Property and Casualty Carriers Industry Terminology

Actuarial Indication

The rate level change suggested by actuarial analysis of losses, trends, expenses, profit load, reinsurance, and taxes to achieve target profitability. Often used to support rate filings and portfolio steering.

The indication supports a +7% rate change in commercial auto; We priced below indication due to competitive pressure; Indications rose after updating loss development factors.

Actual Cash Value (ACV)

A valuation method equal to replacement cost minus physical depreciation (sometimes interpreted as fair market value). Commonly used for property claims unless replacement cost coverage applies.

The roof was settled at ACV rather than replacement cost; ACV on the 10-year-old equipment was 40% of new; The insured bought an RC endorsement to avoid ACV deductions.

Additional Insured

A person or entity added by endorsement to receive coverage under the named insured’s policy, often for liability arising out of the named insured’s operations.

The GC required the subcontractor to name it as an additional insured; We issued a blanket AI endorsement for scheduled jobs; The claim was tendered to the vendor as our AI.

Admitted Carrier

An insurer licensed by the state to write insurance, subject to rate and form regulation, and backed by the state guaranty fund.

The retail agent prefers admitted paper for small BOPs; Being admitted means the carrier must file rates; The guaranty fund protects policyholders of admitted carriers if an insurer fails.

Aggregate Limit

The maximum total amount an insurer will pay for all covered losses during the policy term. Common in liability and some property policies.

The GL policy has a 2 million aggregate; The aggregate eroded after several premises claims; We purchased reinstatement to restore the aggregate after a cat event.

Binder

A temporary contract of insurance providing evidence of coverage before the policy is issued.

The agent requested a binder for same-day auto coverage; The binder lists limits and effective dates; Coverage bound today will be replaced by the formal policy next week.

Bodily Injury (BI)

Liability coverage for physical injury, sickness, disease, or death to a person.

The claimant alleged BI from a slip and fall; BI limits were exhausted by multiple claimants; BI and PD limits apply separately in the auto policy.

Businessowners Policy (BOP)

A standardized package policy for small and midsize businesses combining property and general liability, with simplified rating and optional endorsements.

The bakery qualifies for a BOP; We added business income to the BOP; BOP eligibility excludes certain high-hazard classes.

Catastrophe Modeling (CAT Modeling)

The use of probabilistic models to estimate frequency, severity, and spatial correlation of catastrophic perils and their loss distributions.

CAT modeling shows a 1-in-100 AEP of 150 million; We updated our view of risk after new vulnerability curves; The model drives our reinsurance purchase.

Ceded Premium

The portion of written premium transferred by the ceding company to reinsurers under treaty or facultative arrangements.

Ceded premium increased after expanding the quota share; Net written premium fell as we ceded more cat risk; The ceding commission offsets acquisition expenses.

Claims Adjuster

A professional who investigates, evaluates, negotiates, and settles insurance claims; may be staff or independent, desk or field.

The adjuster inspected the damaged property; The independent adjuster handled surge capacity after the hurricane; The adjuster reserved the claim at 50,000 pending repair estimates.

Claims-Made Policy

A liability policy triggered when a claim is made during the policy period (and after the retroactive date), typically with options for extended reporting periods (tails).

The claim fell outside the retro date on our claims-made policy; We bought a 3-year tail after policy expiration; The insured converted from claims-made to occurrence.

Commercial General Liability (CGL)

The primary liability policy for businesses, typically covering premises and operations, products-completed operations, personal and advertising injury, and medical payments.

The CGL excludes professional liability; Products-completed operations drove the loss; We added an additional insured endorsement to the CGL.

Coinsurance Clause

A property insurance provision requiring the insured to carry insurance to a specified percentage of value (e.g., 80%). Underinsurance results in a penalty on partial losses.

A coinsurance penalty applied because the building was undervalued; We waived coinsurance with an agreed value endorsement; The client raised TIV to meet the 90% requirement.

Combined Ratio

A key profitability metric equal to loss ratio plus expense ratio (and sometimes policyholder dividends). A combined ratio under 100% implies underwriting profit.

The combined ratio improved to 96%; Cat losses added 5 points to the combined; We target a sub-95 combined over the cycle.

Deductible

The amount the insured must pay out of pocket before the insurer pays for a covered loss; may be per occurrence, per claim, or percentage-based.

A 1% wind deductible applies to the hurricane loss; The higher deductible reduced premium by 12%; The policy has separate deductibles for theft and water damage.

Direct Written Premium (DWP)

Premium written on direct business by the insurer during the period, before reinsurance ceded; contrasts with net written premium.

DWP grew 9% year-over-year; Quota share reduced net written while DWP rose; We monitor DWP by state for concentration.

Earned Premium

The portion of written premium recognized as revenue for the elapsed coverage period. Used in loss ratio and combined ratio calculations.

Earned premium lagged written growth due to midterm cancellations; We accelerated earnings after a short-term policy; Loss ratio spiked as earned premium dipped.

Endorsement

A policy amendment that adds, deletes, or modifies coverage terms, conditions, or limits.

We issued an endorsement to raise limits to 5 million; The cyber exclusion endorsement applies to this class; The AI endorsement extends coverage to the landlord.

Excess and Surplus (E&S) Lines

The non-admitted market used for unique, high-hazard, or distressed risks not readily placed in the admitted market. Offers rate and form flexibility; placed by surplus lines brokers.

The risk moved to E&S after two losses; We used a manuscript form in E&S; Taxes and filings differ for E&S placements.

Expense Ratio

Underwriting expenses (acquisition, underwriting, admin) divided by earned premium. Combined with loss ratio to assess underwriting performance.

Expense ratio improved after commission changes; Scale benefits lowered G&A; We benchmark expense ratio vs peers.

Experience Modification Rate (EMR)

A factor applied to workers’ compensation premium reflecting an employer’s historical loss experience relative to expected.

The insured’s EMR dropped to 0.82; A high EMR disqualified the contractor from bidding; Safety programs helped improve the mod.

Exposure

A unit or measure of risk used for rating and monitoring, such as payroll, sales, number of vehicles, occupied square footage, or total insured value.

Exposure growth drove premium lift; We changed the exposure base from receipts to units; Telematics created new exposure metrics (miles, hard braking).

Excess of Loss (XOL) Reinsurance

A non-proportional reinsurance form that indemnifies the ceding insurer for losses exceeding a specified retention, up to a limit; can be per risk, per occurrence, or aggregate.

Our cat XOL attaches at 50 million; A per-risk XOL protects large property schedules; The aggregate XOL caps annual attritional losses.

Facultative Reinsurance

Reinsurance placed on an individual risk or policy, negotiated separately from treaties; often used for large or unusual exposures.

We sought fac support for the refinery; The facultative quote excluded explosion; Fac capacity allowed us to write the tower.

First Notice of Loss (FNOL)

The initial report of a claim by an insured or claimant, triggering claims handling workflows.

FNOL came in via mobile app at 2 a.m.; Reducing FNOL cycle time improved CSAT; The TPA receives FNOLs for our program business.

Hard Market

A market phase characterized by tighter underwriting, reduced capacity, higher rates, and more restrictive terms. Often follows adverse loss experience or capital constraints.

Property cat is in a hard market; We tightened terms with higher wind deductibles; New business hit ratios fell during the hard market.

Incurred But Not Reported (IBNR)

Estimated liabilities for losses that have occurred but have not yet been reported or fully developed. Includes pure IBNR and development on reported claims.

We increased IBNR after recognizing slower reporting; The actuary selected higher LDFs, raising IBNR; IBNR is a major component of total reserves.

Indemnity

The principle of restoring the insured to the financial position prior to the loss; also refers to payments to claimants (e.g., wage replacement in workers’ compensation).

Insurance is a contract of indemnity; Indemnity benefits totaled 200,000; The policy prohibits profit beyond indemnity.

Inland Marine

Coverage for movable property, property in transit, and specialized property classes (e.g., contractors equipment, cargo, fine arts, bailee).

The crane was insured under an inland marine floater; The cargo loss fell under our transit form; We added a theft safeguard warranty to the inland marine policy.

Insurance Services Office (ISO)

An organization (part of Verisk) that develops standard policy forms, rating rules, and advisory loss costs; also collects industry statistical data.

We adopted the new ISO cyber exclusion; ISO loss costs support our rate filing; Our forms are ISO-based with carrier-specific endorsements.

Insurable Interest

A legal or financial interest in the subject of insurance such that loss would cause economic harm; must exist at time of loss for property insurance.

The tenant has an insurable interest in improvements; No insurable interest, no claim; Lenders require proof of insurable interest.

Loss Adjustment Expense (LAE)

Costs of investigating, defending, and settling claims; includes allocated LAE (tied to specific claims) and unallocated LAE (overhead).

LAE rose due to litigation; We track ALAE separately from ULAE; Combined ratio includes LAE in the loss ratio.

Loss Development

The change in reported or incurred losses over time as claims mature; measured with development triangles and factors (LDFs).

Loss development added 4 points to the accident year; Our tail factors are too light; Development patterns shifted after claims system changes.

Loss Ratio

Incurred losses and LAE divided by earned premium, often viewed on accident, policy, or calendar year bases.

The accident-year loss ratio is 62%; Our target loss ratio allows for a 35% expense ratio; Weather added volatility to the loss ratio.

Managing General Agent (MGA)

An intermediary with delegated underwriting authority from insurers to bind coverage, issue policies, and handle some claims or premium collection.

The program is written through an MGA; We tightened oversight of MGA bind authority; The MGA exceeded loss ratio triggers under the contract.

Non-Admitted Carrier

An insurer not licensed in the state but eligible to write through surplus lines brokers; policies are not backed by the guaranty fund and rates/forms are not filed.

We moved the risk to a non-admitted carrier for flexibility; Taxes differ on non-admitted placements; The DIC policy is written on non-admitted paper.

Occurrence Policy

A liability policy triggered by events that occur during the policy period, regardless of when the claim is reported.

The loss falls under last year’s occurrence policy; We switched from claims-made to occurrence; The retro date is irrelevant for occurrence forms.

Personal Auto Policy (PAP)

The standard personal auto form providing liability, collision, comprehensive, medical payments/PIP, and UM/UIM coverages, with state-specific endorsements.

The PAP excludes livery; We raised UM limits on the PAP; A youthful driver surcharge applies under the PAP.

Policyholder Surplus

Statutory surplus (admitted assets minus liabilities) for a P&C insurer; a key solvency and capacity measure.

Strong surplus supports premium growth; Cat losses reduced surplus by 5%; RBC ratios are based on surplus and required capital.

Premium Audit

A post-term review of actual exposures (e.g., payroll, sales) to adjust auditable premiums to true risk; common in GL and WC.

The audit revealed higher payroll; We issued an additional premium after audit; The insured appealed the audit findings.

Quota Share Reinsurance

A proportional reinsurance contract where the insurer and reinsurer share premiums and losses by a fixed percentage; reinsurer pays a ceding commission.

We ceded 40% through a quota share; The ceding commission covers acquisition costs; The quota share stabilized earnings during the hard market.

Reserving

The process of estimating and recording unpaid loss and LAE liabilities, including case reserves and IBNR, using actuarial methods and judgment.

We strengthened reserves on prior accident years; The actuary selected the Bornhuetter-Ferguson method; Reserve adequacy is reviewed quarterly.

Subrogation

The insurer’s right, after paying a claim, to recover from the party responsible for the loss.

We pursued subrogation against the at-fault driver; Subro recoveries improved the net loss ratio; The waiver of subrogation endorsement barred recovery.

Umbrella Liability

A liability policy providing excess limits over underlying policies and sometimes broader coverage via drop-down for certain exposures.

The umbrella sits above the CGL and auto; We required 10 million in umbrella limits for the contract; The umbrella dropped down when the underlying excluded the claim.

Underwriting Profit

Profit from insurance operations before investment income; premium minus losses and expenses. A combined ratio under 100% indicates an underwriting profit.

We generated underwriting profit despite higher cats; Pricing and selection improved the combined; Target is a 5-point underwriting margin over the cycle.

Unearned Premium Reserve (UEPR)

A liability for the unexpired portion of written premium to be earned over the remaining policy term.

UEPR grew with strong new business; Midterm cancellations released UEPR; We test UEPR adequacy as part of premium deficiency analysis.

Workers’ Compensation

Statutory insurance covering employees for work-related injury or illness, providing medical and indemnity benefits; premiums often experience-rated.

The account’s WC class code changed; Medical severity trends pressured WC results; The EMR materially affects WC pricing.

Written Premium

Premium booked during the period for policies issued or renewed, regardless of the portion earned; basis for growth and production metrics.

Written premium rose 12% with rate and exposure; Cancellations reduced net written premium; We track written by line and channel.

Yellow Book (NAIC P&C Annual Statement)

The statutory financial statement filed by U.S. P&C insurers with the NAIC, detailing assets, liabilities, surplus, premiums, losses, and schedules.

The Yellow Book shows RBC ratios; We reviewed Schedule P triangles; Statutory results in the Yellow Book differ from GAAP.