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Reinsurance Glossary

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A horizontal segment of the liability reinsured, e.g., the second $100,000 of a $500,000 liability is the first layer if the ceding company retains $100,000, but a higher layer if it retains a lesser amount.  See First Excess, Layering, and Second Excess.

A method of allocating automatic reinsurance among several reinsurers.  Using this method, reinsurance is ceded in layers.  The layers are defined in terms of amounts of insurance.  One reinsurer will receive all reinsurance up to the limit of the first layer.  A second reinsurer will receive all reinsurance in excess of the first layer up to the limit of the second layer, and so forth, depending on the number of layers.  See First Excess, Layer, and Second Excess.

Lead Reinsurer
The reinsurer who negotiates the terms, conditions and premium rates and first signs on to the agreements; reinsurers who subsequently accept those terms and conditions are considered following reinsurers.  In some cases, the lead reinsurer may have narrower responsibilities.

Letter of Credit (LOC)
A financial guaranty issued by a bank that permits the party to which it is issued to draw funds from the bank in the event of a valid unpaid claim against the other party; in reinsurance, typically used to permit reserve credit to be taken with respect to non-admitted reinsurance; an alternative to funds withheld and modified coinsurance.  Also referred to as an LOC.

A competitive insurance market place--not an insurance company--where individual underwriters accept risks on behalf of syndicates of individual and corporate members whose resources provide the security behind Lloyd's policies.

Loss Event
Any trigger for a recovery under an insurance or reinsurance agreement.  Examples include occurrence, claims made, death or disability.

Losses in Excess of Policy Limits
A term that, when used in reinsurance agreements, refers to damages awarded by a court against an insurer in favor of the insured, due to the insurer's having failed to settle a third party claim against the insured within the policy limits by reason of bad faith, fraud, or gross negligence.  See Extra Contractual Obligations and Punitive Damages.

Loss Ratio
Incurred losses (including applicable IBNR) divided by the earned premium for an accounting or treaty period.  Loss ratios can be calculated on an accident year, calendar year, or underwriting year basis.

Loss Ratio Coverage
See Aggregate Coverage.



  Glossary of Reinsurance Terms compiled by
the American Council of Life Insurers (ACLI) Reinsurance Committee
and presented by Findalink.net


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While a great deal of care has been taken to provide accurate, current, and authoritative information in regard to the subject matter covered in this reinsurance glossary, the ideas suggestions, general principles, conclusions, and any other information presented here are for educational purposes only. This reinsurance glossary is provided  with the understanding that it is neither designed nor intended to provide the reader with legal, accounting, investment, marketing, or other types of professional business management advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought.




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