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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.

Rate On Line

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.

Rate Regulation

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)

Rating Agencies

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 experience. A high financial rating is not the same as a high consumer satisfaction rating.

Rating Bureau

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. Today, large insurers use their own statistical loss data to develop rates. But small insurers, or insurers focusing on special lines of business, with insufficiently broad loss data to make them actuarially reliable depend on Pooled industry data collected by such organizations as the Insurance Services Office (ISO) which provides information to help develop rates such as estimates of future losses and loss adjustment expenses like legal defense costs.

Real Estate Investments

Investments generally owned by life insurers that include commercial mortgage loans and real property.

Reasonable doubt

Establishing guilt in a criminal action requires proof beyond a reasonable doubt. It is proof that precludes every reasonable theory except the one consistent with a defendant's guilt.


See Ceding Company


Amounts owed to a business for goods or services provided.


A mutual exchange of reinsurance between two or more companies.


Reevaluation of the pricing classification of an inforce policy on an insured life, based on current evidence of insurability. The insurer may improve the classification or leave it unchanged. The Ceding Company should consider the effects of reconsideration on the reinsurer.


Literally means to draw a red line on a map around areas to receive special treatment. Refusal to issue insurance based solely on where applicants live is illegal in all states. Denial of insurance must be risk-based.

Refund Reinsurance

A form of reinsurance under which the premium rates are subject to an experience refund as opposed to being fixed. See Experience Refund.


To help a disabled insured return to work in his or her own occupation, most disability insurance policies offer a rehabilitation benefit. This benefit will pay some of the expenses incurred when the insured enrolls in an approved rehabilitation program. The amount of the benefit is paid in addition to any other benefit the insured may qualify for under the policy.


A provision in an Excess of Loss Reinsurance contract, particularly catastrophe and clash covers, that provides for reinstatement of a limit which is reduced by the occurrence of a loss or losses. The number of times that the limit can be reinstated varies, as does the cost of the reinstatement.

Reinstatement Clause

When the amount of reinsurance coverage provided under a treaty is reduced by the payment of a reinsurance loss as the result of one catastrophe, the reinsurance cover is automatically reinstated usually by the payment of a reinstatement premium.

Reinstatement Premium

A pro rata reinsurance premium is charged for the reinstatement of the amount of reinsurance coverage that was reduced as the result of a reinsurance loss payment under a catastrophe cover.


  1. Insurance bought by insurers. A reinsurer assumes part of the risk and part of the premium originally taken by the insurer, known as the primary company. Reinsurance effectively increases an insurer's capital and therefore its Capacity to sell more coverage. The business is global and some of the largest reinsurers are based abroad. Reinsurers have their own reinsurers, called retrocessionaires. Reinsurers don’t pay policyholder claims. Instead, they reimburse insurers for claims paid. (See Treaty reinsurance; Facultative reinsurance)
  2. The practice whereby one party called the Reinsurer in consideration of a premium paid to him agrees to indemnify another party, called the Reinsured, for part or all of the liability assumed by the latter party under a policy or policies of insurance which it has issued. The reinsured may be referred to as the Original or Primary Insurer, or Direct Writing Company, or the Ceding Company.
  3. The transaction whereby the assuming insurer, for a consideration, agrees to indemnify the Ceding Company against all, or a part, of the loss which the latter may sustain under the policy or policies which it has issued.

Reinsurance Broker

See Reinsurance Intermediary.

Reinsurance Facility

  1. Pool that contains various reinsurance companies with each sharing reinsurance contracts on a pro rata basis as they are submitted to the Pool;
  2. Market that operates much like the New York Stock Exchange in that reinsurance contracts are bought and sold on a bid and asked basis. See also Layering, Pool, and Reinsurance Wheel.

Reinsurance Intermediary

An independent contractor who matches the needs of ceding companies with the products of reinsurers. Also known as a reinsurance broker.

Reinsurance Premium

The consideration paid by a Ceding Company to a reinsurer for the coverage provided by the reinsurer.

Reinsurance Wheel

A procedure for retroceding individual life insurance risks in excess of a reinsurer's own retention to a group of retrocessionaires (up to their subscribed limits) in rotation, the order being determined by their positions as spokes on an imaginary wheel. The spokes need not be of the same length, i.e. limit, and a company may have more than one spoke. (A Ceding Company, as well as a reinsurer, may use this procedure.) Contrast with Pool. See also Layering and Reinsurance Facility.


An insurer or reinsurer assuming the risk of another under contract.


This is a payment of an outstanding amount to or from a cedant or broker by cheque, bank transfer or wire transfer.


The act or process of maintaining insurance in force by issuing a new policy to replace an expiring policy or the issuance of certificates or endorsements extending the term of an expiring policy.

Renters Insurance

A form of insurance that covers a policyholder’s belongings against Perils such as fire, theft, windstorm, hail, explosion, vandalism, riots, and others. It also provides personal liability coverage for damage the policyholder or dependents cause to third parties. It also provides additional living expenses, known as loss-of-use coverage, if a policyholder must move while his or her dwelling is repaired. It also can include coverage for property improvements. Possessions can be covered for their Replacement cost or the actual cash value that includes depreciation.

Replacement cost

Insurance that pays 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.

Recapture or Recapture Provision

In a reinsurance treaty, a provision that allows a Ceding Company to take back some or all of the reinsured business from a reinsurer.


A reinsurance arrangement by which two companies exchange risk and, in effect, reinsure each other.

Repurchase Agreement (Repo)

Agreement between a buyer and seller where the seller agrees to repurchase the securities at an agreed upon time and price. Repurchase agreements involving U.S. government securities are utilized by the Federal Reserve to control the money supply.

Required Capital

see Target Capital

Required Minimum Margin (RMM)

United Kingdom (UK) regulatory capital requirement. Set by using required factors against certain risk elements of the business.

Required Surplus

See Target Capital


An amount which is set aside to provide for payment of a future obligation.


  1. A company’s best estimate of what it will pay for claims.
  2. Reserves are liabilities for amounts an insurance company is obligated to pay in acccordance with an insurance policy or Annuity contract. Reserves are established for both matured and unmatured obligations of an insurance company. Reserves represent the present value of future expected payments less future expected premiums.

Reserve Adjustment Interest Rate

In modified coinsurance, the interest rate used to calculate the amount payable by the Ceding Company in consideration of the reserves being held by the reinsurer. See Mod-co Reserve Adjustment.

Residual Value Insurance

A form of financial guaranty insurance that protects a lessor against unexpected declines in the market value of leased equipment (automobiles, aircraft, heavy machinery) upon termination or expiration of the lease agreement.

Residual Market

Facilities, such as assigned risk plans and FAIR Plans, that exist to provide coverage for those who cannot get it in the regular market. Insurers doing business in a given state generally must participate in these Pools. For this reason the Residual Market is also known as the shared market.


The net amount of risk which the Ceding Company or the reinsurer keeps for its own account or that of specified others.

Retention Limit

Amount set by company boards for the exposure to a single life. Currently set at $2.5 MM per life.

Retroactive date

Date as specified in declarations or in any endorsement on or after which any wrongful act, as defined in each coverage unit, must have occurred in order for claims arising from it to be covered under a policy. Claims arising from any wrongful act, as defined in coverage units, occurring before this date may not be covered.


To cede insurance risk from one reinsurer to another reinsurer.


The reinsurance bought by reinsurers to protect their financial stability. A reinsurance of reinsurance. Example: Company “B” has accepted reinsurance from Company “A”, and then obtains for itself, on such business assumed, reinsurance from Company “C”. This secondary reinsurance is called a Retrocession. The transaction whereby a reinsurer cedes to another reinsurer all or part of the reinsurance it has previously assumed.


A reinsurer that contractually accepts from another reinsurer a portion of the Ceding Company's underlying reinsurance risk. The transfer is known as a retrocession.

Retrospective Rating

A plan or method which permits adjustment of the final reinsurance Ceding Commission or premium on the basis of the actual loss experience under the subject reinsurance treaty - subject to minimum and maximum limits.

Return on Equity

Net income divided by total equity. Measures profitability by showing how efficiently invested capital is being used.


An attachment to an insurance policy that alters the policy’s coverage or terms.


The chance of loss or the person or entity that is insured.


A term used to denote the physical units of property at risk or the object of insurance protection and not Perils or Hazard. Reinsurance by tradition permits each insurance company to frame its own rules for defining units of Risks. The word is also defined as chance of loss or uncertainty of loss.

Risk-Based Capital

The need for insurance companies to be capitalized according to the inherent riskiness of the type of insurance they sell. Higher-risk types of insurance, liability as opposed to property business, generally necessitate higher levels of capital.

Risk Charge

An amount identified in some reinsurance agreements as specifically to be retained by the reinsurer for assuming the risk under the policies reinsured; a share of the profits in excess of the Risk Charge is returned to the Ceding Company as an experience refund. Also known as profit and expense charge, risk and profit charge, or risk and expense charge. See Experience Refund and Profit Commission.

Risk Management

Management of the varied risks to which a business firm or association might be subject. It includes analyzing all exposures to gauge the likelihood of loss and choosing options to better manage or minimize loss. These options typically include reducing and eliminating the risk with safety measures, buying insurance, and self-insurance.

Risk Premium Reinsurance (RPR)

See Yearly Renewable Term (YRT) Reinsurance.

Risk Retention Groups

Insurance companies that band together as self-insurers and form an organization that is chartered and licensed as an insurer in at least one state to handle liability insurance.


A termination provision of a reinsurance contract that stipulates the reinsurer remains liable for loss as a result of occurrences taking place after the date of termination for reinsured policies-in-force at the date of termination until their expiration or for a specified time period.