Agent

An intermediary appointed by an insurer to procure applications for insurance, receiving a commission from the insurer for policies written.

Assume

To accept from a primary insurer or reinsurer all or a portion of the liability underwritten by such primary insurer or reinsurer.

Broker

An independent person or firm who negotiates contracts of insurance or reinsurance, receiving a commission for placement and other services rendered, between (1) an insured party and a primary insurer, on behalf of the insured party, (2) a primary insurer and reinsurer, on behalf of the primary insurer, or (3) a reinsurer and a retrocessionaire, on behalf of the reinsurer.

Case reserves

The liability established by an insurer to reflect the estimated cost of reported but unpaid claims and claims expenses that the insurer will ultimately be required to pay.

Casualty insurance

Insurance which is primarily concerned with the losses caused by injuries to third persons (in other words, persons other than the insured party) and the legal liability imposed on the insured resulting therefrom.

Catastrophe loss

A natural or man-made disaster that is unusually severe and that affects insureds within a defined geographic area.

Cede; cedant; ceding company

When a party reinsures its liability with another, it “cedes” business and is referred to as the “cedant” or “ceding company.”

Ceding commission

An allowance by a reinsurer for part or all of the acquisition and other costs incurred by a ceding company in connection with premiums ceded to the reinsurer.

Claim

The amount demanded under a policy of insurance or reinsurance arising from the loss relating to an insured event. A claim is also referred to as a loss.

Claim reserves

The total of case reserves, IBNR reserves and claims expense reserves.

Claims expense reserves

The liability established by an insurer to reflect estimated future loss adjustment expenses that the insurer will ultimately be required to pay, including allocated loss adjustment expenses and unallocated loss adjustment expenses.

Claims incurred

The total claim reserves at the end of an accounting period plus all claims and claims expenses paid during that period, minus the total claim reserves at the beginning of the period. Claims incurred are also referred to as losses incurred.

Combined ratio

The sum of the loss ratio and the expense ratio. A combined ratio below 100% indicates a profitable underwriting result. A combined ratio over 100% indicates an unprofitable underwriting result.

Deferred premium acquisition costs (DPAC)

Expenses related to the generation of insurance business, awaiting assignment to future revenues in accordance with Canadian generally accepted accounting principles which require matching of revenues and expenses.

Excess of loss reinsurance

A reinsurance arrangement in which the reinsurer agrees to indemnify the ceding company against a portion of the insurance risk underwritten by the ceding company, whereby the reinsurer pays the amount of a claim per risk or per occurrence above a specified amount retained by the ceding company, up to a specific limit for each claim and/or in the aggregate.

Expense ratio

Expenses including commissions, premium taxes and all general and administrative expenses, incurred in operating the business during a defined period and expressed as a percentage of net earned premiums for the same period.

Facility Association

The Canadian residual automobile market insurance pools in which certain automobile insurers are required by statute to participate to provide coverage for non-standard automobile insurance risks.

General liability insurance

Insurance which is primarily concerned with losses caused by negligent acts and/or omissions of an insured in the conduct of its business resulting in bodily injury and/or property damage to third parties, injury resulting from the use of a product manufactured or distributed by a business, or injury occurring in the general operation of a business.

Gross premiums written

Total premiums for insurance written, consisting of direct premiums written and assumed reinsurance premiums.

Incurred but not reported (IBNR) reserves

A loss reserve which recognizes the liability for estimated future payments on losses which have occurred but which have not yet been reported.

Large loss

A claim incurred of significant magnitude, impacting the average loss severity for a company or line of business.

Layer

An interval of liability/indemnity for which an insurer or a reinsurer is wholly or partially responsible.

Loss ratio

Claims incurred and loss adjustment costs expensed during a defined period, expressed as a percentage of net premiums earned for the same period.

Loss adjustment expenses (LAE)

The expenses of settling claims, such as claim adjuster fees, amounts charged by technical experts and legal expenses. LAE are also referred to as “claims expenses”.

Multi-peril policies

Refers to policies which provide both property and casualty insurance.

Net premiums written

Gross premiums written for a given period less premiums ceded to reinsurers and retrocessionaires during such period.

OSFI

Acronym for the Office of the Superintendent of Financial Institutions, Canada, the Canadian regulatory body with oversight responsibility over federally-incorporated insurers and other financial institutions.

Premium taxes

Tax paid or payable by an insurer on gross premiums written, excluding assumed reinsurance, for a given period.

Property insurance

Insurance that provides coverage to a person with an insurable interest in tangible property for that person’s property loss, damage or loss of use.

Rates

Amounts charged per unit of insurance.

Reinstatement premium

Reinsurance premium paid to restore exhausted reinsurance coverage for the remaining reinsurance contract period as a result of losses ceded to reinsurers under a particular reinsurance contract.

Reinsurance

An arrangement in which an insurance company, the reinsurer, agrees to indemnify another insurance company, the ceding company, against all or a portion of the insurance or reinsurance risks underwritten by the ceding company under one or more policies.

Subrogation

A principle of law incorporated in insurance policies, which enables an insurer, after paying a loss to its insured, to claim the right to recover all or a portion of the loss from another who is legally liable for it.

Underwriter

An individual who examines, accepts or rejects risks and classifies accepted risks in order to charge an appropriate premium for each accepted risk. The underwriter is expected to select business that will produce an average risk of loss no greater than that anticipated for the class of business.

Underwriting

The insurer’s or reinsurer’s process of reviewing applications submitted for insurance coverage, deciding whether to accept all or part of the coverage requested and determining the applicable premiums; also refers to the acceptance of such coverage.

Underwriting capacity

The maximum exposure that an insurance company can underwrite. The limit is generally determined by the company’s retained earnings and investment capital. Reinsurance serves to increase a company’s underwriting capacity by reducing its exposure from particular risks.

Underwriting profit (loss) or underwriting results

The difference between net premiums earned and the sum of net claims incurred, commissions, premium taxes and all general and administrative expenses.

Unearned premium reserve (UPR)

The net premiums written of an insurer relating to that portion of the term of its insurance policies which fall within subsequent periods and which is deferred to, and earned in, such subsequent periods in accordance with Canadian generally accepted accounting principles.