Salvage and Subrogation

Those rights of the insured that, under the terms of the policy, automatically transfer to the insurer upon settlement of a loss. Salvage applies to any proceeds from the repaired, recovered, or scrapped property. Subrogation refers to the proceeds of negotiations or legal actions against negligent third parties and may apply to either property or casualty coverages.

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Segregated Account Companies Act 2000 (SAC ACT 2000)

Assets and Liabilities are legally separated from General Account and other segregated account cells. Your assets and liabilities are statutorily insulated, or “walled –off” from other cells.

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Segregated Account Companies, Amendment Act of 2002 (SAC 2002)

Permits contractual participation. Participant has shareholder rights (dividends paid) without reference to the General Account or other segregated account cells.

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Self-Insurance

A formal system whereby a firm pays out of operating earnings or a special fund any losses that occur that could ordinarily be covered under an insurance program. The moneys that would normally be used for premium payments may be added to this special fund for payment of losses incurred.

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Self-Insured Retention

The amount of each loss for which the insured agrees to be responsible before a commercial insurer begins to participate in a loss. This is in contrast to a deductible in that the commercial insurer is responsible for losses even within the deductible limit. Although the deductible insurer looks to the insured for reimbursement of such losses, the insurer’s responsibilities are unaffected by the insured’s failure to reimburse.

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Settlement Lag

The span of time between the first report of a claim and the date on which it is ultimately settled.

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Severity

The amount of damage that is (or that may be) inflicted by a loss or catastrophe. Severity is sometimes quantified as a severity rate, which is a ratio relating the amount of loss to values exposed to loss during a specified period of time.

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Sliding Scale Commission

A ceding commission, which varies inversely with the loss ratio under the reinsurance agreement

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Slip

A binder often including more than one reinsurer.

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Soft Market

One side of the market cycle characterized by low rates, high limits, flexible contracts, and high availability of coverage. Contrast with hard market.

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Special Acceptance

The facultative extension of a reinsurance treaty to embrace a risk not automatically included within its terms.

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Speculative Risk

Uncertainty about an event under consideration that could produce either a profit or a loss, such as a business venture or gambling transaction. A pure risk is generally insurable, while a speculative risk is usually not.

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Sponsored Captive

A captive insurance company in which the minimum capital and surplus required by applicable law is provided by one or more sponsors, insures the risks of separate participants through the contract, and segregates each participant’s liability through one or more protected cells.

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Sponsored Captive

A captive insurance company in which the minimum capital and surplus required by applicable law is provided by one or more sponsors, insures the risks of separate participants through the contract, and segregates each participant’s liability through one or more protected cells.

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Spread of Risk

Consideration of the number of independent exposures to loss in a given time period. As the number of units exposed independently to loss increases, the spread of risk expands and the likelihood that all units will suffer loss diminishes. Predictive ability increases as the spread of risk increases. This is often called the “law of large numbers.

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Stop Loss Reinsurance

A form of reinsurance also known as “aggregate excess of loss reinsurance” under which a reinsurer is liable for all losses, regardless of size, that occur after a specified loss ratio or total dollar amount of losses has been reached.

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Structured Settlement

A settlement under which the plaintiff agrees to accept a stream of payments in lieu of a lump sum. Structured settlements can be tailored to the individual’s inflation-adjusted living costs, anticipated future medical expenses, education costs for children, and other lifetime needs. Annuities are usually used as funding mechanisms.

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Subject Premium

XA cedant’s premiums to which the reinsurance premium rate is applied to calculate the reinsurance premium.

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Surplus

The excess of assets over liabilities. Surplus determines an insurer’s or reinsurer’s ability to write business.

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Surplus Share

A form of proportional reinsurance where the reinsurer assumes pro rata responsibility for only that portion of any risk, which exceeds the company’s traditional retentions.

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Tax Reform Act of 1984

One section of this act redefined income related to the insurance of US-based risks as US-source income instead of foreign-source income. Another section made income from the insurance of related risks in foreign countries taxable in the current year. The net effect of these two changes was to eliminate most tax advantages for an offshore single parent captive.

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Tax Reform Act of 1988

The major change imposed by this act affected offshore group captives in that the definition of a U.S. shareholder was changed from an ownership interest of 10 percent or more to any shareholding interest.

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Third-party administrator (TPA)

A firm that handles various types of administrative responsibilities on a fee-for-services basis for organizations involved in cash flow programs. These responsibilities typically include claims administration, loss control, risk management information systems, and risk management consulting.

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Treaty

An agreement between an insurer and a reinsurer stating the types or classes of businesses that the reinsurer will accept from the ceding insurer.

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Treaty Reinsurance

A form of reinsurance in which the ceding company makes an agreement to cede certain classes of business to a reinsurer. The reinsurer in turn agrees to accept all business qualifying under the agreement, known as the “treaty.” Under a reinsurance treaty, the ceding company is assured that all of its risks falling within the terms of the treaty will be reinsured in accordance with treaty terms.

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Ultimate Net Loss

The total sum which the assured, or any company as his insurer, or both, become obligated to pay either through adjudication or compromise, and usually includes hospital, medical and funeral charges and all sums paid as salaries, wages, compensation, fees, charges and law costs, premiums on attachment or appeal bonds, interest, expenses for doctors, lawyers, nurses, and investigators and other persons, and for litigation, settlement, adjustment and investigation of claims and suits which are paid as a consequence of the insured loss, excluding only the salaries of the assured’s or of any underlying insurer’s permanent employees.

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Unallocated Loss Adjustment Expense

Salaries, overhead, and other related adjustment costs not specifically allocated to the expense incurred for a particular claim.

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Unbundling

The practice of separating risk handling and risk funding services either from a multiline insurer or from themselves. Captives that require a “front” may also be required to purchase all or some of the services from the same insurer. This is a “bundled” program. Unbundling indicates the ability to purchase services from any vendor, not just those associated with the fronting insurer.

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Unearned Premium

That portion of the original premium that applies to the unexpired portion of risk.

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Valuation Date

The cutoff date for adjustments made to paid claims and reserve estimates in a loss report. For example, a workers’ compensation loss report for the 1996 policy year that has a 1998 valuation date includes all claim payments and changes in loss reserves made prior to the 1998 valuation date.

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