent by custom usage or a principals conduct indicating intention to confer such authority.
Apparent authority
A third partys reasonable belief that an agent has authority to act on the principals behalf.
Leverage
The practice of using borrowed money to invest.
Liquidity
The ease with which an asset can be converted to cash with little or no loss of value.
Open market placement
A method of placing insurance in which insurers decide whether to accept a particular submission before coverage is bound.
Errors and omissions (E&O)
Negligent acts (errors) committed by a person conducting insurance business that give rise to legal liability for damages; a failure to act (omission) that creates legal liability.
Risk management process
The method of making implementing and monitoring decisions that minimize the adverse effects of risk on an organization.
Diligent search affidavit
A signed statement summarizing efforts to find coverage from admitted insurers and establishing that coverage for the risk is unavailable in that market.
Fiduciary
A person or entity that holds a position of trust manages another persons or entitys affairs or funds and has a duty to that person or entity to act in a trustworthy manner.
Binder
A temporary written or oral agreement to provide insurance coverage until a formal written policy is issued.
Underwriting submission
Underwriting information for an initial application or a substantive policy midterm or renewal change.
Hazard
A condition that increases the frequency or severity of a loss.
Annual report
A source of accounting information of a publicly held company that contains a description of the companys background and growth and an analysis of the previous years operation; prepared by the management of the company.
Form 10-K
An annual report that contains financial statistics supplemental statements and a narrative section (managements discussion and analysis); required by the Securities and Exchange Commission (SEC) of all publicly traded companies to update their registration statement.
Financial statement
A document that quantitatively presents an organizations financial activities or status.
Risk control report
A record that contains account information gathered as a result of a physical inspection by an insurers risk control representative specifically at the request of an underwriter
Primary layer
The first level of insurance coverage above any deductible
Excess coverage
Insurance that covers losses above an attachment point below which there is usually another insurance policy or a self-insured retention.
Book of business
A group of policies with a common characteristic such as territory or type of coverage or all policies written by a particular insurer or agency.
Adverse selection
In general the tendency for people with the greatest probability of loss to be the ones most likely to purchase insurance.
Policyholders surplus
An insurers assets minus its liabilities which represents its net worth.
Underwriting authority
The scope of decisions that an underwriter can make without receiving approval from someone at a higher level.
Line underwriting activity
An underwriting activity that is directed at evaluating new submissions and renewal underwriting.
Staff underwriting activity
An underwriting management activity that is aimed at managing the risk selection process and that is often delegated to specialists within the Underwriting Department.
