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Obligatory Reinsurance

Obligatory reinsurance is a form of agreement, which automatically binds both parties in advance. The company to cede and reinsurer to accept reinsurance. An agreement as regards obligatory (binding) reinsurance as a rule runs for an indefinite period and is legally binding for both parties. The contract between the parties contains the conditions one has agreed upon in detail including rules as regards cancellation of the contract. Obligatory reinsurance of often called treaty reinsurance.

Obligatory Treaty

A reinsurance contract under which business must be ceded in accordance with contract terms and must be accepted by the reinsurer.

Occupational Disease

Abnormal condition or illness caused by factors associated with the workplace. Like occupational injuries, this is covered by Workers Compensation policies. (See Workers Compensation)


An adverse contingent accident or event neither expected nor intended from the point of view of the insured. With regard to limits on occurrences, property catastrophe reinsurance agreements frequently define adverse events having a common cause and sometimes within a specified time frame, for example 72 hours, as being one occurrence. This definition prevents multiple retentions and reinsurance limits from being exposed in a single catastrophe loss.

Occurrence Coverage

A description of coverage for an event that "occurred" within the time specified in the insurance agreement, regardless of the date the claim is actually submitted.

Occurrence Policy

Insurance that pays claims arising out of incidents that occur during the policy term, even if they are filed many Years later.

Ocean Marine Insurance

Coverage of all types of vessels and watercraft, for property damage to the vessel and cargo, including such risks as piracy and the jettisoning of cargo to save the property of others. Coverage for marine-related liabilities. War is excluded from basic policies, but can be bought back.

Offset (Setoff)

The reduction of the amount owed by one party to a second party by Crediting the first party with amounts owed it by the second party. The existence and scope of offset rights may be determined by contract language as well as statutory, regulatory and judicial law.

Offset Clause

A provision in reinsurance agreements which permits each party to net amounts due against those payable before making payment; especially important in the event of insolvency of one party which ceases to remit amounts due to the other.

Open Competition States

States where insurance companies can set new rates without prior approval, although the state’s commissioner can disallow them if they are not reasonable and adequate or are discriminatory.

Opertaing Expenses

The cost of maintaining a business’s property, includes insurance, property taxes, utilities and rent, but excludes income tax, depreciation and other financing expenses.


Contracts that allow, but do not oblige, the buying or selling of property or assets at a certain date at a set price.

Ordinance or Law Coverage

Endorsement to a property policy, including homeowners, that pays for the extra expense of rebuilding to comply with ordinances or laws, often building codes, that did not exist when the building was originally built. For example, a building severely damaged in a hurricane may have to be elevated above the flood line when it is rebuilt. This Endorsementwould cover part of the additional cost.

Ordinary Life Insurance

A life insurance policy that remains in force for the policyholder’s lifetime. It contrasts with Term Insurance, which only lasts for a specified number of Years but is renewable. (See Term Insurance)

Original Equipment Manufacturer Parts (OEM)

Sheet metal auto parts made by the manufacturer of the vehicle. (See Generic auto parts)

Outstanding Loss Reserve

See Case Reserve.

Outstanding Surplus Account

A record kept by the reinsurer of the amount of surplus that it is carrying in a financial reinsurance arrangement.

Over-The-Counter (OTC)

Security that is not listed or traded on an exchange such as the New York Stock Exchange. Business in over-the-counter securities is conducted through dealers using electronic networks.


The amount of insurance or reinsurance exceeding the insurer's or reinsurer's normal Capacity inclusive of automatic reinsurance facilities.

Overriding Commission

An allowance paid to the Ceding Company over and above the acquisition cost to allow for overhead expenses and often including a margin for profit.


See Errors and Omissions Clause.