See also

Glossary of Key Terms and Initials
This glossary is made up of definitions (some very old[1]) from a range of sources that I have been given over a period of some years. – the core ones probably being Lloyd’s, CII, Hiscox, Guy Carpenter, Communicade and many of my own.
As in anything, different people can see different words in different contexts

Although there is a good cross-section of words and definitions, there is likely to be more emphasis on Reinsurance (my background).

Where a word or words are shown in bold there should be(!) a further definition of that particular word.

THIS IS DEFINITELY WORK IN PROGRESS (seems everlasting), especially towards the higher letters in the Alphabet. Any corrections, additions greatly appreciated – please Contact Me

[1] e.g. Insurance Institute of Australia (1985). Glossary of Insurance Terms – Insurance Industry Training Council 1997

1) An advice to the insurer or insurers of the basic details of a risk that has been placed under a Binding Authority
2) A statement on a Proposal Form signed by a proposer affirming certain things
3) A periodical statement under a Policy with an adjustable premium

DECLINATUREThe refusal of an insurer or reinsurer to accept the offer made to them

DEDICATED VEHICLE (LLOYD’S)A Lloyd’s operation where a Corporate Member only participates on one or more Syndicates that are managed by the same Managing Agent or group of Managing Agents. The term is often used interchangeably with the expression Aligned Member.

DEDUCTIBLE/EXCESS The amount of a claim which the (re)insured has to pay before (re)insurers pay. e.g. Claim $5,000 Deductible $1,000 – Amount recoverable $4,000
Deductible (also Excess or Priority or often in reinsurance Retention): A fixed monetary amount which the (re)insured is prepared to pay on any one claim before (re)insurers pay . When the deductible (excess or retention) is exceeded, only the amount in excess of that deductible is recoverable from the (re)insurance contract.
e.g. Deductible 1,000,000 Original Claim 1,2000,000, Amount collectable 200,000

DEFERRED ACQUISITION COSTS Acquisition costs relating to the unexpired period of risk of a policy which are carried forward from one accounting period to the next.

DEFICIT CLAUSE (REINSURANCE) Clause providing for the carry forward or transfer of debit or loss under a Treaty from one period to another (usually found in a Profit Commission)

Notice given under a continuous contract that formally ends the relationship – most likely to be a Proportional Treaty – see also Provisional Notice of Cancellation

Passing Underwriting Authority to another party – see Binding Authority and Line Slip


DEPOSIT PREMIUMA premium that is payable at the inception (start) of an insurance or reinsurance contract and in respect of which an adjustment premium (usually an additional premium) is due depending on the performance of the contract or possibly, the amount of business/risk that has been covered/ceded thereunder. See also Minimum Premium/Minimum and Deposit Premium

DEPRECIATIONThe decrease in the value of an item due to age, use or wear and tear. Such devaluation is not covered under a contract of indemnity. However an insurer may agree to provide cover on “a new for old” basis which represents a modification of the principle of indemnity and avoids the need to determine rates and amounts of deprecation when settling claims.

DETERIORATION IN RESERVESWhere the reserves of an insurer or reinsurer for prior years are insufficient to meet the estimated liabilities of one or more loss exposures and therefore require to be increased.

DIFFERENTIAL TERMS See Non-Subscription Placement

DIRECT BUSINESS – (Re) Insurance placed with a (Re)insurer directly and not through an intermediary.

DISCLOSURE: The duty of the insured and his broker to tell the underwriter every material circumstance before acceptance of the risk.

DISCOUNTING The reduction to a present value at a given date of a future cash transaction at an assumed date by the application of an appropriate discount factor. e.g. I expect to pay out a claim in 4 years time at $10,000. I anticipate that I will earn 5% interest on the $10,000 in reserve today. Discounted value $9,500 ($10,000 less 5% ($500).

DISCOVERY PERIOD: The time allowed the insured after termination of certain policy provisions to discover that he has sustained a loss which occurred during the period covered by the contract.

DUTY OF ASSURED CLAUSE: This appears in the Institute Cargo Clauses It directs the attention of the Assured, his agents, etc. to the duty to take reasonable measures to avert or minimize any loss which is recoverable under the policy; also to ensure that all rights against carriers and others are properly preserved and exercised. Underwriters agree to reimburse the Assured for any reasonable expenditure incurred by his compliance with the clause; in practice, these expenses are termed “sue and labor” charges (see Sue & Labor).

DUTY OF DISCLOSUREThe duty of every person seeking insurance or reinsurance to inform the insurer/reinsurer from whom a quotation for insurance/reinsurance is sought of every Material Fact. The duty arises when seeking new insurance/reinsurance, when seeking a variation of cover (but only as regards a change in risk where the carrier is the same as before) and at renewal (but only as regards a change in risk where the carrier is the same as before). The scope of the duty may be modified by the terms of a Proposal Form.

Should a person seeking insurance/reinsurance fail to disclose a material fact then this may lead to the avoidance of the relevant insurance or reinsurance by the underwriter. The consequences of non-disclosure may be modified by the terms of the relevant insurance/reinsurance.

See also Insurance Act 2015, a major piece of English Legislation which over-rides the Marine Insurance Act 1906 (MIA 1906) (a major piece of Insurance Legislation) in some quite serious ways.

EARNED PREMIUMS (See also Unearned Premium) That part of an insurance or reinsurance premium attributable to the expired portion of a risk or risks at a particular point in time. The premium for the unexpired portion of risk is called the unearned premium. See also Incurred Loss Ratio. See also Premium Bases

EXCESS OF POLICY LIMITS Where a courts forces and Insurer to pay a policy holder an amount above the Policy Limit – see also Extra Contractual Obligations

EFFECTIVE DATE: The date on which an insurance policy goes into effect,

EML (See Estimated Maximum Loss)

A variation of a RISK X/L protecting the reinsured‘s Retention where the retention is based on the EML against the EML turning out to be wrong, e.g Retention $1,000,000 EML. Sum Insured of the Original Insurance $4,000,000 EML 50% ($2,000,000)
Retention $1,000,000 EML Facultative Reinsurance $1,000,000 thus risk split 50% 50%. Loss of $800,000 split $400,000 – $400,000. BUT EML is wrong and the risk is a total loss ($4,000,000) loss will be split $2,000,000, $2,000,000!. To protect against this possibility the reinsured might put in place this cover for $1,000,000 xs $1,000,000 ensuring that the Maximum they can lose is $1,000,000.

EML Failure (Proportional)
The reinsurer imposing a limit as to how much they will pay out under a Proportional Treaty which is based on the EML/PML, is the EML/PML turns out to be incorrect after a loss.
Sum Insured $10,000,000
EML $5,000,000
Retention $1,000,000 EML Cession to Surplus $4,000,000
20% 80.00%
Regrettably a Loss of $8,000,000 (the EML is wrong)
In theory the loss will be split 20% $1,600,000 80% $6,400,000 BUT the Contract will state that the reinsurer will only pay say 50% of any error. They will pay $4,000,000 as agreed PLUS only 50% of $2,400,000 ($6,400,000 – $4,000,000) thus a further $1,200,000, paying $5,200,000 in total. The reinsured will be responsible for the balance of $1,200,000

EMPLOYERS LIABILITY INSURANCE: Coverage against Common Law liability of an employer for accidents to employees, as distinguished from liability imposed by Workers Compensation law.

ENDORSEMENTA document that is attached to a slip, cover note or policy which evidences one or more changes in the terms of the insurance or reinsurance contract to which it refers. See also Addendum

ENDOWMENT POLICY (LIFE ASURANCE) A blend of a Term Assurance Policy (pays out if the Life Assured dies within the period of the policy) and investment contract. Pays out an amount at the expiry of the term of the policy. Was sold extensively in the 1960’s,70’s and 80’s to be used to pay of mortgages. Likely returns seriously overestimated in many cases.

ENGLISH JURISDICTION CLAUSE: A condition, whereby Underwriters agree to recognize judgments only from courts convened within English jurisdiction. Subscribing Underwriters may agree to replace this clause with a foreign jurisdiction clause.
Please note re business emanating from the United States of America it is likely that this will be subject to a Service of Suit Clause.

ENTIRE AGREEMENT CLAUSE A clause in some reinsurance contracts that states very clearly that this is THE contract, that it replaces or incorporates all previous versions

A RESERVING provision to cover future Catastrophe losses. Has the effect of smoothing the profit cycle. Sometimes referred to as a Fluctuation Reserve,

EQUITAS REINSURANCE LTD – A reinsurance company that was formed by the Society of Lloyd’s in 1996, for the purpose of taking on the run off of various non-life syndicates for the 1992 and prior years of account. The company was not set up as a subsidiary of the Society of Lloyd’s and operated independently of it. It is now within the Berkshire Hathaway Group (National Indemnity)

ERRORS AND OMMISIONS CLAUSE (REINSURANCE) A provision in a reinsurance contract that basically states that if any inadvertent error is made and corrected promptly the contract continues. Does NOT over-ride any other condition of the contract. No increase in reinsurer’s liability will be covered.

ESTIMATED MAXIMUM LOSS (EML): An expression used for example in fire, explosion and material damage policies being “an estimate of the monetary loss which could be sustained by the insurer on a single risk as a result of a single fire or explosion considered by the underwriter to be within the realms of possibility”

A reinsurance definition might be “The size of loss that can affect the buildings in question under normal circumstances of operation, use and loss prevention e.g. intervention of the fire brigade, operation of fixed extinguishing installations, no account being taken of exceptional circumstances (accident or unforeseen events) which could affect the course of the fire”
See also – Probable Maximum Loss and Maximum Possible Loss

Estimate of Premium Income for the period being (Reinsured)

ESTOPPEL also called a Non-Waiver Clause A clause in a reinsurance contract that states that all conditions continue even if it looks like the reinsured is “estopped from imposing it because of some previous action or lack of action. e.g. Reinsured does not chase 1st, 2nd, 3rd Quarter premiums but does chase the 4th and demands payment or else….. The clause has effect even though they did not chase for 1st, 2nd or 3rd Quarter premiums

EVENT (REINSURANCE) A series of losses arising out of one occurrence e.g. one earthquake, hurricane, flood…..especially in the context of Catastrophe Excess of Loss (Cat X/L)
The period of time that can actually be claimed for will in many cases be limited by the imposition of an hours clause.

EVENT LIMIT A limitation in a reinsurance contract restricting the amount that can be collected from an event (as defined) loss. See also Spillover

The definition of an EVENT LIMIT – rather depends on the circumstances – as follows

N.B. Remember that where you have an event limit – the wording will need to include words defining the word EVENT. This is normally based on a traditional hours clause.

Per Risk Excess of Loss Treaty – Event Limit
The maximum amount that a Per Risk X/L will pay out any one event. Any amount above this can be added to the reinsured’s net retained loss and then onto their Cat X/L. Some people today refer to this as X/L Spillover.

N.B. Swiss Re try to impose a “Reverse 2 Risk Warranty Clause” on Risk X/Ls that they are involved with. In reality it should be called an EVENT EXCLUSION CLAUSE. “If more than one risk is involved in an event the RISK X/L does not pay anything.”

Proportional Treaty – Event Limit
The maximum amount that a Proportional Treaty will pay out any one event. This concept comes into and out of fashion depending on Market forces. Was strongly introduced after the Thailand floods in 2011. Possibly a limit of no more than two risks. e.g. Treaty Limit $2,000,000 – Event Limit $4,000,000. Over time this limit has increased and might be in the region of 5 ($10,000,000 any one event) or even more. Any amount above the event limit should be referred to as Proportional Spillover.

It is very important to realise that any Spillover on a proportional treaty cannot be added to the reinsured’s net retained loss and then onto their Cat X/L, unless Cat X/L reinsurers have specifically agreed in advance to accept this. The unl clause would need amending.

EXCESSThe amount or proportion of some or all losses arising under an insurance or reinsurance contract that is the insured or reassured must bear. If the loss is less than the amount of the excess then the insured/reassured must meet the cost of it (unless there is another insurance in place to cover the excess).
e.g. Excess 200, Claim 150 = no claim Excess 200, Claim 250 = claim of 50

Excesses may either be compulsory or voluntary. An insured which accepts an increased excess in the form of a voluntary excess should receive a reduction in pr seeemium. See also Deductible, Priority and Retention.

EXCESS AND SURPLUS LINES INSURANCE (normally referred to as “Surplus Lines” insurance. (NO connection with a reinsurance Surplus Treaty)
See Surplus Lines

EXCESS of LINE A term used in Marine reinsurance synonomous with Surplus Treaty Reinsurance in non-marine reinsurance.


EXCESS OF LOSS REINSURANCE A reinsurance which, subject to a specified limit, indemnifies the reinsured against a loss in excess of a specified deductible.e.g. To pay up to $10,000,000 in excess of a deductible of $5,000,000. Claim $4,000,000 fgu = No claim. Claim $6,000,000 fgu = Claim 2,000,000

The phrase encompasses various types of reinsurance product such as any one risk reinsurance, any one event reinsurance, aggregate excess of loss but not Stop Loss which technically at least should be referred to as Non-Proportional (it pays in excess of a Loss Ratio not in excess of a Loss!)

EXCESS LAYER An insurance policy where the insurance of the risk is placed in layers. This/these polices would sit above the Primary Layer, (the bottom layer where the majority of losses are likely to fall)

EXCHANGE COMMISSION (See also Commission) Commission deducted by the reinsured from premiums due to the reinsurers, normally under proportional reinsurance arrangements as a contribution towards the reinsured’s acquisition and other costs.

EXCLUSIONA term in an insurance or reinsurance contract that excludes the insurer or reinsurer from liability for specified types of loss. An exclusion may apply throughout a policy or it may be limited to specific sections of it. In certain circumstances an exclusion may be limited or removed altogether following the payment of an additional premium.

EX-GRATIA A claim which does not have to be paid under the terms of the insurance or reinsurance but which has been paid. The payment would normally be made for “commercial reasons” e.g. Major client, Minor claim

EXPENSE LOADING A loading applied to the Risk Premium to cover the (re)insurer’s internal management expenses and external costs such as brokerage, taxes that the (re)insurer has to pay.

Expenses as a percentage of net earned premiums.

EXPERIENCE: The loss record of an insured, class of coverage, business or 1 contract…..

EXPERIENCE RATING see Burning Cost 2

EXPOSURE CURVES Scales derived from past losses and used in Exposure Rating

EXPOSURE RATING A rating method in Non-Proportional Reinsurance in which the Risk Premium per risk is divided between the reinsured’s deductible and the reinsurance cover (layer) based on a range of scales reflecting the likely loss frequency at any given point. The scales will differ by class and even sub class e.g Small Commercial, Heavy Industrial.

EXTENDED COVERAGE ENDORSEMENT: A specific endorsement attached to a Standard Fire policy, usually providing coverage of windstorm, hail, explosion, riot, riot attending civil strike, aircraft, vehicular damage, smoke and civil commotion.


EXTENDED REPORTING PERIOD (ERP): A period allowed for making claims after expiration of a “claims made” liability policy. Also known as a “tail.”

EXTRA CONTRACTUAL OBLIGATIONS (ECO) A generic term that, when used in reinsurance agreements, refers to damages awarded by a court against an insurer which are outside the provisions of the reinsurance policy. This is likely to be because of bad faith, fraud or gross negligence in the handling of a claim – e.g. Punitive Damages, Excess of Policy Limits awards

The first known reinsurance (I believe was a Marine risk going rom Genoa to Slyus in Belgium in around 1365. The language of commerce at this time was a vaiation of Latin. Facultativo = Optional. Reinsurance of individual policies or risks by offer and acceptance wherein the reinsured can chose whether to place the reinsurance at all. (Optional) then they can chose who to offer it to (Optional) then the reinsurer has the right to accept or reject the offer (Optional) or even offer alternative terms.. Facultativo (Italian) = Optional, Facultative (French) = Optional

Fac can be handled Proportionally or X/L (Cover for price). When placed on an X/L basis in conjunction with Proportional Treaties there can be problems in the way the risk and losses are allocated – See Treaty Compression.


FACULTATIVE, OBLIGATORY TREATY (Reinsurance): You will not normally see the comma as above. I believe that it helps in understanding this structure. It is optional (Facultative) for the reinsured to decide whether to cede (give) a share of a particular risk to Treaty reinsurers but if they do the reinsured is obligated to accept it – thus the expression Fac/Oblig.

FACULTATIVE OPEN COVER (Reinsurance) (See also Open Cover) A contract under which a reinsured can place Facultative Reinsurance on a semi-automatic basis up to pre-agreed limits. Each Risk might have to individually declared to the reinsurers, with their having the right to decline (normally within X days or the risk is bound. Some especially if to do with Fac X/L might also include rating tables to be used some called “Self Rating Covers”

FGU (From ground up) Simply making it clear how on an excess of loss contract claims will be collected – from the bottom up. These letters are normally put after a claims figure when the claim is being advised to Excess of Loss Reinsurers. It enables the reinsurer to work out their claim to the layer they participate in. Of even more importance when different reinsurers take individual shares of different layering structures (Non-Subscription Placement) e.g. Loss $10,000,000 fgu – deductible $6,000,000 = Claim to the layer of $4,000,000

FIDELITY BOND: A Bond which will reimburse an employer for loss up to the amount of the bond, sustained by an employer (the insured) by reason of any dishonest act of an employee (or employees) covered by the bond.

FIDELITY INSURSANCEA type of insurance which is designed to protect a firm from losses caused by the dishonest acts of its employees.

FIN RE – see Financial Reinsurance

FINANCIAL REINSURANCE See also Alternate Risk Transfer (ART) also known as FinRe an expression used especially in the late 1980’s and early 1990’s for contracts that smoothed the reinsured’s results over a period of years. A form of reinsurance which takes into account the Time Value of Money (TVM) and has loss and possibly profit containment provisions. Any profit or loss cannot exceed $xx,xxx,xxx. One of its objectives is the enhancement of the reinsured’s financial statements or operating ratios. Many deals did not have true Risk Transfer and therefore probably should not have been accounted as reinsurance. In the 2010’s a variation emerged called Structured Reinsurance.

The body that regulated the financial services industry in the UK. During 2011 was dismantled – overall power going back to the Bank of England, under whom the FCA – Financial Conduct Authority and the PRA – Prudential Regulatory Authority took over financial regulation.

FINITE REINSURANCE A variation of FinRe/Financial Reinsurance where the overall contract will not fall into major loss or make a large profit. A smoothing contract. Likely to be multi year, possibly multi class. Will have provisions that if the account moves to far in favour of one party or the other (as defined) and adjustment will be made. Need to very careful that there is Risk Transfer. If not it must not be accounted for as a reinsurance contract.

FIRE: In insurance terms, “Combustion sufficient to product a spark, flame or glow and which is hostile (as opposed to friendly). – i.e. not in the place where it is intended to be as in a furnace or fireplace.)

FIRE INSURANCE: (1) Insurance contracts that indemnify an insured for loss caused by the destruction of the insured’s property resulting from a fire; (2) The field of insurance that provides insurance policies on the insured’s property for a variety of perils, including fire.

FIRST LOSS POLICY A form of insurance in which a covered loss is indemnified in full up to the total amount of the Sum Insured, regardless of whether the Sum Insured is sufficient. The insurer is undertaking not to apply the concept of under insurance e.g. Average e.g. Theft – Value at risk in a warehouse $100,000,000. Impossible that all this stock could be stolen. Possible to steal say $30,000,000. First Loss Policy Limit $30,000,000. IF more than $30,000,000 stolen policy pays out Max of $30,000,000. If less is stolen the claim is paid in full. In a typical property policy Average would be applied. Sum insured $30,000,000/ Actual Value $100,000,000 x Loss.


FIXED COMMISSION A stated commission percentage which is not adjustable as in a Sliding Scale of Commission

FIXED PREMIUM What is says, a premium that once paid – is the final Premium, sometimes referred to as a Flat Premium or Non Adjustable Premium


FLAT PREMIUM– see Fixed Premium

FLAT RATE (Reinsurance) In Excess of Loss reinsurance, a predetermined fixed rate for the risks involved which is not subject to any subsequent adjustment.

FLUCTUATON LOADING A loading applied to the Risk Premium to help absorb fluctuations the expected loss burden. over and above

FLUCTUATION RESERVES See Equalisation Reserves

FOLLOW THE FORTUNES CLAUSE A clause in a reinsurance contract (normally proportional) which expresses the intention that the reinsurer will share whatever fortune, good or bad, which befalls the Reinsured. It requires the reinsurer to accept the reinsured’s business like reasonable decision that a particular risk is covered by the terms of the original policy.
In general, reinsurers will NOT agree to pay their share of ex-gratia claims unless this is specifically referred to in the contract.
FOLLOW THE SETTLEMENTS CLAUSE Generally provides that a reinsurer must cover settlements made by the reinsured in a business like manner, provided that the settlement is arguably within the terms of the reinsured’s policy and the reinsurance agreement and the settlement is not affected by fraud, collusion, or bad faith.

These two terms are often used interchangeably
FOLLOW THE SETTLEMENT is focused on Loss Settlement Whilst Follow th fortunes is more associated with the Risk Coverage

FOLLOWING UNDERWRITERA (re)insurer that agrees to accept a proportion of a given risk on terms set by another underwriter called the Leading underwriter. In the 2010’s started to become more common for each (re)insurer to be asked to quote their own individual price (and terms). See Non-Subscription Placement

FRANCHISE: A variation of an Excess, except that if the claim exceeds the Excess the excess is removed. An excess applies to all claims, a Franchise only applies to smaller claims.
e.g. Excess $100,000 Franchise $100,000
Loss $50,000 No claim No claim

e.g. Excess $100,000 Franchise $100,000
Loss $150,000 Claim $50,000 Claim $150,000

FRANCHISE (LLOYD’S)- The Lloyd’s brand, which is in turn supported by worldwide trading licences, a financial strength rating, mutual security and other support services that enable members to underwrite insurance and reinsurance at Lloyd’s on a global basis.

FRANCHISE BOARDSee Lloyd’s Franchise Board.

FREEDOM OF ESTABLISHMENTIn the context of (re)insurance the right of an insurer located in one member state of the European Union (“EU”) to sell insurance in another member state of the EU through a local branch, agency or subsidiary. In the case of Lloyd’s[2] this includes business that is underwritten by a coverholder in a EU member state where Lloyd’s has a representative office and where the coverholder may enter into contracts of insurance without first consulting the managing agent that granted the binding authority.

FREEDOM OF SERVICESThe right to provide services on a cross-border basis within the European Union (EU). The essential feature so far as the provision of insurance is concerned is that the contract is made in an EU member state which is different from the member state where the risk is located. It therefore covers open market business (with or without the involvement of a local intermediary) and business that is written under any binding authority where the local coverholder does not have authority to enter into contracts of insurance without first consulting the managing agent that granted the binding authority.

FREIGHT: The remuneration earned by a shipowner or manager for the carriage of goods; including the profit derived from carrying his own goods.

Arrangements where an insurer, for a fee/premium issues its policies to cover certain risks/perils which are in reality being underwritten by another insurer or reinsurer. A substantial part of the risk is transferred to the other insurer or reinsurer. e.g. Global Group ABC Plc (normally insures with AXA) – operates in QATAR. By local law has to insure with a local QATARI insurer. Very big risk, small local insurer. Local insurer Issues the policy but terms and conditions set by AXA. 95% of the risk reinsured into AXA.
A Fronting insurer stands in front of the insurer who is really setting the terms and conditions and taking the major share of the risk.

An insurer standing “in front of” the entity really accepting the risk.

e.g. Petrochemical Company has to insurer with a local Insurer (ABC Ins Co). Risk far to big for them to retain and no expertise in insuring such risks.

ABC Ins Co. reinsures a very high percentage of the risk to say AXA.

AXA sets the terms and conditions and possibly negotiates the insurance with the Petrochemical Company.

ABC Ins Co. is standing “in front of” the insurer (Allianz) who is really really accepting the risk.

Depending on the deal agreed the “Fronter” (ABC Insurance Company) might charge a Fee for fronting the risk.

Premium to ABC Ins Co. $1,000,000

95% reinsured to AXA $950,000

Less Commission – 20% $190,000
Fronting Fee – 10% $ 95,000

Due to AXA $665,000

The Facultative RI Contract might have a Cut though Clause inserted into it stating that in the event of ABC Ins Co. being unable to pay a valid claim the Reinsurer (AXA) agreed to pay their share (95%) of any valid claim to the Petrochemical Company, directly.

FULL VALUE INSURANCEInsurance under which the Sum Insured represents the full value of the property insured.

The amount of assets that a syndicate member has to deposit with Lloyd’s (held in a trust account) to support his share of the Capacity on a syndicate.
The amount deposited by syndicate members regulates the premium income limit of the syndicate in accordance with ratios laid down by the Council of Lloyd’s

An amount of money retained by a reinsured as a Security Reserve for unexpired risk (Premium Reserve) or to cover outstanding losses (Loss Reserve)

GENERAL AVERAGE: An Ocean Marine expression meaning a loss which has resulted from the voluntary and deliberate sacrifice of some cargo for the benefit of all concerned, and which must be shared by all parties (owners of ship, cargo and freight) in proportion to their interest. For example, if 100 containers were jettisoned from a 1000 container load in order to protect the ship, the owners of the remaining 900 containers, the owners of the ship, and the owners of the freight would all contribute to offset the losses of those whose cargo was jettisoned for the benefit of the whole.

a) Cargo – Jettisoned to save the ship $1,000,000
b) Value of rest of the Cargo $9,000,000
c) Value of the Hull $10,000,000

  1. a) pays 1/20 (5%)
    b) pays 9/20 (45%)
    c) pays 10/20 (50%) of $1,000,000

GENERAL AVERAGE CONTRIBUTION: The proportion paid or payable by an insurer involved in a general average loss – as above

GENERAL AVERAGE DEPOSIT: Paid by a consignee to obtain release of the cargo from the carrier following a general average act. This may be replaced by an Underwriter’s guarantee.

GENERAL AVERAGE GUARANTEE: Paid by a consignee to obtain release of the cargo from the carrier following a general average act. This may be replaced by an Underwriter’s guarantee.

GENERAL AVERAGE IN FULL -aka- G-A IN FULL: An agreement in a cargo insurance whereby Underwriters do not reduce a claim for general average contribution in event of underinsurance.

GENERAL UNDERWRITERS AGREEMENT (GUA) – A set text that sets out the terms of an agreement between insurers or reinsurers on a placement slip specifying the terms on which the leading underwriter shall act as the agent of the following underwriters as regards the agreement of amendments to coverage terms. It will also have specified a specific Schedule that reflects any class specific terms.

General Underwriters Agreement (GUA) A Leading Underwriters Agreement. A concept introduced as part of the original London Market Placement (LMP) Slip processes, carried forward into the MRC. A standard text laying down the rules and responsibilities for the agreeing of Endorsements.
There are three types of Change Leader only – Part I All – Part 3 Changes that the Leader feels should be agreed by another specified underwriter on behalf of the rest of the market – Part 3
Different Classes have different schedules specifying what can be agreed by whom. The Original GUA was dated Oct 2001, it was slightly modified in Feb 2014

GOOD FAITH[3]: Historically one of the basic principle of i(re)insurance. The Assured and his broker must disclose and truly represent every material circumstance to the Underwriter before acceptance of the risk. A breach of good faith entitled the Underwriter to avoid the contract. See “Utmost Good Faith”

GRACE PERIOD – also know as Period of Grace. A short period during which cover under an annual policy may be extended beyond its expiry date to allow for the payment of a renewal premium. The privilege will be lost if the insured rejects the proposed renewal terms, by his actions or words. There are no grace periods in motor or marine insurance.

GRADED RETENTIONS (Reinsurance) Where the reinsured decides to base their retention on a risk using a range of different criteria rather than having one fixed retention irrespective of the class and type of risk. e.g. Retain $1,000,000 Office Block (Safe) built of Steel and Glass. Retain $10,000 Fireworks Factory built of Wood. This decision will also therefore impact on how much can be ceded to any Surplus Treaty arrangements, which are based on multiples of the retention (Line)


GROSS CLAIMClaims before the deduction of reinsurance recoveries.

GROSS LINE (Gross Acceptance)
The total limit of liability accepted by an insurer on an individual risk (i.e. retention plus all reinsurance ceded)

Premiums contracted for before any deductions. See also Premium Bases

GROSS RETENTION: The total limit of liability retained by an insurer on a risk after cessions to Surplus, Facultative Obligatory and any facultative cessions, but not taking into account Quota Share cession.
– The expression Gross Retention infers that there is a Quota Share Treaty in place.

100% (Gross Retention) 1,000,000
60% Net Retention 40% Quota Share Treaty 5 GROSS Line Surplus
6,000,000 4,000,000 5,000,000

GROUND UP– see also FGU (From Ground Up)
An expression used to describe the total extent of a reinsured’s involvement on a particular loss when advising it to Non-Proportional reinsurers.
Its purpose ? To save some silly communications!
First Layer $2,000,000 xs $2,000,000
Second Layer $3,000,000 xs $4,000,000
e-mail to both 1st and 2nd layers.
“I am advising you of a loss of $4,000,000”!
“I am advising you of a loss of $4,000,000 fgu – This shows clearly that there is a Total Loss to the 1st layer and a courtesy advice to 2nd layer.


GROUP POLICY A single insurance policy covering a group of people, normally belonging to the same company or association e.g a Group Life Policy, Group Personal Accident Policy

G.N.P.I. Gross Net Premium Income. The base premium normally used in Excess of Loss contracts for calculating the final premium due to reinsurers at the end of the contract period. e.g. Rate x% of G.N.P.I Subject to a Minimum and Deposit Premium.

GNPI is the total of all premiums for the business being protected less the cost of any prior (inuring) reinsurances.
e.g. Total Premium 10,000,000
Premiums to Surplus Treaty 3,000,000
Premiums for Facultative 1,000,000
= G.N.P.I 6,000,000.
Should show whether it is based on the Reinsured’s, written, earned or accounted premium.
This to some extent might be driven by the period of the Non-Proportional Contract
e.g. Losses occurring during – earned premium Risk attaching during – written
Some underwriters will argue that a Catastrophe X/L even if on LOD (likely) should be based on written (if premium is growing now, exposure is also likely to be growing, now). See also Premium Bases

G.U.A. See General Underwriting Agreement

[1] e.g. Insurance Institute of Australia (1985)

[2] Subject to whatever is the final outcome from BREXIT.

[3][3] Insurance Act (2015), implemented Aug 2016 has modified tis to some extent