Principles of Risk Management Chapter 6 Key Terms

Actuary

a professional who is highly skilled in mathematics and statistics

Catastrophe bonds

a specialized security that increase an insurer's capacity to provide insurance protection by transferring the risk to bond investors

Ceding commission

a commission paid to the primary insurer to help compensate for the expenses incurred in writing the business under a quota-share treaty

Ceding company

the primary insurer that initially writes the insurance

Certified Financial Planner (CFP)

designation is granted by the Certified Financial Planner Board of Standards, Inc.

Certified Insurance Counselor (CIC)

designation sponsored by the National Alliance for Insurance Education and Research

Cession

The amount of insurance ceded to the reinsurer

Chartered Financial Consultant (ChFC)

a designation for professionals who are working in the financial services industry

Chartered Life Underwriter (CLU)

A life insurance agent who has passed a series of college-level examinations on insurance and related subjects.

Chartered Property Casualty Underwriter (CPCU)

designation is a professional credentialing program for property and casualty insurance offered by the Institutes; it is earned by passing a series of rigorous examinations

Excess-of-loss reinsurance

designed largely for protection against a catastrophic loss

Facultative reinsurance

an optional, case-by case method that is used when the ceding company receives an application for insurance that exceeds its retention limit

Independent adjuster

an organization or individual that is not part of an insurance company and settles claims for a fee

Information systems

A collection of data and information used to support the management of an organization.

Insurance agent

have the authority to settle small first-party claims up to some maximum limit

Loss control

any activity that lessens the severity of loss once it occurs

Medical Information Bureau report (MIB Group)

an organization of life insurance companies; members submit to BLANK about health impairments that is disclosed on life insurance applications. This information is available upon request to other member companies if a person subsequently submits an application for life insurance.

Producers

Often agents who sell insurance are called this, especially in property/liability insurance, because "no business is produced until a policy is sold."

Production

refers to the sales and marketing activities of insurers

Public adjuster

represents the insured rather than the insurance company and is paid a fee based on the amount of the claim settlement

Quota-share treaty

the ceding insurer and the reinsurer agree to share premiums and losses based on some proportion

Rate making

refers to the pricing of insurance and the calculation of insurance premiums

Reinsurance

an arrangement by which the primary insurer that initially writes the insurance transfers to another insurer (called the reinsurer) part or all of the potential losses associated with such insurance

Reinsurance pool

A group of insurers that come together to share the risk of underwriting large policies or to cover high-risk events. This allows for risk diversification and increased capacity in the insurance market.

Reinsurer

the insurer that accepts part or all of the insurance from the ceding company

Retention limit (net retention)

an organization of insurers that underwrites insurance on a joint basis

Retrocession

A reinsurance agreement whereby one reinsurer (the retrocedent) transfers all or part of the reinsurance risk it has assumed or will assume to another reinsurer (the retrocessionaire).

Retrocessionaire

The reinsurer that assumes all or part of the reinsurance risk accepted by another reinsurer.

Securitization of risk

an insurable risk is transferred to the capital markets through the creation of a financial instrument that is often called an insurance-linked security

Staff claims representative

usually a salaried employee who will investigate a claim, determine the amount of loss, and arrange for payment

Surplus-share treaty

the reinsurer agrees to accept insurance in excess of the ceding insurer's retention limit, up to some maximum amount

Treaty reinsurance

an agreement under which the primary insurer must automatically cede to the reinsurer all business written in a certain category, and the reinsurer must accept the business.

Underwriting

refers to the process of selecting, classifying, and pricing applicants for insurance.

Unearned premium reserve

a liability item on the insurer's balance sheet that represents the unearned portion of gross premiums on all outstanding policies at the time of valuation