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Acceleration Clause - The part of a contract
that says when a loan may be declared due and payable.
Accidental Death Benefit - In a life insurance policy,
benefit in addition to the death benefit paid to the beneficiary,
should death occur due to an accident. There can be certain
exclusions as well as time and age limits.
Active Participant - Person whose absence from a
planned event would trigger a benefit if the event needs to
be canceled or postponed.
Activities of Daily Living - Bathing, preparing and
eating meals, moving from room to room, getting into and out
of beds or chairs, dressing, using a toilet.
Actual Cash Value - Cost of replacing damaged or
destroyed property with comparable new property, minus depreciation
and obsolescence. For example, a 10-year-old sofa will not
be replaced at current full value because of a decade of depreciation.
Actuary - A specialist in the mathematics of insurance
who calculates rates, reserves, dividends and other statistics.
(Americanism: In most other countries the individual is known
as "mathematician.")
Adjustable Rate - An interest rate that changes,
based on changes in a published market-rate index.
Adjuster - A representative of the insurer
who seeks to determine the extent of the insurer's liability
for loss when a claim is submitted.
Admitted Assets - Assets permitted by state
law to be included in an insurance company's annual statement.
These assets are an important factor when regulators measure
insurance company solvency. They include mortgages, stocks,
bonds and real estate.
Agent - individual who sells and services
insurance policies in either of two classifications:
1. Independent agent represents at least two insurance
companies and (at least in theory) services clients by searching
the market for the most advantageous price for the most coverage.
The agent's commission is a percentage of each premium paid
and includes a fee for servicing the insured's policy.
2. Direct or career agent represents only one
company and sells only its policies. This agent is paid on
a commission basis in much the same manner as the independent
agent.
Aggregate Limit - Usually refers to liability
insurance and indicates the amount of coverage that the insured
has under the contract for a specific period of time, usually
the contract period, no matter how many separate accidents
might occur.
Annual Administrative Fee - Charge for expenses
associated with administering a group employee benefit
plan.
Annual Crediting Cap - The maximum rate that
the equity-indexed annuity can be credited in a year. If a
contract has an upper limit, or cap, of 7 percent and the
index linked to the annuity gained 7.2 percent, only 7 percent
would be credited to the annuity.
Annuitization - Process by which you convert
part or all of the money in a qualified retirement plan or
nonqualified annuity contract into a stream of regular income
payments, either for your lifetime or the lifetimes of you
and your joint annuitant. Once you choose to annuitize, the
payment schedule and the amount is generally fixed and can't
be altered.
Annuitization Options - Choices in the way
to annuitize. For example, life with a 10-year period certain
means payouts will last a lifetime, but should the annuitant
die during the first 10 years, the payments will continue
to beneficiaries through the 10th year. Selection of such
an option reduces the amount of the periodic payment.
Annuity - An agreement by an insurer to make
periodic payments that continue during the survival of the
annuitant(s) or for a specified period.
Approved for Reinsurance - Indicates the
company is approved (or authorized) to write reinsurance on
risks in this state. A license to write reinsurance might
not be required in these states.
Approved or Not Disapproved for Surplus Lines -
Indicates the company is approved (or not disapproved) to
write excess or surplus lines in this state.
Assets - Assets refer to "all the available
properties of every kind or possession of an insurance company
that might be used to pay its debts." There are
three classifications of assets: invested assets, all other
assets, and total admitted assets. Invested assets refer to
things such as bonds, stocks, cash and income-producing real
estate. All other assets refer to nonincome producing possessions
such as the building the company occupies, office furniture,
and debts owed, usually in the form of deferred and unpaid
premiums. Total admitted assets refer to everything a company
owns. All other plus invested assets equals total admitted
assets. By law, some states don't permit insurance companies
to claim certain goods and possessions, such as deferred and
unpaid premiums, in the all other assets category, declaring
them "nonadmissable."
Attained Age - Insured's age at a particular
time. For example, many term life insurance policies allow
an insured to convert to permanent insurance without a physical
examination at the insured's then attained age. Upon conversion,
the premium usually rises substantially to reflect the insured's
age and diminished life expectancy.
Authorized Under Federal Products Liability Risk Retention
Act (Risk Retention Groups) - Indicates companies
operating under the Federal Products Liability Risk Retention
Act of 1981 and the Liability Risk Retention Act of 1986.
Automobile Liability Insurance - Coverage
if an insured is legally liable for bodily injury or property
damage caused by an automobile.
Balance Sheet - An accounting term referring
to a listing of a company's assets, liabilities and
surplus as of a specific date.
Benefit Period - In health insurance, the number
of days for which benefits are paid to the named insured and
his or her dependents. For example, the number of days that
benefits are calculated for a calendar year consist of the days
beginning on Jan. 1 and ending on Dec. 31 of each year.
Best's Capital Adequacy Relativity (BCAR) -
This percentage measures a company's relative capital strength
compared to its industry peer composite. A company's BCAR, which
is an important component in determining the appropriateness
of its rating, is calculated by dividing a company's capital
adequacy ratio by the capital adequacy ratio of the median of
its industry peer composite using Best's proprietary capital
mode. Capital adequacy ratios are calculated as the net required
capital necessary to support components of underwriting, asset,
and credit risks in relation to economic surplus.
Broker - Insurance salesperson that searches
the marketplace in the interest of clients, not insurance companies.
Broker-Agent - Independent
insurance salesperson who represents particular insurers but also
might function as a broker by searching the entire insurance
market to place an applicant's coverage to maximize protection
and minimize cost. This person is licensed as an agent and a
broker.
Business
Net Retention - This item represents the percentage
of a company's gross writings that are retained for its own
account. Gross writings are the sum of direct writings and assumed
writings. This measure excludes affiliated writings.
Capital - Equity of shareholders of a stock
insurance company. The company's capital and surplus are measured
by the difference between its assets minus its liabilities.
This value protects the interests of the company's policyowners
in the event it develops financial problems; the policyowners'
benefits are thus protected by the insurance company's capital.
Shareholders' interest is second to that of policyowners.
Capitalization or Leverage - Measures the exposure
of a company's surplus to various operating and financial practices.
A highly leveraged, or poorly capitalized, company can show
a high return on surplus, but might be exposed to a high
risk of instability.
Captive Agent - Representative of a single
insurer or fleet of insurers who is obliged to submit business
only to that company, or at the very minimum, give that company
first refusal rights on a sale. In exchange, that insurer usually
provides its captive agents with an allowance for office expenses
as well as an extensive list of employee benefits such as pensions,
life insurance, health insurance, and credit unions.
Case Management
- A system of coordinating medical services to treat a patient,
improve care and reduce cost. A case manager coordinates health
care delivery for patients.
Casualty - Liability or loss resulting from
an accident.
Casualty Insurance - That type of insurance
that is primarily concerned with losses caused by injuries to
persons and legal liability imposed upon the insured for such
injury or for damage to property of others. It also includes
such diverse forms as plate glass, insurance against crime,
such as robbery, burglary and forgery, boiler and machinery
insurance and Aviation insurance. Many casualty companies also
write surety business.
Ceded Reinsurance Leverage - The ratio of the
reinsurance premiums ceded, plus net ceded reinsurance balances
from non-US affiliates for paid losses, unpaid losses, incurred
but not reported (IBNR), unearned premiums and commissions,
less funds held from reinsurers, plus ceded reinsurance balances
payable, to policyholders' surplus. This ratio measures the
company's dependence upon the security provided by its reinsurers
and its potential exposure to adjustment on such reinsurance.
Change in Net Premiums Written (IRIS) - The
annual percentage change in Net Premiums Written. A company
should demonstrate its ability to support controlled business
growth with quality surplus growth from strong internal capital
generation.
Change in Policyholder Surplus (IRIS) - The
percentage change in policyholder surplus from the prior year-end
derived from operating earnings, investment gains, net contributed
capital and other miscellaneous sources. This ratio measures
a company's ability to increase policyholders' security.
Chartered Property and Casualty Underwriter
(CPCU) - Professional designation earned after the
successful completion of 10 national examinations given by the
American Institute for Property and Liability Underwriters.
Covers such areas of expertise as insurance, risk management,
economics, finance, management, accounting, and law. Three years
of work experience also are required in the insurance business
or a related area.
Claim - A demand made by the insured, or the
insured's beneficiary, for payment of the benefits as provided
by the policy.
Class 3-6 Bonds (% of PHS) - This test measures
exposure to noninvestment grade bonds as a percentage of surplus.
Generally, noninvestment grade bonds carry higher default and
illiquidity risks. The designation of quality classifications
that coincide with different bond ratings assigned by major
credit rating agencies.
Coinsurance - In property insurance, requires
the policyholder to carry insurance equal to a specified percentage
of the value of property to receive full payment on a loss.
For health insurance, it is a percentage of each claim above
the deductible paid by the policyholder. For a 20% health insurance
coinsurance clause, the policyholder pays for the deductible
plus 20% of his covered losses. After paying 80% of losses up
to a specified ceiling, the insurer starts paying 100% of losses.
Collision Insurance - Covers physical damage
to the insured's automobile (other than that covered under comprehensive
insurance) resulting from contact with another inanimate
object.
Combined Ratio After Policyholder Dividends -
The sum of the loss, expense and policyholder dividend
ratios not reflecting investment income or income taxes. This
ratio measures the company's overall underwriting profitability,
and a combined ratio of less than 100 indicates an underwriting
profit.
Commercial Lines - Refers to insurance for
businesses, professionals and commercial establishments.
Commission - Fee paid to an agent or insurance
salesperson as a percentage of the policy premium. The percentage
varies widely depending on coverage, the insurer and the marketing
methods.
Common Carrier - A business or agency that
is available to the public for transportation of persons, goods
or messages. Common carriers include trucking companies, bus
lines and airlines.
Comprehensive Insurance - Auto insurance
coverage providing protection in the event of physical damage
(other than collision) or theft of the insured car. For example,
fire damage or a cracked windshield would be covered under the
comprehensive section.
Concurrent Periods - In hospital income protection,
when a patient is confined to a hospital due to more than one
injury and/or illness at the same time, benefits are paid as
if the total disability resulted from only one cause.
Conditional Reserves - This item represents
the aggregate of various reserves which, for technical reasons,
are treated by companies as liabilities. Such reserves, which
are similar to free resources or surplus, include unauthorized
reinsurance, excess of statutory loss reserves over statement
reserves, dividends to policyholders undeclared and other similar
reserves established voluntarily or in compliance with statutory
regulations.
Coverage - The scope of protection provided under
an insurance policy. In property insurance, coverage lists perils
insured against, properties covered, locations covered, individuals
insured, and the limits of indemnification. In life insurance,
living and death benefits are listed.
Convertible -Term life insurance coverage that
can be converted into permanent insurance regardless of an insured's
physical condition and without a medical examination. The individual
cannot be denied coverage or charged an additional premium for
any health problems.
Copayment - A predetermined, flat fee an individual
pays for health-care services, in addition to what insurance
covers. For example, some HMOs require a $10 copayment for each
office visit, regardless of the type or level of services provided
during the visit. Copayments are not usually specified by percentages.
Cost-of-Living Adjustment (COLA) - Automatic
adjustment applied to Social Security retirement payments when
the consumer price index increases at a rate of at least 3%,
the first quarter of one year to the first quarter of the next
year.
Coverage Area - The geographic region covered
by travel insurance.
Creditable Coverage - Term means that benefits
provided by other drug plans are at least as good as those provided
by the new Medicare Part D program. This may be important to
people eligible for Medicare Part D but who do not sign up at
their first opportunity because if the other plans provide creditable
coverage, plan members can later convert to Medicare Part D
without paying higher premiums than those in effect during their
open enrollment period.
Current
Liquidity (IRIS) - The sum of cash, unaffiliated invested
assets and encumbrances on other properties to net liabilities
plus ceded reinsurance balances payable, expressed as a percent.
This ratio measures the proportion of liabilities covered by
unencumbered cash and unaffiliated investments. If this ratio
is less than 100, the company's solvency is dependent on the
collectibility or marketability of premium balances and investments
in affiliates. This ratio assumes the collectibility of all
amounts recoverable from reinsurers on paid and unpaid losses
and unearned premiums.
Death Benefit - The limit of insurance or the amount
of benefit that will be paid in the event of the death of a
covered person.
Deductible - Amount of loss that the insured
pays before the insurance kicks in.
Developed to Net Premiums Earned- The ratio
of developed premiums through the year to net premiums earned.
If premium growth was relatively steady, and the mix of business
by line didn't materially change, this ratio measures whether
or not a company's loss reserves are keeping pace with premium
growth.
Development to Policyholder Surplus (IRIS) -
The ratio measures reserve deficiency or redundancy in relation
to policyholder surplus. This ratio reflects the degree to which
year-end surplus was either overstated (+) or understated (-)
in each of the past several years, if original reserves had
been restated to reflect subsequent development through year
end.
Direct Premiums Written - The aggregate amount
of recorded originated premiums, other than reinsurance, written
during the year, whether collected or not, at the close of the
year, plus retrospective audit premium collections, after deducting
all return premiums.
Direct Writer - An insurer whose distribution
mechanism is either the direct selling system or the exclusive
agency system.
Disease Management - A system of coordinated
health-care interventions and communications for patients with
certain illnesses.
Dividend - The return
of part of the policy's premium for a policy issued on a participating
basis by either a mutual or stock insurer. A portion of the
surplus paid to the stockholders of a corporation.
Earned Premium - The amount of the premium
that as been paid for in advance that has been "earned"
by virtue of the fact that time has passed without claim. A
three-year policy that has been paid in advance and is one year
old would have only partly earned the premium.
Elimination Period - The time which must pass
after filing a claim before policyholder can collect insurance
benefits. Also known as "waiting period."
Employers Liability Insurance - Coverage against
common law liability of an employer for accidents to employees,
as distinguished from liability imposed by a workers' compensation
law.
Encumbrance - A claim on property, such as
a mortgage, a lien for work and materials, or a right of dower.
The interest of the property owner is reduced by the amount
of the encumbrance.
Exclusions - Items or conditions that are not
covered by the general insurance contract.
Expense Ratio - The ratio of underwriting expenses
(including commissions) to net premiums written. This ratio
measures the company's operational efficiency in underwriting
its book of business.
Exposure - Measure of vulnerability to
loss, usually expressed in dollars or units.
Extended Replacement Cost - This option
extends replacement cost loss settlement to personal property
and to outdoor antennas, carpeting, domestic appliances, cloth
awnings, and outdoor equipment, subject to limitations on certain
kinds of personal property; includes inflation protection coverage.
File-and-Use Rating Laws - State-based
laws which permit insurers to adopt new rates without the prior
approval of the insurance department. Usually insurers submit
their new rates with supporting statistical data.
Financing Entity - Provides money for purchases.
Floater -A separate policy available to cover
the value of goods beyond the coverage of a standard renters
insurance policy including movable property such as jewelry
or sports equipment.
Future Purchase Option -
Life and health insurance provisions that guarantee the insured
the right to buy additional coverage without proving insurability.
Also known as "guaranteed insurability option."
General Account - All premiums are paid into
an insurer's general account. Thus, buyers are subject to credit-risk
exposure to the insurance company, which is low but not zero.
General Liability Insurance - Insurance
designed to protect business owners and operators from a wide
variety of liability exposures. Exposures could include liability
arising from accidents resulting from the insured's premises
or operations, products sold by the insured, operations completed
by the insured, and contractual liability.
Grace Period - The length of time (usually
31 days) after a premium is due and unpaid during which the
policy, including all riders, remains in force. If a premium
is paid during the grace period, the premium is considered to
have been paid on time. In Universal Life policies, it typically
provides for coverage to remain in force for 60 days following
the date cash value becomes insufficient to support the payment
of monthly insurance costs.
Gross Leverage - The sum of net leverage and
ceded reinsurance leverage. This ratio measures a company's
gross exposure to pricing errors in its current book of business,
to errors of estimating its liabilities, and exposure to its
reinsurers.
Guaranteed Insurability Option - See "future
purchase option."
Guaranteed Issue Right - The right to purchase
insurance without physical examination; the present and past
physical condition of the applicant are not considered.
Guaranteed Renewable - A policy provision in
many products which guarantees the policyowner the right to
renew coverage at every policy anniversary date. The company
does not have the right to cancel coverage except for nonpayment
of premiums by the policyowner; however, the company can raise
rates if they choose.
Guaranty Association
- An organization of life insurance companies within a state
responsible for covering the financial obligations of a member
company that becomes insolvent.
Hazard - A circumstance that increases the
likelihood or probable severity of a loss. For example, the
storing of explosives in a home basement is a hazard that increases
the probability of an explosion.
Hazardous Activity - Bungee jumping, scuba
diving, horse riding and other activities not generally covered
by standard insurance policies. For insurers that do provide
cover for such activities, it is unlikely they will cover liability
and personal accident, which should be provided by the company
hosting the activity.
Health Maintenance Organization (HMO) - Prepaid
group health insurance plan that entitles members to services
of participating physicians, hospitals and clinics. Emphasis
is on preventative medicine, and members must use contracted
health-care providers.
Health Reimbursement Arrangement - Owners of
high-deductible health plans who are not qualified for a health
savings account can use an HRA.
Health Savings Account - Plan that allows you
to contribute pre-tax money to be used for qualified medical
expenses. HSAs, which are portable, must be linked to a high-deductible
health insurance policy.
Hurricane Deductible
- Amount you must pay out-of-pocket before hurricane insurance
will kick in. Many insurers in hurricane-prone states are selling
homeowners insurance policies with percentage deductibles for
storm damage, instead of the traditional dollar deductibles
used for claims such as fire and theft. Percentage deductibles
vary from one percent of a home's insured value to 15 percent,
depending on many factors that differ by state and insurer.
Impaired Insurer - An insurer which is in financial
difficulty to the point where its ability to meet financial
obligations or regulatory requirements is in question.
Indemnity - Restoration to the victim of a
loss by payment, repair or replacement.
Independent Insurance Agents & Brokers of America
(IIABA) - Formerly the Independent Insurance Agents
of America (IIAA), this is a member organization of independent
agents and brokers monitoring and affecting industry issues.
Numerous state associations are affiliated with the IIABA.
Income Taxes - Incurred income taxes (including
income taxes on capital gains) reported in each annual statement
for that year.
Inflation Protection - An optional property
coverage endorsement offered by some insurers that increases
the policy's limits of insurance during the policy term to keep
pace with inflation.
Insurable Interest - Interest in property such
that loss or destruction of the property could cause a financial
loss.
Insurance Adjuster - A representative of the
insurer who seeks to determine the extent of the insurer's liability
for loss when a claim is submitted. Independent insurance adjusters
are hired by insurance companies on an "as needed"
basis and might work for several insurance companies at
the same time. Independent adjusters charge insurance companies
both by the hour and by miles traveled. Public adjusters work
for the insured in the settlement of claims and receive a percentage
of the claim as their fee. A.M. Best's Directory of Recommended
Insurance Attorneys and Adjusters lists independent adjusters
only.
Insurance Attorneys - An attorney who practices
the law as it relates to insurance matters. Attorneys might
be solo practitioners or work as part of a law firm. Insurance
companies who retain attorneys to defend them against law suits might
hire staff attorneys to work for them in-house or they might
retain attorneys on an as-needed basis. A.M. Best's Directory
of Recommended Attorneys and Adjusters lists insurance defense
attorneys who concentrate their practice in insurance defense
such as coverage issues, bad faith, malpractice, products liability,
and workers' compensation.
Insurance Institute of America (IIA) -
An organization which develops programs and conducts
national examinations in general insurance, risk management,
management, adjusting, underwriting, auditing and loss control
management.
Interest-Crediting Methods - There are at least
35 interest-crediting methods that insurers use. They usually
involve some combination of point-to-point, annual reset, yield
spread, averaging, or high water mark.
Investment Income - The return received by
insurers from their investment portfolios including interest,
dividends and realized capital gains on stocks. It doesn't
include the value of any stocks or bonds that the company currently
owns.
Investments in Affiliates - Bonds, stocks,
collateral loans, short-term investments in affiliated and real
estate properties occupied by the company.
Insurance
Regulatory Information System (IRIS) - Introduced by
the National Association of Insurance Commissioners in
1974 to identify insurance companies that might require further
regulatory review.
Laddering -Purchasing bond investments that
mature at different time intervals.
Lapse Ratio - The ratio of the number of life
insurance policies that lapsed within a given period to the
number in force at the beginning of that period.
Least Expensive Alternative Treatment - The
amount an insurance company will pay based on its determination
of cost for a particular procedure.
Leverage or Capitalization - Measures the exposure
of a company's surplus to various operating and financial practices.
A highly leveraged, or poorly capitalized, company can show
a high return on surplus, but might be exposed to a high
risk of instability.
Liability - Broadly, any legally enforceable
obligation. The term is most commonly used in a pecuniary sense.
Liability Insurance - Insurance that pays and
renders service on behalf of an insured for loss arising out
of his responsibility, due to negligence, to others imposed
by law or assumed by contract.
Licensed - Indicates the company is incorporated
(or chartered) in another state but is a licensed (admitted)
insurer for this state to write specific lines of business for
which it qualifies.
Licensed for Reinsurance Only - Indicates the
company is a licensed (admitted) insurer to write reinsurance
on risks in this state.
Lifetime Reserve Days - Sixty additional days
Medicare pays for when you are hospitalized for more than 90
days in a benefit period. These days can only be used once during
your lifetime. For each lifetime reserve day, Medicare pays
all covered costs except for a daily coinsurance amount.
Liquidity - Liquidity is the ability of an
individual or business to quickly convert assets into cash without
incurring a considerable loss. There are two kinds of liquidity:
quick and current. Quick liquidity refers to funds--cash, short-term
investments, and government bonds--and possessions which can
immediately be converted into cash in the case of an emergency.
Current liquidity refers to current liquidity plus possessions
such as real estate which cannot be immediately liquidated,
but eventually can be sold and converted into cash. Quick liquidity
is a subset of current liquidity. This reflects the financial
stability of a company and thus their rating.
Living Benefits - This feature allows you,
under certain circumstances, to receive the proceeds of your
life insurance policy before you die. Such circumstances include
terminal or catastrophic illness, the need for long-term care,
or confinement to a nursing home. Also known as "accelerated
death benefits."
Lloyd's - Generally refers to Lloyd's of London,
England, an institution within which individual underwriters
accept or reject the risks offered to them. The Lloyd's Corp.
provides the support facility for their activities.
Lloyds Organizations - These organizations
are voluntary unincorporated associations of individuals. Each
individual assumes a specified portion of the liability under
each policy issued. The underwriters operate through a common
attorney-in-fact appointed for this purpose by the underwriters.
The laws of most states contain some provisions governing the
formation and operation of such organizations, but these laws
don't generally provide as strict a supervision and control
as the laws dealing with incorporated stock and mutual insurance
companies.
Loss Adjustment Expenses - Expenses incurred
to investigate and settle losses.
Loss and Loss-Adjustment Reserves to Policyholder Surplus
Ratio - The higher the multiple of loss reserves to
surplus, the more a company's solvency is dependent upon having
and maintaining reserve adequacy.
Losses and Loss-Adjustment Expenses - This
represents the total reserves for unpaid losses and loss-adjustment
expenses, including reserves for any incurred but not reported
losses, and supplemental reserves established by the company.
It is the total for all lines of business and all accident years.
Loss Control - All methods taken to reduce
the frequency and/or severity of losses including exposure avoidance,
loss prevention, loss reduction, segregation of exposure units
and noninsurance transfer of risk. A combination of risk control
techniques with risk financing techniques forms the nucleus
of a risk management program. The use of appropriate insurance,
avoidance of risk, loss control, risk retention, self insuring,
and other techniques that minimize the risks of a business,
individual, or organization.
Loss Ratio - The ratio of incurred losses and
loss-adjustment expenses to net premiums earned. This ratio
measures the company's underlying profitability, or loss experience,
on its total book of business.
Loss Reserve - The estimated liability, as
it would appear in an insurer's financial statement, for
unpaid insurance claims or losses that have occurred as of a
given evaluation date. Usually includes losses incurred but
not reported (IBNR), losses due but not yet paid, and amounts
not yet due. For individual claims, the loss reserve is the
estimate of what will ultimately be paid out on that claim.
Losses Incurred (Pure Losses) - Net paid losses
during the current year plus the change in loss reserves since
the prior year end.
Medical Loss Ratio - Total health benefits
divided by total premium.
Member Month - Total number of health plan
participants who are members for each month.
Mortality and Expense Risk Fees - A charge
that covers such annuity contract guarantees as death benefits.
Mortgage Insurance Policy - In life and health
insurance, a policy covering a mortgagor with benefits
intended to pay off the balance due on a mortgage upon the insured's
death, or to meet the payments due on a mortgage in case of
the insured's death or disability.
Mutual Insurance Companies - Companies with
no capital stock, and owned by policyholders. The earnings of
the company--over and above the payments of the losses, operating
expenses and reserves--are the property of the policyholders.
There are two types of mutual insurance companies. A nonassessable
mutual charges a fixed premium and the policyholders cannot
be assessed further. Legal reserves and surplus are maintained
to provide payment of all claims. Assessable mutuals are companies
that charge an initial fixed premium and, if that isn't sufficient, might
assess policyholders to meet losses in excess of the premiums
that have been charged.
Named Perils - Perils specifically covered
on insured property.
National Association of Insurance Commissioners (NAIC)
- Association of state insurance commissioners whose
purpose is to promote uniformity of insurance regulation, monitor
insurance solvency and develop model laws for passage by state
legislatures.
Net Income - The total after-tax earnings generated
from operations and realized capital gains as reported in the
company's NAIC annual statement on page 4, line 16.
Net Investment Income - This item represents
investment income earned during the year less investment expenses
and depreciation on real estate. Investment expenses are the
expenses related to generating investment income and capital
gains but exclude income taxes.
Net Leverage - The sum of a company's net premium
written to policyholder surplus and net liabilities to policyholder
surplus. This ratio measures the combination of a company's
net exposure to pricing errors in its current book of business
and errors of estimation in its net liabilities after reinsurance,
in relation to policyholder surplus.
Net Liabilities to Policyholder Surplus - Net
liabilities expressed as a ratio to policyholder surplus.
Net liabilities equal total liabilities less conditional reserves,
plus encumbrances on real estate, less the smaller of receivables
from or payable to affiliates. This ratio measures company's
exposures to errors of estimation in its loss reserves and all
other liabilities. Loss-reserve leverage is generally the key
component of net liability leverage. The higher the loss-reserve
leverage the more critical a company's solvency depends upon
maintaining reserve adequacy.
Net Premium - The amount of premium minus the
agent's commission. Also, the premium necessary to cover only
anticipated losses, before loading to cover other expenses.
Net Premiums Earned - The adjustment of net
premiums written for the increase or decrease of the company's liability
for unearned premiums during the year. When an insurance company's
business increases from year to year, the earned premiums will
usually be less than the written premiums. With the increased
volume, the premiums are considered fully paid at the inception
of the policy so that, at the end of a calendar period, the
company must set up premiums representing the unexpired terms
of the policies. On a decreasing volume, the reverse is true.
Net Premiums Written - Represents gross premium
written, direct and reinsurance assumed, less reinsurance ceded.
Net Underwriting Income - Net premiums earned
less incurred losses, loss-adjustment expenses, underwriting
expenses incurred, and dividends to policyholders.
Nonstandard Auto (High Risk Auto or Substandard Auto)
- Insurance for motorists who have poor driving records
or have been canceled or refused insurance. The premium is much
higher than standard auto due to the additional risks.
Net Premiums Written to Policyholder Surplus (IRIS)
- This ratio measures a company's net retained
premiums written after reinsurance assumed and ceded, in relation
to its surplus. This ratio measures the company's exposure to
pricing errors in its current book of business.
Non-Recourse Mortgage - A home loan in which
the borrower can never owe more than the home's value at the
time the loan is repaid.
Noncancellable
- Contract terms, including costs that can never be changed.
Occurrence - An event that results in an insured
loss. In some lines of business, such as liability, an occurrence
is distinguished from accident in that the loss doesn't have
to be sudden and fortuitous and can result from continuous or
repeated exposure which results in bodily injury or property
damage neither expected not intended by the insured.
Operating Cash Flow - Measures the funds generated
from insurance operations, which includes the change in cash
and invested assets attributed to underwriting activities, net
investment income and federal income taxes. This measure excludes
stockholder dividends, capital contributions, unrealized capital
gains/losses and various noninsurance related transactions with
affiliates. This test measures a company's ability to meet current
obligations through the internal generation of funds from insurance
operations. Negative balances might indicate unprofitable
underwriting results or low yielding assets.
Operating Ratio (IRIS) - Combined ratio less
the net investment income ratio (net investment income to net
premiums earned). The operating ratio measures a company's overall
operational profitability from underwriting and investment activities.
This ratio doesn't reflect other operating income/expenses,
capital gains or income taxes. An operating ratio of more than
100 indicates a company is unable to generate profits from its
underwriting and investment activities.
Other Income/Expenses - This item represents
miscellaneous sources of operating income or expenses that principally
relate to premium finance income or charges for uncollectible
premium and reinsurance business.
Out-of-Pocket Limit - A predetermined amount
of money that an individual must pay before insurance will pay
100% for an individual's health-care expenses.
Overall Liquidity Ratio- Total admitted assets
divided by total liabilities less conditional reserves. This
ratio indicates a company's ability to cover net liabilities
with total assets. This ratio doesn't address the quality and
marketability of premium balances, affiliated investments and
other uninvested assets.
Own Occupation
- Insurance contract provision that allows policyholders to
collect benefits if they can no longer work in their own occupation.
Paid-Up Additional
Insurance - An option that allows the policyholder
to use policy dividends and/or additional premiums to buy additional
insurance on the same plan as the basic policy and at a face
amount determined by the insured's attained age.
Participation Rate - In equity-indexed annuities,
a participation rate determines how much of the gain in the
index will be credited to the annuity. For example, the insurance
company may set the participation rate at 80%, which means the
annuity would only be credited with 80% of the gain experienced
by the index.
Peril - The cause
of a possible loss.
Personal Injury Protection
- Pays basic expenses for an insured and his or her family in
states with no-fault auto insurance. No-fault laws generally
require drivers to carry both liability insurance and personal
injury protection coverage to pay for basic needs of the insured,
such as medical expenses, in the event of an accident.
Personal Lines - Insurance for individuals
and families, such as private-passenger auto and homeowners
insurance.
Point-of-Service Plan
- Health insurance policy that allows the employee to choose
between in-network and out-of-network care each time medical
treatment is needed.
Policy - The
written contract effecting insurance, or the certificate thereof,
by whatever name called, and including all clause, riders, endorsements,
and papers attached thereto and made a part thereof.
Policyholder Dividend Ratio - The ratio of
dividends to policyholders related to net premiums earned.
Policyholder Surplus - The sum
of paid in capital, paid in and contributed surplus, and net
earned surplus, including voluntary contingency reserves. It
also is the difference between total admitted assets and total
liabilities.
Policy or Sales Illustration
- Material used by an agent and insurer to show how a policy
may perform under a variety of conditions and over a number
of years.
Pre-Existing Condition
- A coverage limitation included in many health policies which
states that certain physical or mental conditions, either previously
diagnosed or which would normally be expected to require treatment
prior to issue, will not be covered under the new policy for
a specified period of time.
Preferred Auto
- Auto coverage for drivers who have never had an accident
and operates vehicles according to law. Drivers are not a risk
for any insurance company that writes auto insurance, and no
insurance company would be afraid to take them on as risk.
Preferred Provider Organization - Network
of medical providers who charge on a fee-for-service basis,
but are paid on a negotiated, discounted fee schedule.
Premium - The price of insurance protection
for a specified risk for a specified period of time.
Premium Balances - Premiums and agents' balances
in course of collection; premiums, agents' balances and installments
booked but deferred and not yet due; bills receivable, taken
for premiums and accrued retrospective premiums.
Premium
Earned - The amount of the premium that as been paid
for in advance that has been "earned" by virtue of
the fact that time has passed without claim. A three-year policy
that has been paid in advance and is one year old would have
only partly earned the premium.
Premium to
Surplus Ratio - This ratio is designed to measure
the ability of the insurer to absorb above-average losses and the
insurer's financial strength. The ratio is computed by dividing
net premiums written by surplus. An insurance company's
surplus is the amount by which assets exceed liabilities. The
ratio is computed by dividing net premiums written by surplus.
For example, a company with $2 in net premiums written for every
$1 of surplus has a 2-to-1 premium to surplus ratio. The lower
the ratio, the greater the company's financial strength. State
regulators have established a premium-to-surplus ratio
of no higher than 3-to-1 as a guideline.
Premium
Unearned - That part of the premium applicable to the
unexpired part of the policy period.
Pretax
Operating Income - Pretax operating earnings before
any capital gains generated from underwriting, investment and
other miscellaneous operating sources.
Pretax Return
on Revenue - A measure of a company's operating
profitability and is calculated by dividing pretax operating
earnings by net premiums earned.
Private-Passenger
Auto Insurance Policyholder Risk Profile - This refers
to the risk profile of auto insurance policyholders and can
be divided into three categories: standard, nonstandard and
preferred. In the eyes of an insurance company, it is the type
of business (or the quality of driver) that the company has
chosen to taken on.
Profit - A measure
of the competence and ability of management to provide viable
insurance products at competitive prices and maintain a financially
strong company for both policyholders and stockholders.
Protected Cell Company (PCC) - A PCC
is a single legal entity that operates sgregated accounts, or cells,
each of which is legally protected from the liabilities of the
company's other accounts. An individual client's account is
insulated from the gains and losses of other accounts, such
that the PCC sponsor and each client are protected against liquidation
activities by creditors in the event of insolvency of another
client.
Qualified High-Deductible Health Plan - A
health plan with lower premiums that covers health-care expenses
only after the insured has paid each year a large amount out
of pocket or from another source. To qualify as a health plan
coupled with a Health Savings Account, the Internal Revenue
Code requires the deductible to be at least $1,000 for an individual
and $2,000 for a family. High-deductible plans are also known
as catastrophic plans.
Qualified Versus Non-Qualified Policies - Qualified
plans are those employee benefit plans that meet Internal Revenue
Service requirements as stated in IRS Code Section 401a. When
a plan is approved, contributions made by the employer are tax
deductible expenses.
Qualifying Event - An occurrence that triggers
an insured's protection.
Quick Assets - Assets that are quickly convertible
into cash.
Quick Liquidity Ratio - Quick
assets divided by net liabilities plus ceded reinsurance balances
payable. Quick assets are defined as the sum of cash, unaffiliated
short-term investments, unaffiliated bonds maturing within one
year, government bonds maturing within five years, and 80% of
unaffiliated common stocks. These assets can be quickly converted
into cash in the case of an emergency.
Reciprocal Insurance Exchange - An unincorporated
groups of individuals, firms or corporations, commonly termed
subscribers, who mutually insure one another, each separately
assuming his or her share of each risk. Its chief administrator
is an attorney-in-fact.
Re-Entry - Re-entry, which is the allowance
for level-premium term policyowners to qualify for another level-premium
period, generally with new evidence of insurability.
Reinsurance - In effect, insurance that an
insurance company buys for its own protection. The risk
of loss is spread so a disproportionately large loss under
a single policy doesn't fall on one company. Reinsurance
enables an insurance company to expand its capacity; stabilize
its underwriting results; finance its expanding volume; secure
catastrophe protection against shock losses; withdraw from a line
of business or a geographical area within a specified time period.
Reinsurance Ceded - The unit of insurance transferred
to a reinsurer by a ceding company.
Reinsurance Recoverables to Policyholder Surplus - Measures
a company's dependence upon its reinsurers and the potential
exposure to adjustments on such reinsurance. Its determined
from the total ceded reinsurance recoverables due from non-U.S.
affiliates for paid losses, unpaid losses, losses incurred but
not reported (IBNR), unearned premiums and commissions less
funds held from reinsurers expressed as a percent of policyholder
surplus.
Renewal - The automatic re-establishment of
in-force status effected by the payment of another premium.
Replacement Cost - The dollar amount needed
to replace damaged personal property or dwelling property without
deducting for depreciation but limited by the maximum dollar
amount shown on the declarations page of the policy.
Reserve
- An amount representing actual or potential liabilities
kept by an insurer to cover debts to policyholders. A reserve
is usually treated as a liability.
Residual Benefit
- In disability insurance, a benefit paid when you suffer a
loss of income due to a covered disability or if loss of income
persists. This benefit is based on a formula specified in your
policy and it is generally a percentage of the full benefit.
It may be paid up to the maximum benefit period.
Return on Policyholder Surplus (Return on Equity) -
The sum of after-tax net income and unrealized capital
gains, to the mean of prior and current year-end policyholder
surplus, expressed as a percent. This ratio measures a company's
overall after-tax profitability from underwriting and investment
activity.
Risk Class - Risk class, in insurance underwriting,
is a grouping of insureds with a similar level of risk. Typical
underwriting classifications are preferred, standard and substandard,
smoking and nonsmoking, male and female.
Risk Management - Management of the pure risks
to which a company might be subject. It involves analyzing all
exposures to the possibility of loss and determining how to
handle these exposures through practices such as avoiding the
risk, retaining the risk, reducing the risk, or transferring
the risk, usually by insurance.
Risk Retention Groups -
Liability insurance companies owned by their policyholders.
Membership is limited to people in the same business or activity,
which exposes them to similar liability risks. The purpose is
to assume and spread liability exposure to group members and
to provide an alternative risk financing mechanism for liability.
These entities are formed under the Liability Risk Retention
Act of 1986. Under law, risk retention groups are precluded
from writing certain coverages, most notably property lines
and workers' compensation. They predominately write medical
malpractice, general liability, professional liability, products
liability and excess liability coverages. They can be formed
as a mutual or stock company, or a reciprocal.
Secondary Market - The secondary market is
populated by buyers willing to pay what they determine to be
fair market value.
Section 1035 Exchange - This refers to a part
of the Internal Revenue Code that allows owners to replace a
life insurance or annuity policy without creating a taxable
event.
Section 7702 - Part of the Internal Revenue
Code that defines the conditions a life policy must satisfy
to qualify as a life insurance contract, which has tax advantages.
Separate Account - A separate account is an
investment option that is maintained separately from an insurer's
general account. Investment risk associated with separate-account
investments is born by the contract owner.
Solvency - Having sufficient assets--capital,
surplus, reserves--and being able to satisfy financial requirements--investments,
annual reports, examinations--to be eligible to transact insurance
business and meet liabilities.
Standard Auto - Auto insurance for average
drivers with relatively few accidents during lifetime.
State of Domicile - The state in which the
company is incorporated or chartered. The company also
is licensed (admitted) under the state's insurance statutes
for those lines of business for which it qualifies.
Statutory Reserve - A reserve, either specific
or general, required by law.
Stock Insurance Company - An incorporated insurer
with capital contributed by stockholders, to whom earnings are
distributed as dividends on their shares.
Stop Loss - Any provision in a policy designed
to cut off an insurer's losses at a given point.
Subaccount Charge - The fee to manage a subaccount,
which is an investment option in variable products that is separate
from the general account.
Subrogation - The right of an insurer who has
taken over another's loss also to take over the other person's
right to pursue remedies against a third party.
Successive Periods - In hospital income
protection, when confinements in a hospital are due to the same
or related causes and are separated by less than a contractually
stipulated period of time, they are considered part of the same
period of confinement.
Surplus - The amount by which assets exceed
liabilities.
Surrender Charge - Fee charged to a policyholder
when a life insurance policy or annuity is surrendered for its
cash value. This fee reflects expenses the insurance company
incurs by placing the policy on its books, and subsequent administrative
expenses.
Surrender Period
- A set amount of time during which you have to keep the majority
of your money in an annuity contract. Most surrender periods
last from five to 10 years. Most contracts will allow you to
take out at least 10% a year of the accumulated value of the
account, even during the surrender period. If you take out more
than that 10%, you will have to pay a surrender charge on the
amount that you have withdrawn above that 10%.
Term Life Insurance - Life insurance that provides
protection for a specified period of time. Common policy periods
are one year, five years, 10 years or until the insured reaches
age 65 or 70. The policy doesn't build up any of the nonforfeiture
values associated with whole life policies.
Tort - A private wrong, independent of contract
and committed against an individual, which gives rise to a legal
liability and is adjudicated in a civil court. A tort can be
either intentional or unintentional, and liability insurance is
mainly purchased to cover unintentional torts.
Total Admitted Assets - This item is the sum
of all admitted assets, and are valued in accordance with
state laws and regulations, as reported by the company in its
financial statements filed with state insurance regulatory authorities.
This item is reported net as to encumbrances on real estate
(the amount of any encumbrances on real estate is deducted from
the value of the real estate) and net as to amounts recoverable
from reinsurers (which are deducted from the corresponding liabilities
for unpaid losses and unearned premiums).
Total Annual Loan Cost - The projected annual
average cost of a reverse mortgage including all itemized costs.
Total Loss - A loss of sufficient size
that it can be said no value is left. The complete destruction
of the property. The term also is used to mean a loss requiring
the maximum amount a policy will pay.
Umbrella Policy - Coverage for losses above
the limit of an underlying policy or policies such as homeowners
and auto insurance. While it applies to losses over the dollar
amount in the underlying policies, terms of coverage are sometimes
broader than those of underlying policies.
Unaffiliated Investments - These investments
represent total unaffiliated investments as reported in the
exhibit of admitted assets. It is cash, bonds, stocks, mortgages,
real estate and accrued interest, excluding investment in affiliates
and real estate properties occupied by the company.
Underwriter - The individual trained in evaluating
risks and determining rates and coverages for them. Also, an
insurer.
Underwriting - The process of selecting risks
for insurance and classifying them according to their degrees
of insurability so that the appropriate rates may be assigned.
The process also includes rejection of those risks that do not
qualify.
Underwriting Expenses Incurred - Expenses,
including net commissions, salaries and advertising costs, which
are attributable to the production of net premiums written.
Underwriting Expense Ratio - This represents
the percentage of a company's net premiums written that went
toward underwriting expenses, such as commissions to agents
and brokers, state and municipal taxes, salaries, employee benefits
and other operating costs. The ratio is computed by dividing
underwriting expenses by net premiums written. The ratio is
computed by dividing underwriting expenses by net premiums written.
A company with an underwriting expense ratio of 31.3% is spending
more than 31 cents of every dollar of net premiums written to
pay underwriting costs. It should be noted that different lines
of business have intrinsically differing expense ratios. For
example, boiler and machinery insurance, which requires a corps
of skilled inspectors, is a high expense ratio line. On the
other hand, expense ratios are usually low on group health insurance.
Underwriting Guide - Details the underwriting
practices of an insurance company and provides specific guidance
as to how underwriters should analyze all of the various types
of applicants they might encounter. Also called an underwriting
manual, underwriting guidelines, or manual of underwriting policy.
Unearned Premiums - That part of the premium
applicable to the unexpired part of the policy period.
Uninsured Motorist Coverage - Endorsement to
a personal automobile policy that covers an insured collision
with a driver who does not have liability insurance.
Universal Life Insurance - A combination flexible
premium, adjustable life insurance policy.
Usual, Customary and Reasonable Fees - An amount
customarily charged for or covered for similar services and
supplies which are medically necessary, recommended by a doctor
or required for treatment.
Utilization - How much
a covered group uses a particular health plan or program.
Valuation - A calculation of the policy reserve in
life insurance. Also, a mathematical analysis of the financial
condition of a pension plan.
Valuation Reserve - A reserve against the contingency
that the valuation of assets, particularly investments, might
be higher than what can be actually realized or that a liability
may turn out to be greater than the valuation placed on it.
Variable Annuitization - The act of converting
a variable annuity from the accumulation phase to the payout
phase.
Variable Life Insurance - A form of life insurance
whose face value fluctuates depending upon the value of the
dollar, securities or other equity products supporting the policy
at the time payment is due.
Variable Universal Life Insurance - A combination
of the features of variable life insurance and universal life
insurance under the same contract. Benefits are variable based
on the value of underlying equity investments, and premiums
and benefits are adjustable at the option of the policyholder.
Viatical Settlement Provider - Someone who
serves as a sales agent, but does not actually purchase policies.
Viator - The terminally ill person who sells
his or her life insurance policy.
Voluntary Reserve
- An allocation of surplus not required by law. Insurers often
accumulate such reserves to strengthen their financial structure.
Waiting Period - See "elimination period."
Waiver of Premium - A provision in some insurance
contracts which enables an insurance company to waive the collection
of premiums while keeping the policy in force if the policyholder
becomes unable to work because of an accident or injury. The
waiver of premium for disability remains in effect as long as
the ensured is disabled.
Whole Life Insurance
- Life insurance which might be kept in force for a
person's whole life and which pays a benefit upon the person's
death, whenever that might be.
Yield on Invested Assets (IRIS) - Annual net investment
income after expenses, divided by the mean of cash and net
invested assets. This ratio measures the average return on
a company's invested assets. This ratio is before capital
gains/losses and income taxes.
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