Definitions for Pricing

Aggregate – this provides the insurer with cover when the sum of the claims paid exceeds the outer aggregate excess, it is the total amount in a layer or the total amount retained in a self insured retention, this is also called sideways cover.

Self insured retention – this is the amount that is retained by the insured on each claim.

Inner Aggregate – the total sum of claims needs to exceed the inner aggregate before we will start paying claims on this layer. This provides the policyholder with protection against having more than one large loss in a year, that is if a policyholder has a good claim history and can afford the impact of one large claim but would like to protect against the likelihood of a second large claim.

Clash cover – this is when cover is offered to doctors or lawyers where more than one may be involved in a certain event. It protects the policyholder against having to pay the full limit for each doctor/ lawyer if the event is large enough.

XOL – this is our standard excess of loss cover.

XS Cession – this is where the insurer will write a primary level of business charging a standard rate. Anything above this would be ceded to the reinsurer with the premium above the primary premium being charged going to the reinsurer. The likelihood of the reinsurer writing the business will be assessed by looking at the underlying primary rates and the relative ILF factors that the insurer charges.

Expenses Pro Rata in addition – here we do not include the expenses in calculating the loss pick, instead a portion is added on top of the pick based on the expenses that are expected to be incurred in the year.

Expenses Inclusive – here expenses are included in the incurred position and so are used in the calculation and selection of the loss pick.

Excess – amount above which the value of the claim needs to be before we have to make a payment.

Limit – the maximum amount above the excess which we will be liable for.

Sideways Cover – this is aggregate cover where we limit the amount of aggregate claims that we are liable for, e.g. an each and every policy with no aggregate has unlimited sideways cover.

Binder – this is when we give authority to a company to write business on our behalf (in another country or domestically), they are responsible for processing the claims, collect premiums and in return receive a fee.

Umbrella Cover – these are XOL treaties which protect the reinsured against an accumulation arising out of one event, and of retained losses under different classes of business.

Claims Made – if a claim is notified between two dates the claim should be paid, this is irrespective of when the actual date of loss of the claim is. The RDI (retroactive date inception) for claims made policy is the start date of the policy year where claims can be incurred. Policies are described as 1st year claims if the policy only covers claims that could occur in the single policy year, claims are 2nd year claims made if the policy covers claims that occurred in this year and the previous year and so on. There are claims made step factors that allow us to calculate what the likely loss cost would be the further away we become from 1st year claims made.

Claims Occurring – a claims occurring policy is when the claim has to actually occur within the policy dates for it to be covered.

Risks attaching – this is for reinsurance policies, if a reinsurance policy runs between two dates and an insurer writes a policy at any point between these dates, the reinsurer will be liable for claims for the full period that the policy has been written for (potentially extending beyond the reinsurer contract dates). This could result, in the extreme case, in a policy being written on the last day of the reinsurance contract for which the reinsurer would then be liable for any claims that may occur up to a year after the reinsurance policy expires.

Swing Premium – this is where the loss activity drives the premium that is charged, this is usually limited between a minimum and maximum amount and protects the reinsurer from volatile claims. It also rewards the insurer for better loss experience. The swing premium may also depend on the loss load applied if the amount of the claims paid exceeds the maximum, the loss load may be 105% of the premium paid.

Maintenance – if a lower layer is exhausted both sideways and vertically, the layer above drops down to provide cover, the maintenance in this case is the level above which claims will not be paid. This removes the payment of smaller attritional claims and protects the reinsurer against having to pay these smaller claims.

ECO/ XPL – these are costs that could arise as a result of a settlement that could have been obtained within the policy limits, but due to legal proceedings (or for another reason) the claim is settled above the policy limits (extra contractual obligation). It is unfair for the original insured to pick up this cost, so it falls to the insurer who will then pass it on to the reinsurer if it falls within their layer.

Lineslip – an agreement for insurance (or reinsurance) made between underwriters and a broker whereby an underwriter delegates underwriting authority to the LEADING UNDERWRITER of the lineslip.

Binding Authority – An agreement for insurance (or reinsurance) whereby an Underwriter delegates underwriting authority to another party, usually a broker or a managing general agent.

Profit Commission – a contingent commission paid to the reinsured in addition to the ceding commission, which is based on the underwriting results of the treaty.

Inefficacy – failure of an insured product to perform its’ function

Declaration (Dec) – this is considered in conjunction with a binding authority. An individual risk is declared to the binding authority and this risk is then set up as a “declaration” relating to that binding authority on our system

 

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