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HMRC internal manual

General Insurance Manual


This Glossary contains some of the terms commonly referred to in insurance. A more comprehensive dictionary of insurance should be used where a more detailed definition of a term is needed. The website of the Financial Services Authority () also contains a useful Glossary.


ABI: Association of British Insurers, the principal representative body for companies, including some foreign companies, authorised to carry on insurance business in the UK.

Acceptance: the agreement by an insurer to accept a proposal for insurance which ordinarily concludes the contract even though the policy may not be issued until later (see also notification).

Accident basis: a basis of reporting for general insurance business in the Accounting and Statements Rules, according to the calendar or accounting year in which an accident or loss occurred (compare with underwriting basis).

Accounting and Statements Rules: the requirements for making returns to the Financial Services Authority, commonly referred to as the regulatory return, to be found in the Interim Prudential Sourcebook for Insurers (see Integrated Prudential Sourcebook).

Accounting class: a category of business for which separate figures have to be given at certain points in the regulatory return made to the Financial Services Authority (some accounting classes group together several classes of general business, whilst others are a sub- division of one or more classes).

Acquisition cost: cost associated with the underwriting of new business, including commission paid to brokers and agents (and to the cedant company in the case of reinsurance)

Active underwriter: in the Lloyd’s market, an underwriter who is authorised to accept risks on his/her own account and on behalf of names in the syndicates for whom he/she acts.

Actuary: a person qualified to apply the mathematical doctrines of probability and compound interest to the statistics on which life insurance and pension business etc. are based; in the UK an actuary will normally have qualified as a member of the Institute of Actuaries.

Adjuster (loss): an independent professional individual who is engaged by insurers to settle large or complex claims.

Agent (insurance): a person who introduces insurance business to the insurer, in law an insurance agent is agent, if at all, for the prospective policy holder although remunerated by the insurer; the term is also used of the employees of an insurance company who seek business for the company.

Aggregate excess of loss: a form of excess of loss reinsurance which indemnifies the ceding company against the amount by which the ceding company’s losses incurred during a specified period exceeds either a predetermined sum or a percentage of the premium income for the class of business concerned; also known as stop loss or excess of loss ratio reinsurance.

Alternative Risk Transfer: methods of transferring insurance risk, other than by conventional reinsurance.

Annual basis: accounting for general insurance business whereby a result is determined at the end of the accounting period reflecting the profit or loss from providing insurance cover in that period (compare with fund basis).

Arbitration: an alternative to litigation for the settlement of insurance disputes; contracts often specify the place of arbitration in the event of a dispute.

Assessor: an independent professional who advises and negotiates on behalf of policyholders on the settlement of their claims.

Assignment: the transfer of rights under an insurance policy to a third party, often as security for a loan, in English law, obligations under an insurance policy may not normally be assigned without the consent of the insured, such a transaction being known as novation.

Assurance: a term commonly used to distinguish insurance business providing benefits related to the duration of human life from other types of insurance (for practical purposes the terms assurance and insurance are interchangeable).

Average: the clause which protects an insurer against the undesirable effects of under-insurance, indemnity being scaled down in the proportion that the sum insured was less than the true value of the property.


Benefit: an amount payable by an insurer as a consequence of liabilities assumed under an insurance contract.

Bordereau: information submitted by a cedant to a reinsurer giving details of individual risks insured under a reinsurance treaty.

Bornhuetter Ferguson: a method of claims reserving for general insurance, similar to chain ladder technique, which involves setting an initial expected loss for the class of business.

Broker: a professional adviser who assists a client to obtain the insurance cover he/she needs; although strictly an agent for the insured, the broker is remunerated by way of commission from the insurer.

Brokerage: the commission received by a broker or other intermediary for placing insurance risks.

Burning cost: a method of calculating the premium in non-proportional reinsurance, in particular excess of loss and stop loss reinsurance, whereby the premium is directly related to the insured’s claims experience; the reinsurer reviews the cedant’s claims experience to ascertain what proportion of premium income would have been “burned up” by the reinsurance claims.


Capital redemption: business other than life insurance whereby in return for one or more premiums a sum or series of sums is to become payable to the insured in the future.

Captive insurance company: a company whose business is wholly or mainly derived from a company or group of companies of which it is usually a subsidiary or associated company.

Case reserve: reserves for outstanding claims built up on a case by case basis with the amount likely to be paid out on each claim being separately estimated.

Catastrophe: an event leading to substantial losses, such as an explosion, hurricane or earthquake.

Catastrophe insurance: a form of excess of loss reinsurance under which the ceding insurer is indemnified, subject to a specified retention and an over-riding limit, against an accumulation of losses arising from a catastrophic event (for example, an earthquake or hurricane).

Cedant: the company which cedes the business covered by a reinsurance contract.

Cedant’s commission: the commission paid by a reinsurer to the ceding company, in recognition of the acquisition costs borne by that company.

Cede: to obtain reinsurance cover for insurance business, the company obtaining reinsurance is said to “cede” the business in question.

Certificate of insurance: a document certifying that an insurance contract exists (usually met where there is a legal obligation to insure, for example, motor insurance which complies with the terms of the Road Traffic Act).

Cession: (1) in reinsurance, the act of ceding business to a reinsurer, (2) a block of business so ceded.

Chain ladder: the traditional technique of reserving for future claims in general insurance business which compares the emergence of claims year by year for each underwriting year, the relevant data being set out in triangular arrays (whence the alternative term triangulation).

Claim: invocation of a right to a payment under a contract of insurance; also the amount set aside in the accounts of an insurers respect of payments made or anticipated.

Claims handling expenses: expenses incurred in negotiating and settling claims, including the direct expenses of the claims department (loss adjusters’ fees, court fees, etc.) and any part of general administration expenses associated with the claims function.

Claims made: a term referring to liability policies covering all claims notified in the policy period, regardless of the time of the occurrence (contrast losses occurring).

Class: a category of insurance business, as set out for regulatory purposes in Schedules 1 (general business) and 2 (long term business) to the Regulated Activities Order (Contracts of Insurance).

Closed line: the amount for which an insurer becomes liable in the event of a slip being over- subscribed (see written line).

Cohort: a body of claims, for example, claims grouped by accident year, report year or underwriting year.

Co-insurance: the insurance, usually of large risks, by two or more direct insurers as a means of spreading the risk; also used in North America to describe certain types of reinsurance.

Commission: the remuneration paid to an agent or broker for the introduction of business, usually in the form of a percentage of the premium (see also cedant’s commission and contingent commission).

Composite: a company authorised to carry on both long term and general insurance business.

Contingent commission: an amount payable to a broker or ceding company, in addition to the normal percentage commission, calculated as a percentage of the insurer’s or reinsurer’s net profit on the business after allowing for overheads; also known as profit commission.

Contribution: the amount paid by each insurer in respect of a loss where two or more insurers cover the same insured in respect of the same risk, this division of a loss between insurers arises from the principle of indemnity and ensures equitable distribution of losses between insurers.

Cover note: a document issued as evidence of a contract of insurance, pending the issue of a policy.


Damages: financial compensation for loss suffered.

Debt: a device the effect of which is to reduce the amount payable under a life policy effected on a sub- standard life in the case of death from a specified cause, or from natural causes as opposed to accidental death.

Deductibles: an amount which the insured is prepared to, or has to, bear on any one claim: when the loss exceeds the deductible only the excess is recoverable under the policy (see also excess and retention).

Deposit back: in reinsurance, a deposit of the whole or part of the premiums paid by a cedant company with that company as surety for payment by the reinsurer (also called treaty deposit).

Development year: (1) in one year accounting, in relation to any underwriting year, any year or years following the end of that year until the claims for that year have been run off, (2) in general business funded accounting the year or years between the underwriting year and the closing of the account.

Direct insurer: an immediate insurer of a risk, as opposed to a reinsurer who insures derivative risks, that is the risks assumed by a direct insurer.

Directive society: a friendly society which is subject to the provisions of the EC Insurance Directives, as implemented in UK law.

Discounting: a term used to describe adjustments made to general business reserves so that they reflect the present value of the future contingent liabilities; such an adjustment may be made for accounting purposes, and may in certain circumstances be required for tax purposes where the reserves are initially calculated by reference to the likely ultimate cost of settlement after taking into account monetary inflation, and also the tendency for court awards for damages to increase by more than the rate of inflation; the adjustment is usually made by discounting the ultimate cost of settlement by reference to a suitable rate of interest, thus reflecting the time value of money.

Distribution network: the means by which a direct insurer markets its products to prospective policy holders (for example, agents, brokers, branches).

D & O: Directors’ and Officers’ liability.


Earned premium: that part of an insurance premium receivable which is attributable to the period of cover which has already gone by.

Endorsement: any writing on a policy, in addition to the original wording, which changes the terms of the contract, or any rider additional to the main text.

Equalisation provision: an amount set aside out of past or current underwriting profits to meet future underwriting losses, in particular losses arising from claims due to the occurrence of events of an exceptional nature, that is events not normally occurring every year.

Escalation: provision for automatic increases on a defined basis in premiums and sums insured.

Estimated maximum loss (EML): an estimate of the monetary loss which could be sustained by insurers on a single risk as a result of a single fire or explosion considered by the underwriter to be within the realms of possibility (an expression used only in fire, explosion and material damage policies).

Excess: the first part of the cost of a claim which the insured or reinsured has to bear in accordance with the terms of the policy.

Excess of loss: a form of non-proportional reinsurance under which the reinsurer agrees to indemnify the cedant for losses in excess of a specified amount (the cedant’s retention), either in respect of each risk or for claims in aggregate arising from a particular occurrence.

Excess of loss ratio: see stop loss.

Exclusion: a peril or contingency specifically excluded from the cover afforded by a policy.

Ex gratia: without legal obligation.

Experience refund: a refund of premiums made to the insured when the claims payable under the contract are at a lower level than anticipated by the insurer.


Facultative obligatory treaty: a contract for reinsurance whereby the ceding company may cede risks of any agreed class which the reinsurer must accept if ceded

Facultative reinsurance: the reinsurance of risks on an individual basis (contrast treaty reinsurance).

Financial insurance/reinsurance: a contract which is in form a contract of insurance or reinsurance and under which the insured ultimately recovers the premiums paid plus the interest earned on their investment less an amount designed to cover the insurer’s or reinsurer’s expenses and profit, the time value of money thus entering explicitly into the calculation of the premiums charged; the financial element of such contracts often does not involve the transfer of any underwriting risk so there is doubt whether they are in law contracts of insurance (see also finite risk insurance).

Financial Ombudsman Service: an independent organisation set up under the Financial Services and Markets Act 2000, covering firms and activities regulated by the Financial Services Authority, which replaced a number of former complaints handling schemes.

Financial Services and Markets Act 2000: the Act which created a unified regulatory framework in the UK for financial services, including insurance, under which functions and powers are conferred on the Financial Services Authority.

Financial Services Authority: an independent body that regulates the financial services industry in the UK; it was set up by the Financial Services and Markets Act 2000 and is accountable to Treasury Ministers; it is financed by the financial services industry; its statutory objectives are to maintain confidence in the financial system, promote public understanding of the financial system, secure appropriate degrees of consumer protection for consumers, and reduce financial crime.

Financial Services Compensation Scheme: a statutory fund of last resort for customers of regulated firms, set up under the Financial Services and Markets Act 2000.

Finite risk insurance/reinsurance: general business contracts which include both underwriting risk and elements of financial insurance/reinsurance.

Follow the fortunes: a clause in reinsurance contracts under which the reinsurer is committed to following the decisions on claims made by the direct insurer.

Free reserves: the excess of the value of an insurer’s assets over the sum of its liabilities and its minimum solvency margin.

Friendly society: (1) an unincorporated association set up under the provisions of the Friendly Societies Act 1974, or similar earlier legislation, and carrying on certain types of insurance business allowed by that Act; (2) an incorporated society set up under the provisions of the Friendly Societies Act 1992 and allowed to carry on a wider range of insurance and other financial activities than is permitted under the 1974 and earlier legislation.

Fronting: an arrangement whereby one insurer agrees to accept business on behalf of others, or to cede the business to others; such an arrangement may be used in markets where the fronting company is well established and finds it easier to obtain business than the companies for which it agrees to front, or to conceal the identity of the company to which the business is being channelled.

FSA: see Financial Services Authority.

FSA Handbook: the Financial Services Authority’s handbook of rules and guidance which contains regulatory material relating to the financial services industry.

FSMA 2000: see Financial Services and Markets Act 2000.

Fund: in funded basis, the balance of premiums received less claims and expenses paid in respect of business accounted for on a two or three year basis the profits of which have not been struck.

Funded basis: accounting for general insurance business on the basis that premiums, claims and expenses are related to the underwriting year in which the policy incepts and recognition of profits is deferred until a subsequent accounting period, receipts and payments being carried forward in a fund; not permitted with effect for accounting periods beginning on or after 1 January 2004.


GAD: Government Actuary’s Department.

General insurance: the classes of insurance business set out in Schedule 1 to the Regulated Activities Order and consisting of various types of indemnity insurance, as distinct from long term insurance (including life insurance).

Gross retention: the total limit of liability accepted by an insurer together with quota share reinsurers on an individual risk (also known as “gross line”).


Hazard: a condition which may create or increase the likelihood of a loss arising from a given peril.


IARD: incendie, accidents et risques divers; meaning fire, accident and other risks, the French equivalent of general insurance.

IBNR: incurred but not reported, referring to potential claims where the incident giving rise to a claim has or may have occurred but has not been reported to the insurer or reinsurer.

Inception: the coming into force of an insurance contract.

Incurred loss: (1) in relation to the totality of an insurer’s general insurance business, or a given class of such business, the claims paid in a given year less the claims reserve at the beginning of the year plus the claims reserve at the end of the year; (2) in relation to a cohort of claims originating in a given policy year or accident year the amounts paid to date on settled or partly settled claims plus the reserve for open claims (that is, excluding the BNR element).

Incurred loss ratio: the ratio of losses incurred to premiums earned, expressed as a percentage.

Indemnify: to provide indemnity.

Indemnity: security against financial loss, a policy of indemnity is designed to place the insured in the same financial position as he/she would have been in had the insured peril not occurred.

Indemnity commission: commission paid to an agent in advance but subject to the condition that it shall be repaid if the premium by reference to which it is calculated is not paid by the policy holder, for example, because the policy is allowed to lapse.

Independent financial adviser (IFA): an intermediary who provides potential investors and policy holders with advice on a range of products from different companies (contrast tied agent).

Index clause: see stability clause.

Insurable interest: a legal or equitable financial interest, in property or in the happening of some event; such an interest is essential for the validity of a contract of insurance; in life insurance the policy holder must have a financial interest in the life assured at the time the policy is issued.

Integrated Prudential Sourcebook (‘PRU’): the part of the FSA Handbook that contains most of the rules that must be followed by insurers in maintaining adequate financial resources; some material applicable to insurers is in another part of the FSA Handbook, the ‘Interim Prudential Sourcebook for Insurers’ (‘IPRU(INS)’).

Issued and renewed: a term used in accounting for excess of loss (reinsurance) treaties whereby all claims under policies issued or renewed in the treaty year are covered, no matter in what year they may occur; the reinsurer is at risk until all policies covered by the treaty for that year have expired and all losses have been settled.


Layer: a term used in mainly in reinsurance to denote a stratum of cover, for example, claims between £10,000 and £50,000 (which might be expressed as £40,000 excess of £10,000); insurance cover may be arranged in a number of successive layers, with different layers being covered by different insurers or reinsurers.

Leading underwriter: in the Lloyd’s market, one of the experts in a particular type of business; a broker seeing cover presents the slip in the first place to a leading underwriter who sets the premium and signifies the extent of participation in the risk by syndicates on whose behalf he/she is authorised to accept risks; other underwriters are obliged to follow the lead as regards the rate of premium.

Line: (1) individual class or type of insurance business; (2) in reinsurance, an amount equal to the ceding company’s retention (a proportional treaty may have a total capacity expressed as X lines of which a reinsurer’s share may be Y lines).

LMX: London market excess of toss (a type of reinsurance).

Long tail business: general insurance business characterised by lengthy delay between the period of cover and either the emergence or settlement of claims, or both (contrast short tail business).

Long term business: the classes of insurance business set out in Schedule to the Regulated Activities Order and characterised by the long term nature of the contracts; for the most part this business comprises various types of life insurance, annuity and pension business, together with capital redemption business and permanent health insurance.

Loss: (1) event giving rise to a claim, (2) financial disadvantage incurred by the insured as a result of an adverse contingency; (3) cost of settlement of a claim (4) in the term underwriting loss, an excess of amounts payable over amounts receivable (in the usual accounting sense) referable to underwriting.

Loss adjuster: an independent expert who negotiates claims settlements as an intermediary between the insurer and the insured.

Loss assessor: see assessor.

Losses occurring: a basis that applies to most liability insurance, in which the trigger for liability is a loss occurring in the policy period, regardless of the time of negligence or the date of claim (contrast claims made).

Loss event: the total losses to the ceding company or to the reinsurer resulting from a single cause such as a storm or flood, subject to any time limitations imposed by the reinsurer.

Loss portfolio: an amount payable by a reinsurer to a cedant in consideration of the release of the reinsurer from all or part of the liability arising under a reinsurance contract in respect of claims incurred prior to a specified date (see also outstanding claims portfolio and premium portfolio).

Loss portfolio reinsurance: a type of reinsurance whereby a reinsurer agrees to indemnify the cedant for all claims outstanding in a particular type or class of business, or the totality of the insurer’s business.

Loss ratio: the proportion of claims paid or payable to the premiums earned or written.

Loss ratio reinsurance: see stop loss.

Loss reserve: reserve or provision in accounts in respect of claims which have not been settled.


Managing agent: at Lloyd’s, the person (individual or corporate) who manages a syndicate, conducts the underwriting, invests syndicate funds and prepares syndicate accounts.

Margin of solvency: see solvency margin.

MAT business: marine, aviation and transport business (classes of general insurance)

Material fact: a fact which influences a prudent underwriter in deciding whether to accept or decline a risk, and in determining the rate of premium or the imposition of any special conditions.

Maximum probable loss (MPL): the largest loss thought probable under an insurance policy; normally applied to material damage risks where the total sum insured is not considered to be at risk from one loss event: also referred to as probable maximum loss (PML).

Minimum solvency margin: the solvency margin which an insurance company is required by regulatory legislation to maintain; failure to maintain the required margin leads to intervention by the regulators and possibly to a ban on taking on new business

Moral hazard: a factor arising from the character or circumstances of the policy holder, including carelessness or the nature of the business, which may increase the risk assumed by the insurer.

Mutual company: a company without shareholders which carries on business on a mutual basis, that is in such a way that the policy holders are entitled to the surplus arising from the business (contrast proprietary company).


Name: an underwriting member of Lloyd’s.

Negligence: the omission to do something which a reasonable person, guided by those considerations which ordinarily regulate the conduct of human affairs, would do; or the doing of something which a prudent and reasonable person would not do.

Non-proportional reinsurance: any form of reinsurance which is not proportional reinsurance.

Notification: usually in the sense of the notification by an insurer of acceptance of a proposal, and an essential element of acceptance unless specifically waived.

Novation: a process whereby a new contract is substituted for an existing contract, the latter being cancelled; such a process requires the agreement of all parties to the original contract.


Operative clause: defines the class and nature of business covered by a specific reinsurance treaty.

Original terms: reinsurance granted on the same conditions and the same rate of premium as the original insurance.

Outstanding claims portfolio: an amount payable by a cedant to a reinsurer in consideration of the reinsurer accepting liability in respect of all or part of claims incurred and arising prior to a specified date.

Overriding commission: an allowance paid to a ceding company over and above the acquisition cost to allow for additional expenses.


Package policy: a policy covering several different types of insurance.

Paid-up policy: a policy kept in force for a reduced sum assured after the premiums have ceased prematurely; a fully paid-up policy is one remaining in force after payment of all the premiums due under the terms of the policy.

Peril: the actual or potential cause of loss.

Permanent health insurance (PHI): insurance, on a group or individual basis, having a duration of at least five years and providing a benefit of a fixed amount or proportion of earnings for individuals prevented from working by sickness, accident etc.

Person assured (or insured): the policyholder or person effecting a policy (not necessarily the same person as the life assured or the beneficiary).

Personal lines: insurance bought by individuals for their personal insurance needs, for example, private car, household, holiday etc.

PHI: permanent health insurance.

Physical hazard: risk associated with the subject matter of insurance.

PI: professional indemnity (insurance).

P & I Clubs: Protection and Indemnity Clubs; mutual insurance associations carrying on MA T business whose membership is composed of UK and foreign ship owners.

PMI: private medical insurance.

PML: probable maximum loss, see maximum probable loss.

Policy: any document containing written evidence of the contract between the insurer and the insured; if the full terms of the contract are located in more than one document, all relevant documents taken together constitute the policy.

Policy loan: a loan made by a life insurer to a policy holder on the security of the surrender value of the policy.

Pool: a group of insurers through which particular risks are insured, normally by each insurer assuming an agreed proportion of the risk, premiums, losses and expenses being shared in the same proportion (see also reinsurance pool).

Portfolio: (1) an identifiable and usually homogeneous group of risks for which an insurer has assumed liability; (2) a parcel of investments associated with such a collection of risks.

Portfolio commission: an additional commission based on the results of business covered by a reinsurance treaty (see contingent commission).

Premium: sum paid by the policy holder to the insurer as consideration for the assumption of risk by the insurer (originally the additional interest paid on a bottomry bond as consideration for the loan being written off in the event of the loss of the cargo or vessel on which the loan was secured).

Premium portfolio: an amount payable by a reinsurer to a cedant in consideration of the release of the reinsurer from all or part of the liability arising under a reinsurance contract for claims occurring after a specified date under all or certain underlying contracts incepting prior to that date.

PRH: product related hazard.

Profit commission: at Lloyd’s, remuneration received by an underwriting agent based on the results of a year’s underwriting (see also contingent commission).

Property and casualty insurance: the North American term for general insurance.

Proportional reinsurance: any form of reinsurance whereby the reinsurer participates proportionately in the premiums receivable and claims payable by the cedant.

Proposal: an application by a person (known as the proposer) for insurance, generally by presentation of a printed form, and constituting an offer in contract law; the proposer becomes the insured when the application has been accepted and the contract brought into being.

Proposal form: standard form used in most classes of business to elicit basic information about the proposer and the risk for which cover is sought.

Proposer: a person who makes a proposal for insurance.

Proprietary company: company owned by shareholders (contrast mutual).

Prospectus: a form giving details of the cover available under a policy, optional additional benefits, rebates etc, often printed as part of the proposal form.

Provision: see reserve.

PRU: see Integrated Prudential Sourcebook.

Pure reinsurer: an insurer who carries on only reinsurance.


Quota share: a form of proportional reinsurance indemnifying the ceding company against a fixed percentage of each risk.


RAO: Regulated Activities Order.

Rate per cent: a rate per £100 at which premiums are charged; a premium for a sum assured of £50,000 at 25p per cent is £125.

Reciprocity: the practice of requiring inwards reinsurance business in exchange for reinsurance ceded, the cedant only offering a share of its reinsurance to a reinsurer able and willing to offer suitable reinsurance business in return.

Regulated Activities Order: regulations (SI2001/544) made under the Financial Services and Markets Act 2000 that specify the activities, including insurance, regulated by the Financial Services Authority.

Regulatory return: see Accounts and Statements Rules.

Reinstatement: re-establishment of the sum insured to its original figure after it has been reduced by the amount of a loss payment, usually in return for the payment of an additional premium.

Reinsurance: the insurance of the risks assumed by or potential losses of another insurer (the direct insurer) whereby the latter covers a proportion of the risks assumed or the eventuality of atypically large losses (see also retrocession).

Reinsurance pool: a group of reinsurers who agree to share certain types of business in specified proportions (such a pool is sometimes operated by way of cession and retrocession).

Reinsurer: an insurer who accepts insurance from another insurer or reinsurer

Renewal: the continuation of cover beyond the original term of the policy (usually involving, in strictness, a new contract).

Renewal notice: the notice sent to the policy holder to remind him/her that an insurance is due for renewal.

Reserve: an amount built up in the early years of a group of policies, when the level of premiums is greater than required to meet claims, expenses etc, and used to pay claims in later years when the premiums are less than required; often also referred to as a provision (see technical provisions and equalisation provision).

Retention: the maximum liability an underwriter is prepared to assume on his/her own account; the proportion of risk retained by a ceding company.

Retrocedant: a reinsurer who cedes business.

Retrocede: to cede a risk assumed under a reinsurance contract.

Retrocession: the reinsurance of reinsurance business, providing cover for the business in excess of that which the reinsurer wishes to retain for its own account.

Retrocessionaire: the reinsurer who accepts retroceded business.

Risk: (1) the possibility of adverse deviation from the predicted outcome of underwriting; (2) the peril or adverse contingency insured.

Risk excess: an excess of loss reinsurance applicable to claims arising on individual risks.

Run-off: the continuing liability of an insurers respect of a block of past business, for example where a reinsurance contract has been terminated but a liability remains in respect of risks or cessions accepted during the period of the agreement, or where an insurer has ceased to accept new business but has not settled all outstanding claims arising on old business.


Short tail business: types of general insurance business in which claims are generally reported and settled within a short time after the occurrence (contrast long tail business).

Signed line: same as closed line (see also written line).

Sliding scale commission: a commission adjusted under a formula whereby the actual commission varies inversely with the loss ratio, subject to specified maximum and minimum.

Slip (Lloyd’s): a document used in the Lloyd’s market which sets out the details of the risk for which cover is sought and is presented by the broker to the underwriter, the latter signifies on the slip the extent of his/her intended participation in the risk and, in the case of the leading underwriter, the premium to be charged.

Solvency margin: the excess of an insurance company’s assets over its liabilities, both being valued in accordance with the relevant regulatory legislation (see also minimum solvency margin).

SORP: see Statement of Recommended Practice on Accounting for Insurance Business.

Special perils: additional risks frequently added to a commercial fire policy, either individually or as a group

Stability clause: a clause used in reinsurance contracts which is intended to protect the relative value of cover from inception, thus taking into account the effects of inflation on claims (also known as index clause).

Statement of Recommended Practice on Accounting for Insurance Business (SORP): the accounting standard agreed by the Accounting Standards Board and the ABI, which reconciles general accounting practice, the requirements of Schedule 9A of the Companies Act 1985 and the regulatory requirements of the Financial Services Authority.

Stop loss: a form of reinsurance under which the reinsurer reimburses the cedant’s losses in any year to the extent by which they exceed a specified loss ratio or amount, subject to some specified limit (see also aggregate excess of loss cover and loss ratio reinsurance).

Structured settlement: a method of settling claims in respect of damages for personal injury under which the casualty insurer, instead of paying a lump sum to the plaintiff, makes a series of periodic payments which are usually funded by the purchase of an annuity on the life of the injured person.

Subrogation: the right of one person to stand in the place of another and avail him/herself of the rights and remedies of that other person, whether already enforced or not (for example, the right of an insurer who has indemnified a claimant to seek compensation from the person who caused the insured damage).

Sum insured: the sum expressed in a policy as the amount payable on the occurrence of the contingency insured against, or as the maximum amount of the insurer’s liability under a contract of indemnity.

Surplus: in reinsurance, the amount by which the gross sum insured accepted by a ceding company exceeds the cedant’s own retention.

Surplus reinsurance: a form of reinsurance under which the cedant decides the limit of the liability which it wishes to retain on any risk or class of risk, this being its maximum retention; the surplus above the retention is allotted to reinsurers; the limit of the liability which may be ceded to the reinsurer is normally expressed in term of lines (that is multiples of the cedant’s retention).

Syndicate: a group of Lloyd’s names on whose behalf insurance is accepted by an underwriting agent; a name may be a member of more than one syndicate; the members of the syndicate accept risks severally but not jointly.


Takaful: Islamic form of insurance where participants come together to share risk on a co-operative basis in a manner that does not contravene Shari’a law. May be mutual, but some more complex non-mutual varieties exist.

Technical provisions: the provisions and reserves shown in the regulatory return in respect of general insurance; the term is also used of the equivalent accounts provisions/reserves.

Third party liability: liability incurred by the insured to another party but excluding contractual liability.

Time & distance: a form of reinsurance that includes a timing risk, that is the risk that the reinsurer might become liable before sufficient funds had accumulated to meet the liability; an early form of financial reinsurance and arguably not insurance at all.

Tort: a civil breach of a personal duty owed to one’s fellow citizens in general, as opposed to breach of contract; the injured person has a potential right to damages from the wrongdoer (the tortfeasor).

Total loss: the complete loss or destruction of all the property insured under a particular policy.

Treaty deposit: see deposit back, meaning (1).

Treaty reinsurance: a type of reinsurance under which the reinsurer agrees in advance to accept a specified proportion of all risks or losses falling within a category defined in the contract (contrast facultative reinsurance).

Treaty year: a period of twelve months covered by a reinsurance treaty or contract and used to determine the risks covered by the contract.

Triangulation: see chain ladder.


Uberrima fides: see utmost good faith.

Ultimate net loss: the loss suffered by the insurer for his net account after all reinsurance or other recoveries have been made.

Under-insurance: the situation where the sums insured represent less than the total value of the property at risk.

Underwriter: (1) an insurer, anyone who accepts an insurance risk (from the act of writing one’s name under the details of the risk set out in the policy); (2) an individual who, on behalf of an insurer, determines the acceptability of an insurance or reinsurance risk and specifies the terms on which the risk can be accepted; (3) in the Lloyd’s market, an active underwriter is the person who runs a syndicate and accepts risks on behalf of the members of the syndicate.

Underwriting agent: (1) a person who is authorised under a binding agreement to accept insurance risks on behalf of another person; (2) (same as active underwriter) more particularly, a person authorised to fulfil this function on behalf of underwriting members of Lloyd’s; most Lloyd’s syndicates are managed by an incorporated underwriting agency which employs the underwriters and other professional staff.

Underwriting basis: a form of reporting for general insurance business used in the Accounting and Statements Rules, according to the underwriting year in which the business incepts (compare with accident basis).

Underwriting member (of Lloyd’s): an individual who assumes risks in the Lloyd’s market; underwriting members, or names, are grouped in syndicates; they may not accept business except through underwriting agents or active underwriters.

Underwriting risk: the possibility that the amount which a general insurer will have to pay to indemnify policy holders in respect of the perils covered by the insurance will exceed the amount anticipated in calculating the premiums (in life insurance this definition only applies to the mortality risk).

Underwriting year: the accounting year of an insurer or Lloyd’s syndicate to which insurance business relates, usually determined by the date of inception; reinsurance contracts may be written by reference to the insurer’s business of a particular underwriting year, and will remain in force until all the claims referable to that underwriting have been settled.

Unearned premium portfolio: an amount payable by a cedant to a reinsurer in consideration of the reinsurer accepting liability for all or part of the liability arising under a contract of reinsurance for claims occurring after a specified date under all or certain underlying contract incepting prior to that date.

Unearned premiums provision: an amount representing a pro rata spread of premiums (sometimes less acquisition costs) carried forward from one accounting period to the next in recognition of the unexpired period of contracts remaining at the balance sheet date.

Unexpired risks provision: (1) a provision for claims expected to arise in respect of the unexpired period of contracts in existence at the balance sheet date; (2) the excess of the amount of unexpired risks over the unearned premiums.

UPP: see unearned premiums provision.

URP: see unexpired risks provision.

Utmost good faith: (uberrima fides) a duty laid on the parties to an insurance contract, especially the proposer, of greater force than ordinary good faith, requiring full disclosure of all facts which are or might be material to the contract; this duty subsists throughout negotiations over the terms of the contract and until the contract has been concluded, and may be maintained during the period of the contract if the policy so provides.


Working cover: an excess of loss reinsurance in which loss frequency is anticipated because the specified limits fall well within the insurer’s underwriting limit for any one risk or loss occurrence.

Written line: the maximum amount of insurance that an insurer has agreed to accept when initialling a slip; it may be more than the amount actually insured by an individual insurer if the broker obtains more than 100% cover for the risk, in which case each insurer’s liability will be reduced proportionately (written down) to a closed line or signed line.