What's inside
Core concepts of facultative and obligatory reinsurance, contracts, limits, losses and the allocation of liability.
How to read it
Use the definitions as a guide and compare them with the wording of the specific contract and the applicable law.
Reinsurance Glossary: Key Terms and Definitions
Reinsurance uses international professional terminology. This glossary helps you make sense of English abbreviations, types of contracts, clauses, premiums, limits, retentions and the way market participants interact.
How to Use the Glossary
Terms are listed in alphabetical order by their English name. Each heading gives the original name and, where possible, a short clarification. For a quick search, use Ctrl + F in your browser.
Reinsurance Terms
ADDENDUM
A document setting out in detail the agreed amendments to an insurance (reinsurance) contract.
ADJUSTMENT PREMIUM
An adjustment premium is paid after the contract has expired and represents, together with the advance premium paid, the premium required under the contract.
BORDEREAU
A detailed list of premiums or claims provided to reinsurers to inform them of losses that have arisen and risks that are covered. Bordereaux are usually prepared monthly or quarterly.
BROKERAGE
Otherwise known as broker's commission. The commission is paid by the insurer or the reinsurer to the broker for intermediary services in arranging an insurance or reinsurance contract.
BURNING COST
One of the methods of calculating the premium for non-proportional reinsurance contracts (excess of loss). It is based on the ratio of incurred losses to the cedent's net premium. The resulting average annual percentage must be multiplied by a fraction, e.g. 100/80, to obtain the premium for the reinsurers. To apply the burning cost method, multi-year loss statistics are required.
CANCELLATION
Termination of a contract before its expiry date, or of a contract concluded for an indefinite term. The contract may contain a cancellation clause setting out the conditions under which it may be cancelled by giving appropriate notice.
CAPACITY
The maximum exposure that an insurer or reinsurer can accept.
CAPTIVE
A type of insurance company established by large industrial or commercial organisations to insure their own risks. A captive arises when the potential clients of insurance companies are dissatisfied with the rates, services and so on that are offered.
CASH LOSS
A clause in a reinsurance contract under which large losses are paid by reinsurers immediately, regardless of the settlement periods stipulated in the contract.
CLAIMS CONTROL CLAUSE
A clause in reinsurance contracts stating that the cedent (the insurer) may not settle a loss without the consent of the reinsurer.
CLAIMS COOPERATION CLAUSE
A clause obliging the cedent to notify the reinsurer of any loss that may be settled under the terms of the contract. The reinsurer may, at its option, take part in settling the loss.
CO-INSURANCE
The distribution of the sums insured for a given risk among several insurers (co-insurers). Each co-insurer is bound to the insured by contractual relations.
CUT THROUGH CLAUSE
A clause under which the reinsurer may make a payment directly to the insured, bypassing the reinsured (the cedent).
DEFICIT CLAUSE
A clause used in reinsurance contracts stating that losses must be carried forward and offset by profit sharing in the following insurance year.
DEPOSIT PREMIUM
A premium paid in advance under a reinsurance contract, the adjustment of which is agreed for a later date. Minimum and deposit premium: the minimum premium is paid in the case of excess of loss contracts.
DEPOSITS RETAINED BY A CEDANT (RESERVES)
Amounts due to reinsurers under a reinsurance contract but retained by the original insurer in order to guarantee the solvency of the reinsurers.
EPI
The premium estimated by the cedent for a given period of time.
ESCAPE CLAUSE
A clause contained in reinsurance contracts that allows the reinsurer to terminate the contract for various, sometimes quite specific, reasons.
EXCESS OF LOSS
A form of non-proportional reinsurance in which the insurer limits its participation in a loss, for individual risks or groups of risks, to certain limits.
FACULTATIVE REINSURANCE
Reinsurance of individual risks on terms negotiated with the reinsurer.
FOLLOW THE FORTUNES
A clause in a reinsurance contract stating that the reinsurer shares the fortunes of the original insurer.
FOLLOW THE LEAD
A custom accepted in the reinsurance market whereby, if the leader of a reinsurance contract has agreed to changes in the contract, the other reinsurers will do the same.
FRONTING
A type of reinsurance in which an insurer accepts the insurance under its own name and then reinsures the risk in full with another insurer or reinsurer. This is done for political or legal reasons. The reason may also be the interests of the insured.
GNEPI – GROSS NET EARNED PREMIUM INCOME
The premium that serves as the basis for quoting a contract on a non-proportional basis, and for calculating the cession under other reinsurance contracts that operate for the benefit of the non-proportional contract.
GROSS PREMIUM
The written gross premium before various deductions (e.g. brokerage) are made. Once they are deducted, it becomes the net premium.
INWARDS REINSURANCE
Reinsurance activity consisting in the reinsurer accepting part of the risks ceded by the ceding insurer (cedent).
LEADING UNDERWRITER (LEADER)
An insurer or reinsurer that specialises in a given class of insurance, sets the terms of insurance or reinsurance, and is the first to take part in that insurance (reinsurance). The terms set by the leader are binding on the other participants in that insurance.
LIMIT
The maximum liability of the insurer or reinsurer under an issued policy or in respect of an event.
LINE
The proportional share of a risk accepted by the reinsurer, determining its maximum participation in any risk. The term is used in so-called surplus contracts.
MAXIMUM POSSIBLE LOSS
The maximum possible loss that could arise if the fire protection system at an enterprise failed, but the fire were put out by the fire brigade.
NON-PROPORTIONAL REINSURANCE
Types of reinsurance contracts in which insurers and reinsurers do not share losses in fixed proportions, and may not share some losses at all. The insurer covers all losses within a certain limit (the priority).
OBLIGATORY TREATY
A reinsurance contract in which the cedent undertakes to cede all risks that fall within the reinsured insurance portfolio, and the reinsurer is obliged to accept those risks.
ORIGINAL TERMS
A term used in reinsurance meaning that the reinsurance cover provided is subject to terms and rates identical to those of the original insurance.
OVERPLACEMENT
A situation resulting from the actions of a broker who has obtained the approval of reinsurers for a given risk in excess of 100%. To close the placement, the shares of the individual reinsurers must be reduced.
OVERRIDING COMMISSION
An additional commission received by the insurance or reinsurance company ceding the risk, which offsets the costs of servicing that risk.
POOL
An organisation of insurers or reinsurers formed to insure risks of a particular kind, whose members participate in agreed proportions in premiums, losses or, possibly, expenses.
PROBABLE MAXIMUM LOSS
The maximum loss that could arise if the fire protection system worked properly and the fire brigade took part in the firefighting.
PROFIT COMMISSION
An additional premium in reinsurance contracts, where profit sharing is defined as the cedent's percentage share in the reinsurer's profit.
PROPORTIONAL REINSURANCE
Reinsurance contracts in which the insurer and the reinsurer share in the given risk, the premiums and the losses in the same proportions.
QUOTA SHARE REINSURANCE
An obligatory proportional reinsurance contract under which the insurer cedes, and the reinsurer accepts, the portfolios or groups of risks listed in the contract in a fixed proportion.
RECIPROCITY
Cooperation between reinsurers consisting in a mutual exchange of reinsurance business.
REINSTATEMENT
Restoration of the original sum insured through payment of a so-called reinstatement premium. It is used in non-proportional reinsurance.
REINSURANCE PROGRAM
A combination of different reinsurance contracts (proportional and non-proportional) protecting a particular insurance portfolio of the cedent (e.g. a property portfolio may be protected by a quota share contract and a surplus contract, while the cedent's own retention may at the same time be protected by a non-proportional per-risk contract; a non-proportional per-event contract is often arranged in parallel)
RENEWAL
Continuation of a reinsurance contract.
RETENTION
The part of the risks that remains with the insurer for its own account after reinsurance cessions have been made.
RETROCESSION
The further sale of a reinsurer's risk to other reinsurers (retrocessionaires).
SCHEDULE
An appendix to an obligatory reinsurance contract setting out the detailed terms of the contract.
SIGNED LINE
The participation of reinsurers in a given reinsurance contract as confirmed by the broker. It may be lower than originally offered, as a result of so-called overplacing.
SLIDING SCALE COMMISSION
A method of paying commission by the reinsurer to the reinsured (the cedent) under a proportional reinsurance contract, the amount of which varies with the loss ratio: as the loss ratio decreases the commission rises, and vice versa, within the extreme limits (the sum of the loss ratio and the commission paid).
SLIP
An offer, or a document confirming the conclusion of a reinsurance contract.
SPECIAL ACCEPTANCE
An agreement with the reinsurer on additional cover under a reinsurance contract for a particular risk for which protection is not normally provided under the terms of the contract (because of the scope of cover or the sum insured).
STOP LOSS
The purpose of this type of contract is to protect insurers against the consequences of an excessive loss ratio resulting from the accumulation of smaller losses. In contrast to an excess of loss reinsurance contract, which protects individual risks, stop loss relates to the insurer's entire portfolio of a given class or its entire business.
SURPLUS TREATY
A type of proportional reinsurance contract in which the insurer does not cede a share of all risks to the reinsurer. For individual risks the insurer sets its maximum own participation (retention) at a certain amount per risk, and cedes the surplus to the reinsurer.
WRITTEN LINE
The percentage share of liability that a reinsurer is prepared to accept. It may be reduced to the so-called signed line.
Practical Note
When preparing a contract, you need to agree not only on the name of the mechanism but also on the scope of cover, exclusions, priority, limit, period of liability, and the procedure for notifying losses and settling accounts. If a translation differs from the original wording, the terms of the signed documents take precedence.
This material is for reference purposes. Professional practice and contract wording may differ depending on the market and the applicable law.