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Damaged property an insurer takes over to reduce its loss after paying a claim. Insurers receive salvage rights over property on which they have paid claims, such as badly-damaged cars. Insurers that paid claims on cargoes lost at sea now have the right to recover sunken treasures. Salvage charges are the costs associated with recovering that property.

Salvage and Subrogation

Those rights of the insured which, under the terms of the policy, automatically transfer to the insurer upon settlement of a loss. Salvage applies to any proceeds from the repaired, recovered, or scrapped property. Subrogation refers to the proceeds of negotiations or legal actions against negligent third parties and may apply to either property or casualty coverages.

Sarbanes-Oxley (SOX)

The Sarbanes-Oxley Act was signed into law on 30th July 2002, and introduced legislative changes to financial practice and corporate governance regulation. It introduced stringent new rules with the stated objective: "to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws".

The act is named after its main architects, Senator Paul Sarbanes and Representative Michael Oxley, and followed a series of very high profile scandals, such as Enron. It is also intended to "deter and punish corporate and accounting fraud and corruption, ensure justice for wrongdoers, and protect the interests of workers and shareholders" (Quote: President Bush).

The Sarbanes-Oxley Act itself is organized into eleven titles, although sections 302, 404, 401, 409, 802 and 906 are the most significant with respect to compliance (Sarbanes Oxley section 404 seems to cause most concern) and internal control.


A list of individual items or groups of items that are covered under one policy or a listing of specific benefits, charges, Credits, assets or other defined items.

Schedule F

The Annual Statement schedule which provides information on a company's reinsurance transactions.

Second Event Retention (Drop-Down)

An approach to establishing the retention level in Excess of Loss Reinsurance (usually catastrophe) under which the amount of the retention is reduced for the second (or subsequent) loss occurrence. The theory is that the Ceding Company can afford to retain a given retention level on one loss, but for additional loss(es) needs protection over the lower retention.

Second Excess

In layering, an amount up to a specified limit that remains after the first excess has been ceded and that is ceded to another reinsurer or other reinsurers. See First Excess, Layer, and Layering.

Secondary Market

Market for previously issued and outstanding securities.

Securities And Exchange Commission (SEC)

The organization that oversees publicly-held insurance companies. Those companies make periodic financial disclosures to the SEC, including an annual financial statement (or 10K), and a quarterly financial statement (or 10-Q). Companies must also disclose any material events and other information about their stock.

Securities Outstanding

Stock held by shareholders.

Securitization Of Insurance Risk

Using the capital markets to expand and diversify the assumption of insurance risk. The issuance of bonds or notes to third-party investors directly or indirectly by an insurance or reinsurance company or a Pooling entity as a means of raising money to cover risks. (See Catastrophe bonds)


See Collateral


A reinsurance arrangement where the Ceding Company provides the reinsurer with periodic reports for reinsurance ceded, giving premium, inforce, reserve, and any other information required by the reinsurer. See Bulk Administration and Bordereau.


  1. The concept of assuming a financial risk oneself, instead of paying an insurance company to take it on. Every policyholder is a self-insurer in terms of paying a deductible and co-payments. Large firms often self-insure frequent, small losses such as damage to their fleet of vehicles or minor workplace injuries. However, to protect injured employees state laws set out requirements for the assumption of Workers Compensation programs. Self-insurance also refers to employers who assume all or part of the responsibility for paying the health insurance claims of their employees. Firms that self insure for health claims are exempt from state insurance laws mandating the illnesses that group health insurers must cover.
  2. Setting aside of funds by an individual or organization to meet his or its losses, and to absorb fluctuations in the amount of loss, the losses being charged against the funds so set aside or accumulated.

Self-insured retention

Similar to a deductible but generally larger, e.g.$25,000 or $100,000. The insured tends to have more control over who handles the claim. On deductible policies, the insurance carrier pays the loss within the deductible and requires the insured to reimburse us. On SIRs, the insured pays the loss in the retention.


See Prospective Rating and Retrospective Rating.

Semi-Obligatory Treaty

see Facultative Obligitary

Set Off

See Offset Clause.


Size of a loss. One of the criteria used in calculating premiums rates.

Sewer Back-Up Coverage

An optional part of homeowners insurance that covers sewers.


A reinsurance Pool established for the Servicemen's Group Life Insurance program.

Share Reinsurance

See Pro Rata Reinsurance.

Shared Market

See Residual Market

Shore Clause

A marine cargo policy clause covering an ocean shipment against named perils while on land – necessary because the policy provides protection from warehouse to warehouse.

Single Premium Annuity

An Annuity that is paid in full upon purchase.

Sliding Scale Commission

A Ceding Commission which varies inversely with the loss ratio under the reinsurance agreement. the scales are not always one to one: for example, as the loss ratio decreases by 1%, the Ceding Commission might increase only 5%.


A Binder often including more than one reinsurer. At Lloyd’s of London, the Slip is carried from underwriter to underwriter for initialing and subscribing to a specific share of the risk. Also known as Binder. See Cover Note.

Soft Market

An environment where insurance is plentiful and sold at a lower cost, also known as a buyers’ market. (See Property/Casualty Insurance cycle)


Insurance companies’ ability to pay the claims of policyholders. Regulations to promote solvency include minimum capital and surplus requirements, statutory accounting conventions, limits to insurance company investment and corporate activities, financial ratio tests, and financial data disclosure.

Special Acceptance

The facultative extension of a reinsurance treaty to embrace a risk not automatically included within its terms.

Special Retrocession

Special retrocession by means of which the reinsurer arranges in advance the retrocession of his accepted share (possibly as a supplement to obligatory retrocession). Special retrocession normally occurs by means of the cedant giving his reinsurance 100% to the reinsurer. If the reinsurer either cannot or will not accept the whole of the reinsurance, the reinsurer arranges retrocession of the share of the risk/treaty which exceeds the reinsurer's own share before definite acceptance.

Special Termination Clause (Also Sudden Death Clause)

A Clause sometimes found in reinsurance contracts allowing one or both parties to terminate fully the contract and coverage for future occurrences upon the happening of some specified condition or event, such as the insolvency or merger of the other party, by providing shorter notice than is otherwise required to terminate the contract if such condition or event had not happened.


Difference between investment earnings rate and actual / implied rate used to accrete the reserves for discounted reserves.

Spread Loss

A form of reinsurance in which the Ceding Company pays premiums to the reinsurer and, if the Ceding Company experiences total losses in a given Year which are greater than a certain limit, the reinsurer remits the amount of the excess loss to the Ceding Company in a lump sum. The Ceding Company pays back such losses to the reinsurer over a period of Years, usually by means of increased reinsurance premiums. Thus, the Ceding Company's losses for a certain Year are "spread" over a period of Years. This type of reinsurance is seen more frequently in group insurance than in individual insurance.

Spread of Risk

  1. The selling of insurance in multiple areas to multiple policyholders to minimize the danger that all policyholders will have losses at the same time. Companies are more likely to insure Perils that offer a good spread of risk. Flood insurance is an example of a poor spread of risk because the people most likely to buy it are the people close to rivers and other bodies of water that flood.
  2. A form of reinsurance under which premiums are paid during good Years to build up a fund from which losses are recovered in bad Years. This reinsurance has the effect of stabilizing a cedant’s loss ratio over an extended period of time.


Practice that increases the money available to pay auto liability claims. In states where this practice is permitted by law, courts may allow policyholders who have several cars insured under a single policy, or multiple vehicles insured under different policies, to add up the limit of liability available for each vehicle.

Statute of limitations

A series of statutes limiting the time within which a civil action or criminal action may be brought after it arises. Time limits vary depending on the type of action involved. The unexcused failure to bring an action in time bars it forever.

Statutory Accounting Principles (SAP)

More conservative standards than under GAAP accounting rules, they are imposed by state laws that emphasize the present solvency of insurance companies. SAP helps ensure that the company will have sufficient funds readily available to meet all anticipated insurance obligations by recognizing liabilities earlier or at a higher value than GAAP and assets later or at a lower value. For example, SAP requires that selling expenses be recorded immediately rather than amortized over the life of the policy. (See GAAP accounting; Admitted assets)

Statutory Ratio

See Combined Ratio


An agreed fact in a legal proceeding. In order to save time in a trial, the parties may agree to matters so obvious or irrefutable that requiring formal proof would waste time and effort. Possible stipulations often are an item of discussion in pretrial conferences.

Stock Insurance Company

An insurance company owned by its stockholders who share in profits through earnings distributions and increases in stock value.

Stop Loss Coverage

Employers, who choose to self-fund their employee benefit plans but don't want to assume 100% of the liability for losses arising from it, purchase Stop Loss coverage. Stop Loss is an excess risk product that provides the self-funded employer protection against catastrophic or unpredictable losses. The agent and/or TPA work with the carrier to obtain the Stop Loss coverage and is the contact person between the employer and the carrier. [as offered by Medical Expense Group under Select Markets]

Stop Loss Reinsurance

A form of reinsurance under which the reinsurer pays some or all of a cedant’s aggregate retained losses in excess of a predetermined dollar amount or in excess of a percentage of premium.


Initial after-tax regulatory net income plus Target Capital

Strict liability

In tort law, liability imposed without any showing of negligence.

Strike Insurance

Insurance designed to protect employers from lost income caused by labor disruptions

Structured Settlement

Legal agreement to pay a designated person, usually someone who has been injured, a specified sum of money in periodic payments, usually for his or her lifetime, instead of in a single lump sum payment. (See Annuity)

Subject Premium

A cedant’s premiums (written or earned) to which the reinsurance premium rate is applied to calculate the reinsurance premium. Often, Subject Premium is gross/net written premium income (GNWPI) or gross/net earned premium income (GNEPI), where the term “gross/net” means gross before deducting reinsurance premiums for the reinsurance agreement under consideration, ;but net after all other adjustments, e.g., cancellations, refunds, or other reinsurance. Normally, Subject Premium refers to premium on subject business. Also known as base premium.


Literally, "under penalty." An order issued by a court commanding a witness to appear and testify under pain of punishment for contempt of court for failure to do so. A "subpoena duces tecum" (literally, "bring with thee, under punishment") is a subpoena commanding a witness to bring specified books, papers, or other tangible evidence.


The legal process by which an insurance company, after paying a loss, seeks to recover the amount of the loss from another party who is legally liable for it.

Sum Insured

  1. Maximum amount agreed upon by the parties, which will be paid by the insurer at the occurrence of the insured event and which in property insurance is determined by the value of the insured property, while it corresponds to the insurance benefit in personal insurance.
  2. Total amount of exposure for a block of business. Usually associated with the mortality business as the amount of payment due upon death.


In civil practice, an issued order commanding a defendant to appear and answer the complaint or have default judgment entered against him/her. In criminal practice, a summons is a process issued to an accused, directing appearance before the court at a specified future time in connection with the charges. Its function is to obtain a defendant's court appearance for purposes of arraignment.

Super Profit Commission

If a reinsurer retrocedes a part of his business, he will perhaps wish to earn a profit commission over and above the original profit commission, which naturally belongs to the cedant. This is called a super profit commission and in principle it is calculated in the same way as the profit commission. The formula contains in the outlay the original expenses together with super commission, if any, and the original profit commission.


A federal law enacted in 1980 to initiate cleanup of the nation’s abandoned hazardous waste dump sites and to respond to accidents that release hazardous substances into the environment. The law is officially called the Comprehensive Environmental Response, Compensation, and Liability Act.

Surety Bond

A contract guaranteeing the performance of a specific obligation. Simply put, it is a three-party agreement under which one party, the surety company, answers to a second party, the owner, Creditor or “obligee,” for a third party’s debts, default or nonperformance. Contractors are often required to purchase surety bonds if they are working on public projects. The surety company becomes responsible for carrying out the work or paying for the loss up to the bond “penalty” if the contractor fails to perform.


The excess of assets over liabilities. The financial cushion that protects policyholders in case of unexpectedly high claims. Statutory surplus is an insurer’s or reinsurer’s capital as determined under statutory accounting rules. Surplus determines an insurer’s or reinsurer’s Capacity to write business.

Surplus Lines

Property/Casualty Insurance coverage that isn’t available from insurers licensed in the state, called admitted companies, and must be purchased from a non-admitted carrier. Examples include risks of an unusual nature that require greater flexibility in policy terms and conditions than exist in standard forms or where the highest rates allowed by state regulators are considered inadequate by admitted companies. Laws governing surplus lines vary by state.

Surplus Reinsurance; Surplus Share Reinsurance

Automatic reinsurance that requires a Ceding Company to transfer (cede) and the reinsurer to accept the part of every risk that exceeds the Ceding Company's predetermined retention limit. The reinsurer shares in premiums and losses in the same proportion as it shares in the total policy limits of the risk. The surplus method permits the Ceding Company to keep for its own account small policies, and to transfer the amount of risk on large policies above its retention limit.

Surplus Relief Reinsurance

Reinsurance which increases the surplus of the Ceding Company at the inception of the transaction.

Surplus Share

A form of proportional reinsurance where the reinsurer assumes pro rata responsibility for only that portion of any risk which exceeds the company’s established retentions.

Surrender Charge

A charge for withdrawals from an Annuity contract before a designated surrender charge period, usually from five to seven Years.


The simultaneous buying, selling or exchange of one security for another among investors to change maturities in a bond portfolio, for example, or because investment goals have changed.


A method of splitting reinsurance coverage among several reinsurers.