Definitions

The insurance business is based on the spread of risk. The more widely risk is spread, the more accurately loss can be estimated. An insurance company can more accurately estimate the probability of loss on 100,000 homes than on ten. Years ago, insurers were required to use standardized forms and rates developed by rating agencies. … Read more

Six major Credit agencies determine insurers’ financial strength and viability to meet claims obligations. They are A.M. Best Co.; Duff & Phelps Inc.; Fitch, Inc.; Moody’s Investors Services; Standard & Poor’s Corp.; and Weiss Ratings, Inc. Factors considered include company earnings, capital adequacy, operating leverage, liquidity, investment performance, reinsurance programs, and management ability, integrity and … Read more

The process by which states monitor insurance companies’ rate changes, done either through prior approval or open competition models. See Open competition states; Prior approval states

Same as Payback except that the price is quoted as a percentage of the limit. Thus, a 20 percent rate on line would be equivalent to a five Year payback.

The cost of a unit of insurance, usually per $1,000. Rates are based on historical loss experience for similar risks and may be regulated by state insurance offices.

Also Burning Cost The ratio of the reinsurance losses incurred to the Ceding Company’s Subject Premium

An entity that offers insurance to groups of similar businesses with similar exposures to risk.

Tentative amounts subject to subsequent adjustment.

An allowance to account for variability in the results to allow for conservatism, misestimation or deterioration to be put into reserves for profit stream. This will drive higher reserves over the pure best estimate reserves.