You Can Make It But Can You Keep It? A Contrarian Attitude Toward Wealth Protection and Risk Management Philosophy

A B C D E F G H I L M N O P Q R S T U W

ACCREDITATION: If a state passes all the National Association of Insurance Commissioners (NAIC) model acts and otherwise passes the periodic examination of an insurance department’s policies, commercial insurers domiciled there will be acceptable security in other States.
ACTUARIAL REPORT: An analysis intended to project ultimate loss costs using probability theory and other methods of statistical analysis. Used to determine the adequacy of a property and casualty insurer’s statutory loss reserves and a life insurer’s unearned premium (technical) reserves. May be the basis of rate development.
ADMITTED COMPANY: A company licensed or authorized to do business in the state or country in which the company is authorized to sell insurance in.
AGENT: Individuals working for an insurer or an independent contractor selling insurance. Must be licensed in all states where the insurance is written.
AGGREGATE: The greatest amount recoverable under a policy or reinsurance agreement from all losses or a single loss incurred during the life of the contract.
AGGREGATE STOP LOSS: Reinsurance purchased for excess of an aggregate loss limit. Aggregate stop loss protection caps the annual aggregate loss.
ALTERNATIVE RISK TRANSFER (ART): A method of financing risk outside of the commercial insurance regulatory system. This method is typically for the primitive buyer.
ASSOCIATION CAPTIVE: A captive insurer having more than two owners, typically members of an industry trade association. Sometimes the association itself is the owner of the captive.
ATTACHMENT POINT: The point at which the excess insurer or reinsurer starts paying losses on specific or aggregate stop loss basis.

BROKER: A conciliator who represents the insured when purchasing insurance or reinsurance. Therefore, the broker’s compensation should be from the insured, not the insurer, to preclude conflict of interest.

CAPTIVE INSURANCE COMPANY: A closely held insurance company whose insurance business is mostly supplied by and controlled by its owners, and wherein the original insureds are the principal beneficiaries. A captive insurance company’s insureds have express involvement and power over the company’s major operations, including underwriting, claims management policy and investment.
CELL CAPTIVE: A sponsored captive or rent-a-captive, which maintains underwriting accounts separately for each member.

DEDUCTIBLE: The amount of first-dollar loss that the insured retains, on either a per occurrence (specific) or annual aggregate basis, before the primary layer of insurance coverage responds.
DEPARMENT OF LABOR (DOL): Federal governmental body with supervision over employment-related issues including employee benefits covered under the Employee Retirement Income Security Act (ERISA).
DIFFERENCE IN CONDITIONS (DIC): A policy that insures against perils included in a special risk policy or supplements coverage’s in a named perils policy. Often used to provide flood and earthquake coverage.

ENTERPRISE RISK MANAGEMENT: An approach for indentifying, controlling and financing of all sources of risk within an organization in a corresponding manner; an effort to provide insurance solutions to business risks not traditionally insured under property and casualty policies.
EXCESS INSURANCE: Coverage provided above the major policy’s limit or the insured’s self-insured retention (SIR); typically provides coverage similar to the primary layer.
EXCESS POINT: The dollar addition point for the reinsurer.
EXCLUSIONS: Particular perils and exposures indentified as not being covered under a specific policy.

FINANCIAL GUARANTEE INSURANCE: Insurance against losses arising from the bankruptcy of the insured. The insurer guarantees the performance of the insured, e.g., for debt repayment.
FRONT COMPANY: An insurer that issues a policy and reinsures all or a significant part of the risk to another insurer.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP): Uniform accounting method of actions and concepts developed by general consensus of the accounting profession, to support in the preparation of various financial statements. Developed by the Financial Accounting Standards Board (FASB).
GROUP OWNED CAPTIVE: A captive insurance company with more than one owner. See also association captive.

HARD MARKET: A hard market occurs when insurance premiums increases and capacity decreases. In a hard market, insurance companies are less flexible on coverage’s, terms and rates the policy period. Typically used in liability polices.

INCURRED BUT NOT REPORTED (IBNR): Losses that have occurred but have not been reported to the insurer as of a particular date, sometimes referred to as “pure IBNR.” The definition of IBNR is often expanded to include future development on case reserves and loss on reopened claims, sometimes referred to as RBNE (reserved but not enough).The amount of IBNR is typically estimated by a casualty actuary.
INCURRED LOSSES: Losses that occur within a given time period, adjusted or not or paid during that period. Excludes IBNR.
INSURANCE SERVICES OFFICE (ISO), Inc.: An organization that files rates and forms for its member insurance companies. Insurance companies go to ISO to gain access to forms, exclusions, endorsements, etc. Non-members may also purchase forms for their use.

LETTER OF CREDIT (LOC): A financial promise issued by a bank that ensures funds will be available if requested. For captives, LOC’s (1) can be used in place of or in addition to cash or other capital, and (2) to securitize the fronting insurer’s reinsurance created by the captive.
LIMITED LOSSES: Losses with claim sizes of specific occurrences limited to a particular value; for example $750,000.

MARKET CYCLES: Fluctuations in insurance and reinsurance rates and surplus capacity.
MODEL ACT: Legislation drafted by the National Association of Insurance Commissioners (NAIC) to become a standard for agreement by states.

NAMED INSURED: An individual or organization that owns and applies for an insurance policy, pays the premium, and is responsible for policy compliance.
NAMED PERILS: A policy issued particularly listing the perils insured against. Compare in the direction of special risks.
NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS (NAIC): The NAIC’s Model Acts suggest or require that states become accredited. This can often be the cause of concern to captive owners.
NONCONTROLLED FORE: An Owned company whose financial results are not consolidated with any of its shareholders, nor are the shareholders allocated any portion of the company’s income for tax purposes. Income tax deferral is created if the NCFC is located in a jurisdiction that does not have an income tax. In other words no tax is due until such time as income is repatriated to its owners.

OCCURRENCE POLICY: A policy covering claims that arise out of an event which took place during the policy period, regardless of when a claim is made.
OCCURRENCE BASIS: In order for coverage to be provided, the incident creating a claim needs to occur within the policy period. It is not necessary for the claim to be reported during the insurers underwriting different types of liability risks to avoid ungainly multi-state licensing statutes. Must be owned by insureds.
OWNERS AND CONTRACTORS PROTECTIVE LIABILITY (OCP) INSURANCE: A support attachment to commercial general liability insurance purchased by the owner of a business with premium paid by the owner. Typically covers contractors and subcontractors.

PAID LOSSES: Amount of incurred losses paid out by the insurer.
PRIVATE LETTER RULING: An IRS (Internal Revenue Service) regulation ruling how a specific transaction will be taxed.
PROHIBITED TRANSACTION EXEMPTION (PTE): A Department of Labor (DOL) ruling in which a transaction is allowable under Employee Retirement Income Security Act (ERISA) regulations. This is required for pure captives insuring shareholders’ employee benefit risks.
PUNITIVE DAMAGES: Excess damage compensation awarded to the plaintiff for a los. Anticipated to succor the plaintiff for mental anguish or to make a case in point of the defendant. Usually not included in policy limits.

QUALIFIED SELF-INSURER: An employer who meets state financial and size norm and approved to self-insure workers compensation. Every state in the US has its own retention limits, filing and security requirements.

RATING EXPERIENCE: A quantitative measure used to determine how much a given policy should cost, calculated using historical data to determine the risk of future claims.
RECIPROCAL INSURANCE: Protects against loss in which individuals or entities agree to indemnify each other against specified kinds of losses via a mutual exchange or insurance contracts.
RECIPROCAL INSURER: An unincorporated group facilitating an exchange of insurance contracts, managed by an attorney-in-fact. Equivalent to the insurance company in a stock or mutual format.
REINSURANCE: An insurance company’s ability to protect itself against the risk of losses with other insurance companies. Individuals and corporations obtain insurance policies to provide protection from various risks.
RESERVE: An insurers actuarially determined estimate of its liability for all unpaid claims. This estimate includes reported losses that have not yet been paid, as well as incurred but not reported losses. (IBNR)
RISK MANAGEMENT: The recognition of risk, risk assessment, developing strategies to manage it and mitigation of risk using managerial resources. Strategies include transferring risk to another party, avoiding the risk, reducing the negative effect of the risk and accepting some or all of the consequences of a particular risk.
RISK PURCHASING GROUP (RPG): Distinctive insured’s concurrently purchasing liability insurance pursuant to the terms of the federal Risk Retention Act of 1986.
RISK RETENTION GROUP (RRG): An owner controlled insurance company authorized by the Federal Liability Risk Retention Act of 1986.

SINGLE-PARENT CAPTIVE: A captive with one shareholder, also known as “pure captive.” There are more known single parent captives than are group-owned captives.
SELF INSURANCE: The process of retaining risk through the maintenance of internal reserves.
SELF-INSURED RETENTION (SIR): Amount of losses incurred under self-insurance before the excess insurance attachment point.

THIRD-PARTY ADMINISTRATOR (TPA): Independent adjusters for primary casualty and liability claims. Usually hired by the Insured or the captive reinsurer.

UNDERWRITING EXPENSE: Cost associated with the decision by an insurer to accept or decline a risk; including but not limited to meetings with insureds or brokers, actuarial review of loss history, or physical inspections of exposures.
UNDERWRITING PROFIT: The insurers profit before investment income and income taxes.

WRAP-UP: Involves the procurement of certain insurance policies protecting both the owner and most contractors involved with a construction project. Also called a controlled insurance.