H
HARD MARKET– When the availability of some or all classes of insurance or reinsurance is limited relative to demand for such insurance or reinsurance resulting in increased premiums and coverage restrictions. Compare to Soft market.

HAZARD:   A specific situation that increases the probability of the occurrence of loss arising from a peril, or that may influence the extent of the loss. For example, accident, sickness, fire, flood, liability, explosion are perils. Slippery floors, unsanitary conditions, shingled roofs, congested traffic, unguarded premises, and uninspected boilers are Hazards.

HAZARDOUS PURSUITS– Certain sports and activities are termed hazardous pursuits and are excluded from travel insurances although it may be possible to have them included on payment of an additional premium. e.g. Skiing

HELD COVERED:   A provisional acceptance of risk by an underwriter, subject to confirmation at a later date that the agreed cover is needed.

HEALTH INSURANCE
Cover for Medical Expenses and/or Treatment e.g. BUPA

HOLD-HARMLESS AGREEMENT:   A contractual arrangement whereby one party assumes the liability inherent in a situation, thereby relieving the other party of responsibility. e.g. In a Leading Underwriters’ Agreement, where it might state that the Leading Underwriter shall NOT be held liable for any decisions it makes made in the role of Leading Underwriter

HOURS CLAUSE (Should be called the Definition of Loss Occurrence Clause)
A clause used in Excess of Loss Treaty reinsurance contracts which limits the time period and/or geographic scope for which the reinsurer is liable for a particular catastrophic event. When trying to asses the loss to an excess of loss contract, involving the hours clause it is important to realise that:
the clause normally refers to “continuous” hours
it is the responsibility of the reinsured to prove that the loss/losses are caused by one event.
The hours limitation tends to get longer in soft/very soft markets
e.g. 1940’s – 1950’s 48 consecutive hours,1970’s – 2,000’s 72 hours and 168 for Fire and Flood, 2015’s 168 hours for all perils becoming more normal with possibly 21 days for Flood.

I

IBNER (Incurred But Not Enough Reported/Reserved) – See IBNR
One of the problems in calculating I.B.N.R.

IBNR INCURRED BUT NOT REPORTED (RESERVED) LOSSES:
A major problem in reserving especially with Long Tail business. A notional figure to allow for losses which may have occurred, but have yet to be reported to the insurer or reinsurer. As sophisticated analytical systems have evolved, IBNR has come to embrace the expected development of various accounts, irrespective of actual loss experience,
e.g. Employers Liability. A worker may breath in dust for many years but only get ill some years later. An insurer has to have reserves in their books for these “unknown” losses. Get this number wrong a problems for the future.

IBNYR INCURRED BUT NOT YET REPORTED (RESERVED) LOSSES:
– see IBNR

ICC CLAUSES:   (see Institute Cargo Clauses)

ILWs – see Industry Loss Warranty Covers

INCEPTION– Commencement or beginning (e.g. of cover).

INCEPTION DATE– The date on which an insurance or reinsurance contract comes into force.

INCURRED LOSSES The amount representing Losses Paid in a period PLUS an amount from the previous period to cover Outstanding Losses minus an amount to cover outstanding losses at the end of the period.  Incurred losses normally mean the total of paid and outstanding elements before the addition of any IBNR allowance or other projected development method.

INCURRED LOSS RATIO: The percentage result of dividing Incurred Losses by Earned Premiums. Definitions for both incurred losses and earned premium will vary between different insurance companies, reinsurers and countries.

INDEMNIFY:  To restore the victim of a loss, in whole or in part, by payment, repair or replacement. Putting them back into the same position after a loss as they were befor.e

INDEMNITY – An insurance  principle according to which a person who has suffered a loss is restored (so far as possible) to the same financial position that he was in immediately prior to the loss, subject in the case of insurance to any contractual limitation as to the amount payable (the loss may be greater than the policy limit). The application of this principle is called indemnification. e.g. Pay £500 for a new Watch. Lose it on holiday 2 years. Insurers will pay out the value of a 2 year old watch, not what was paid for it.  –  Most contracts of insurance are contracts of indemnity.
Life insurances and personal accident insurances are not contracts of indemnity as the payments due under those contracts for loss of life or bodily injury are not based on the principle of indemnity.

INDEMNITY CONTRACT. A contract based on the concept of putting the insured back into the same financial position after a loss as before. Insured should not gain from an insurance contract.

INDEX CLAUSE (see also Stability Clause or Severe Inflation Clause (SIC)). Certain claims, especially those under casualty and liability (Long Tail) contracts, may take many years to settle with the final claim being subject to increases caused by external social influences e.g. Inflation.

This clause (invented in the 1960’s) attempts to maintain the status quo by increasing cover and deductible in line with inflation.

This clause is based on a pre-agreed Index such as the country’s Cost of Living Index, with the Cover and Deductible being increased by the ratio of Index at Date of Loss/ Index at Base Date (likely to be inception date).

The purpose of the clause is to apportion the effects of inflation on excess of loss claims fairly between the reinsured and reinsurer.

A more detailed note follows

LIABILITY and the impact of inflation

INDEXATION (Stability Clauses)

Conceptually simple to understand, in practice very difficult to administer.

• In the examples below I have used actual years, which may in time make these notes seem dated – better than using 20XX and 20XX+4 or whatever. The Sums do not change

Why have an Index Clause?
Liability claims can take many years to settle
The main impact of inflation can fall to the non-proportional reinsurer
To enable a more realistic method of rating
To retain the relative values of the limit of liability and the excess point as they existed at inception of the contract

The problem
Non proportional reinsurance is underwritten at a certain date given certain basic information i.e. 1st January 2023 likely award for a quadriplegic  – $3,000,000

Underwriter quoted for a motor excess of loss with a deductible of $6,000,000
Thus for there to be a claim on the reinsurance – any accident should involve more than two quadriplegics.

Accident occurs 1st July 2023 involving two people – both become quadriplegics
Claims are finally settled July 2028 (inflation over the 5 year period – 20%).

Assuming both injured parties are quadriplegics they would have received say, $3,000.000 each in 2023 thus total ($6,000,000), NO CLAIM to the X/L

Claim finally settled 2028, taking into account inflation, say 20%, perhaps $3,600,000 each
Thus only because of inflation there is a a claim to the layer of $1,200,00 ($7,200,000 – $6,000,000)

Indexation is based on the date of settlement of loss (the month of settlement) and an agreed formula for calculating “the inflation” factor on the settlement. The Cover and Deductible are increased by the relevant “inflationary” amount.

Basic steps
Revalue (down) individual settlements as if they had been settled at inception of the contract
Compare “as if” settlement, with actual settlement (impact of inflation)
Increase cover (and deductible) by “as if inflation”
Apply actual total claim to revised deductible

e.g A simple example.
Cover 100,000 xs 100,000
Date of Loss 1/7/2023 (Index as specified, at Inception of the Contract 100)
Date of Settlement of Claim to Peter 60,000 – 1/11/2028 (Index as specified at date of month of settlement) 150
Date of Settlement of Claim to John 100,000 – 1/6/2029 (Index as specified at date of month of settlement) 175
Thus total of ACTUAL CLAIMS         160,000

What would Peter’s and John’s Claims have Cost without the impact of inflation

Peter 60,000 x 100/150             =   40,000
John 100,000 x 100/175            =    57,143
Total Claim (excluding inflation)   97,143

Last Step Increase Cover and Deductible
100,000 xs 100,000 x 160,000/97,143 =164,705 xs 164,705
Actual Claim 160,000 = NO Claim

How does a “typical” index clause operate?

1. a) take each individual claimant separately
2. b) assume that the loss was settled at the date of inception of the contract (The Base Date will be specified in the Contract Wording)
3. c) Reduce down each settlement by multiplying settlement by the index at the date of inception, divided by the index at the date of loss
4. d) total up all the adjusted claim figures
5. e) Increase the cover and deductible by this amount, thus the true impact of inflation.
6. e) apply the total claim to the revised cover and deductible

The reinsured and or the reinsurer might want to carry out what can be quite complex calculations if inflation is comparatively low so two variations of the FULL INDEX were created.

Stability Clauses (SIC)
SIC – Franchise
SIC – Excess

Severe Inflation Clause (SIC) (Excess)
Only applies once a reasonably high degree of inflation has occurred.

The Base Index is “inflated” by a pre-agreed amount – e.g. 30% thus indexation will only apply to those loss amounts where the Index at Date of Settlement exceeds the “new” Base Index. The amount of the revaluation will be a lower number than with a Full Index.

SIC – Franchise

• Full index applies once a pre-specified percentage of inflation has been exceeded on a settlement by settlement basis
• Some inflation is allowed in the price of the R/I

BUT

• Once Franchise attained or exceeded, then works as Full Index Clause

Index Clause
Base Date and type of index must be defined.
Dates of individual loss payments (where included in the Index Calculation) need to be known
e.g. Bodily Injury

Then “Adjusted Payment Value” is calculated, this being :-

Actual Payment     x  Base Index
    Index Date at payment date

Thus taking all the payments back to what they would have been if the impact of inflation had not occurred

What payments does it apply to?
The clause may not be applied to all types of claims and payments
e.g. material damage claims could be excluded from indexation
– important to ensure the right clause is being used

After the previous calculation, both the deductible/attachment point and limit of liability are multiplied by

Total of Actual Payments
Total of Adjusted Payment Value (s)

Thus increasing the cover and deductible by the ratio of what the loss would have been without inflation compared to what it actually was.

And lastly
Apply  ACTUAL claim to revised deductible (and Cover)

“What is the Settlement”
Actual date settlement AGREED if no award
Date of award (If no appeal)
Date of award at appeal unless reduced award when original award date will apply
Date from which continuing awards start
If various payments date of LAST payment shall apply (NOT in all clauses)

Read the contract Wording!

Full Index – EXAMPLEWORDING
It is the intention of this Contract that, as regards Third Party Liability claims in respect of Bodily Injuries, the Retention of the REINSURED (and the Limit of Liability of the REINSURER) shall retain their relative monetary values which existed at the Base Date and such monetary values shall be adjusted by reference to an index in the manner hereinafter set forth.

Definitions

1. The INDEX to be applied shall be that for cost of living or retail prices published by the competent local authority of the country in which the loss or damage giving rise to the claim has occurred.
2. The BASE DATE for arriving at the Base Index as hereinafter defined in the date specified under Conditions in the Risk Details Section.
3. The BASE INDEX for all loss settlements shall be the latest available INDEX appearing in the Consumer Price Index or Wage Index or other similar indices published in the Monthly Digest of Statistic for the country concerned applying at the BASE DATE.
4. The INDEX AT TIME OF PAYMENT shall be the latest available INDEX appearing in the above publication for the month in which payment is made and/or the INDEX at the date of the first continuing regular payment.
5. The amount(s) of claim paid by the REINSURED under the Third Party sections of the Original Policy in respect of bodily injury liability including legal costs is referred to hereinafter as the ACTUAL PAYMENT, it being expressly understood that payment(s) in respect of property damage or any other liability shall not be taken into account for this purpose.

Time of Payment
The time of payment of any claim for the purposes of this Contract shall be deemed to be as follows:

1. Where no award is made by a court, the actual date upon which payment is agreed by the REINSURED.
2. The date an award is made by a court if no appeal is made, or if the Appeal Court reduces or leaves unchanged the original award.
3. The date an award is made by the Appeal Court if this increases the award made by the original court.
4. In the event of the Appeal Court not making an award, the date of the final award made by the Court to which the case has been returned if such final award is in excess of the original award.
5. In the event of the REINSURED becoming liable to pay any continuing regular payments, the date from which such payment commences or, in the event of any subsequent adjustment, the date from which such adjustment takes effect.

Application of Index
In respect of any loss settlement(s) made under this Contract, the REINSURED shall submit a list of payments comprising such loss settlement(s), showing the amount(s) paid and the date(s) of such payment. The amount of each such ACTUAL PAYMENT shall be adjusted to its relative value at the BASE DATE by means of the following formula:

ACTUAL PAYMENT x BASE INDEX     =         ADJUSTED PAYMENT VALUE
INDEX AT TIME OF PAYMENT

All ACTUAL PAYMENTS and ADJUSTED PAYMENT VALUES shall be totaled separately and the Deductible of the REINSURED (and the Limit of Liability of the REINSURER) shall be multiplied by the fraction:

Total of ACTUAL PAYMENTS
Total of ADJUSTED PAYMENT VALUES

INDICATION A non-binding statement by an underwriter of the likely level of premium/terms that he/she would charge to accept a risk, subject possibly to the provision of additional information. Compare this to a Quotation.

INDIVIDUAL MEMBER– This term usually refers to an individual member of the Society of Lloyd’s, otherwise known as a Name. as compared to a Corporate Member 

INDUSTRY LOSS WARRANTY COVER. A cover that pays $Y,000,000 out if the there is a Market Loss (e.g. a flood loss) of $Z00,000,000. e.g. If there is a Hurricane with damage greater that $20bn, I will pay you $40,000,000.

INHERENT VICE: (Marine)  A defect or cause of loss arising out of the nature of the goods in question – normally excluded. e.g. Self Combustion of Damp Coal.

INLAND MARINE INSURANCE:  A branch of Marine insurance business which developed from the insuring of shipments which did not involve ocean voyages.

INSOLVENCY CLAUSE A clause that basically overrides the concept of “pay as paid”. (I will only pay you if you have paid your policy holders), thus a reinsurer is held liable for their share of a loss, even if the reinsured has NOT paid their policy holder (i.e. reinsured is in liquidation)

INSTITUTE CARGO CLAUSES:   Clauses/Wordings developed by the International Chamber of Commerce. There are three basic sets of these clauses (A, B and C). The A clauses cover “all risks”, subject to specified exclusions. The B and C clauses cover specified “risks”, subject to specified exclusions.

INSURABLE INTEREST; An English Law concept. For there to be a valid insurance contract the insured should have a financial interest in the subject matter insured that is recognised in law.
If an insured wishes to enforce a contract of insurance before an English Court he/she must have an insurable interest in the subject matter of the insurance, which is to say that he stands to benefit from its preservation and will suffer from its loss.

In non-marine insurances, the insured must have insurable interest when the policy is taken out and also at the date of loss giving rise to a claim under the policy. In life insurance the insured must have insurable interest when the policy is taken out and in marine insurance the insured must generally have insurable interest at the date of loss giving rise to a claim under the policy

INSURABLE RISK:  A risk which meets most of the following requisites: (1) The loss insured against must be defined; (2) It must be accidental; (3) It must be large enough to cause hardship to the insured; (4) It must belong to a homogenous group of risks large enough to make losses predictable; (5) It must not be subject to the same loss at the same time as a large number of other risks; (6) The insurance company must be able to determine a reasonable cost for the insurance; (7) The insurance company must be able to calculate the chance of loss.

INSURANCE– A contract whereby an insurer promises to pay the insured a sum of money or some other benefit upon the happening of one or more uncertain events in exchange for the payment of a premium. There must be uncertainty as to whether the relevant event(s) may happen at all or, if they will occur (e.g. death) as to their timing.

INSURANCE ACT 2015  A major piece of insurance legislation ion the UK, effective 18/2/2016. Particularly changes the power of  Warranties…..

INSURANCE BROKER– An individual or firm that acts as agent for an individual, body or firm in arranging insurance cover and in presenting claims under such cover.

INSURANCE CONTRACT  Contract between the insured and the insurer, which is often documented by way of a Policy. It sets out the agreed conditions, rights and obligations of the contracting parties.

INSURANCE POLICY – See policy.

INSURED– A person or corporate entity who is insured under a contract of insurance.  – may  be referred to as the policyholder.

INSURED PERIL– Those perils that are covered under a contract of insurance.

INSURER. An financial entity that provides insurance cover e.g. Lloyd’s Syndicate or an  Insurance Company……

INSURANCE COMPANY– Financial institution specifically set up to accept insurance and possibly reinsurance risk

INTERLOCKING CLAUSE (Reinsurance)
A methodology for allocating losses over more than one contract.
Historically a non-proportional clause but there is also since the Mid 2010’s a proportional version. Important to be sure when discussing this clause that you the parties are clear whether they are discussing Proportional or Non-Proportional

Interlocking Clauses
Up until the early 2010’s there was one clause called the “Interlocking” Clause. This normally applies to Excess of Loss Contracts on a Risks Attaching During (RAD) basis, involving an event loss.

After some problems with the 2011 Thai Flood Losses on Proportional Treaties placed on Underwriting Year Basis regarding the imposition of Event Limits a new clause was proposed. It was referred to as “Similar to the Interlocking Clause”. It did not take long for it to be referred to as “The  Interlocking clause”.  I suggest that for clarity one should refer to the X/L Interlocking Clause or the Proportional Interlocking clause.
These two clauses are NOT interrelated in any way.

X/L Interlocking Clause
Risks Attaching During (RAD) basis.
Loss from one event.
e.g. The Problem
Motor X/L for ABC Ins Co,
Basis. Risks Attaching During….
Cover “one loss or series of losses arising out of one event“
Major Storm (1 event) 1/2/X001
Four Drivers A, B, C, D ALL insured with ABC Insurance Co have their cars damaged.
2 insurance polices incepted 1/7/X000 and 2 in 1/1/X001
2 polices, 2 claims on X000 , 2 on the X001 (Risks Attaching)
How many deductibles ? – 2! Even though it was 1 event
Had the reinsurance been “Losses occurring during” (LOD) all the claims would have fallen on X001 – with 1 deductible.

Purpose of the X/L Interlocking Clause
To scale down the deductible (and cover) on each X/L proportionately.
How to collect a claim
 – loss from more than one policy and/or contract (in one “event”)
and
– attaching to different twelve months’ periods

What to do?
Reduce down Deductible and Cover to the percentage that the settled losses on THIS year bears to the total of all the losses under policies contributing to the loss.
An example
Interlocking Clause [1] Year 1 150,000 xs 50,000
Year 2 175,000 xs 75,000
Loss of 200,000 from
Year 1 Policies   50,000
Year 2 Policies 150,000

Who pays how much?
Answer
Year 1 150,000 xs 50,000
Year 2 175,000 xs 75,000
Loss of 200,000 from
Year 1 Policies   50,000   25% of total losses
Year 2 Policies 150,000   75% of total losses

Year 1 150,000 xs 50,000 becomes   37,500 xs 12,500 (Cover and Deductible multiplied by 25%)
Year 2 175,000 xs 75,000 becomes 131,250 xs 56,250 (Cover and Deductlbe multiplied by 75%)
Thus Year 1 reinsurers pay 50,000 – 12,500 =   37,500
Year 2 reinsurers pay 150,000 – 56,250 = 93,750

Total Collected                                               131,250
BUT without Interlocking clause?
Year 1  50,000 –  50,000 = NIL
Year 2 150,000 – 75,000 = 75,000
Total                                 75,000

The Clause itself; Example.
“In the event of the Reinsured being involved in a loss from more than one policy and/or contract and such policies and / or contracts attaching to different twelve months’ periods, the amount of the deductible to be retained by the Reinsured under this agreement shall be reduced to that percentage of the deductible which the reinsured’s settled losses on the original policies and/or contracts incepting during the twelve months’ period of this agreement bears to the total of the Reinsured’s settled losses arising out of all the policies and/or contracts contributing to the loss.
The recovery hereunder shall likewise be arrived at in the same manner.”

Proportional Interlocking Clause
A problem arose regarding Proportional Treaties and EVENT Limits where the accounts process is based on the Underwriting Year method (Risks Attaching During / Run Off Basis)

Claims from the event could fall on policies that were issued in more than one Treaty Year and thus fall on different Treaty Years
Although the event was ONE event, reinsured would try to use the Aggregate/Event Limit imposed on the Treaty TWICE (or more) – 1 for each underwriting year.!

A clause was introduced and described as a “sort of interlocking clause”
e.g.
If an event involves two or more underwriting years, the Event Limitation for that event in respect of the reinsurer’s liability under this Agreement shall be reduced in the same proportion as the losses (paid and outstanding) of that event involving this Agreement contribute to the sum of all losses of that event in respect of all underwriting years together.

i.e.
Aggregate Limit Underwriting Year 1 10,000,000
Aggregate Limit Underwriting Year 2 12,000,000

Total losses from 1 event 15,000,000
Losses from Year 1 5,000,000/15,000,000 = 33.33%
Losses from Year 2 10,000,000/15,000,000 =  66.67%

Reinsured wants to claim 15,000,000 BUT

Reinsurers Max Year 1 = 33.33% x 10,000,000 = 3,333,333
Reinsurers Max Year 2  = 66.67% x 12,000,000 = 8,000,000
11,333,333

The full clause reads as follows, main points in bold
Natural Perils Event Limit Clause
For each and every loss occurrence in respect of earthquake, tsunami, hurricane, typhoon, cyclone, windstorm, rainstorm, hailstorm, flood and/or tornado the liability of the Reinsurer under this Agreement shall be limited to $10,000,000

1. A “loss occurrence” shall be understood to mean all individual losses arising out of and directly occasioned by one and the same event.  A “loss occurrence” to which two or more of the above-mentioned perils contribute shall be considered as being one event.
2. The above limitation shall – subject to no changes agreed by the contracting Parties – be valid for each underwriting year this Agreement is in force. These Limitations shall be applicable to loss occurrences involving risks, which have been ceded on an underwriting year basis in accordance with the conditions of this Agreement.

If an event involves two or more underwriting years, the above limitation in respect of the Reinsurer’s liability under this Agreement shall be reduced in the same proportion as the losses (paid and outstanding) of that event involving this Agreement contribute to the sum of all losses of that event in respect of all underwriting years together.

3. A loss occurrence, which is covered according to the conditions of this clause and is in progress when this Agreement should expire or be terminated, shall, irrespective of any other condition(s), be treated as if the entire loss had occurred prior to the expiration or termination of this Agreement. In this case no part of such loss occurrence can however be claimed against any Agreement(s) issued in renewal of or substitution for this Agreement.
4. The total liability of the reinsurers during the Agreement Period in respect of a loss occurrence covered according to the conditions of this clause shall be limited to $10,000,000

INTERMEDIARY A broker or any third party who acts between (re)insured and (re)insurer

INURING REINSURANCES A phrase that confuses many people. A term used in Excess of Loss reinsurance, meaning reinsurances under which claims recoveries effectively reduce down the loss to the non-proportional contract being referred to.  In other words, prior reinsurances. or reinsurance which pay first.
e.g. Cat X/L 3,000,000 xs 2,000,000
Gross Loss from an Event                                                                                           5,000,000
Collections from Fac and Proportional Treaty (inuring RI)                                 3,000,000
Retained loss after collections from “prior” / “inuring” reinsurances              2.000.000
Less Deductible                                                                                                             1,000,000
Collection from Cat X/L                                                                                            1,000,000

INWARD REINSURANCE
Reinsurance that is accepted by a reinsurer as distinct from outward reinsurance
– Reinsurance that is being placed.

IUA (International Underwriting Association of London) A trade association representing Companies operating in the London Market (does have overseas members as well)

J
JEWELLERS’ BLOCK – A form of property insurance that is provided to jewellers.

JOINT LIFE POLICY:   A policy covering two or more specific lives (often Husband and Wife). Pays the assured amount when the person specified dies. e.g. First survivor, funds to other spouse, last survivor, funds to children….

 JURISDICTION CLAUSE
A clause inserted into a contract specifying where any dispute shall be held. not to confused with the Law Clause, which specifies which Country or State Law will be used to assist in coming to a legal decision. e.g. Malaysian Jurisdiction, English Law.  Case will be held in Malaysia BUT courts will base their judgement on English Law decisions.

K
KEY MAN (KEY EMPLOYEE) INSURANCE POLICY:   An insurance policy on the life of a key employee whose death would cause the employer financial loss. Taken out by and paid for by the employer. e.g The Senior Sales Person responsible for major %age of all sales.

KNOWN LOSS:   A loss known to one or both parties when a Broker and Underwriter are negotiating a placing.

L

LAW CLAUSE
The clause in a contract which specifies which Law will be used in the event of a dispute. NOT to confused with the Jurisdiction lause
LAYER: Term used to denote a contract of insurance or reinsurance where an amount of Cover is given in excess of a Deductible e.g.10,000,000 xs 5,000,000
Many Excess of Loss reinsurance programmes comprise consecutive and vertical layers of coverage in order to attain a specified total coverage.
e,g, Insurance Policy 20,000,000
Deductible required under reinsurance 5,000,000
Reinsurance Required                           15,000,000 xs 5,000,000
This could be placed a 1 layer 15,000,000 xs 5,000,000 or in layers
e.g. 5,000,000 xs 5,000,000 (1st Layer)
10,000,000 xs 10,000,000 (2nd Layer)

LAYERED POLICIES In insurance, policies covering specific amounts, possibly in successive layers, over and above the basic policy which does not provide the full amount of cover required.

LEADING UNDERWRITER (Leader) The underwriter of a syndicate or insurance company who is responsible for setting the terms of an insurance or reinsurance contract that is subscribed by more than one syndicate or insurance company and who generally has primary responsibility for handling any claims arising under such a contract. There is movement on major reinsurance placements to have what AON refer to as “Non-Subscription Placement” – separate slips and separate price/terms for each individual reinsurer separately

LEADING UNDERWRITERS AGREEMENT (LUA)- An agreement that allows for certain changes to the terms of an insurance or reinsurance contract to be agreed by the leading underwriter(s) without reference to the following  underwriters see GUA (General Underwriters’ Agreement).

LEASE:   Contract whereby the owner or user of property (the lessor) agrees to let another party, (the leasee) use the property for a consideration (money or rent).

LEASEHOLD INSURANCE:   Insurance for the tenant of a property leased against the loss of value of the lease or of profit from a sub-lease through termination of the lease by fire or other peril insured against.

LETTER OF CREDIT: A document authorising payment of a specified sum to the person named in the document. Often required by US regulatory authorities for so-called non-admitted or alien (overseas domiciled) insurers and reinsurers, to cover outstanding losses.

LIABILITY:   Broadly, any legally enforceable obligation.

LIABILITY INSURANCE:   Insurance that pays claims on behalf of an insured for loss arising out of his legal responsibility, to others imposed by law or assumed by contract.
e.g. negligence

LIFE ASSURANCE– Another more traditional term for life insurance (“It is assured that we will die”), also Life Reassurance

LIFE ASSURED– The person whose life is insured under a life insurance, not necessarily the same person as the person taking out the life policy.

LIFE INSURANCE– A policy that pays a specified sum to beneficiaries upon the death of the life assured, (Whole Life) or upon the assured surviving a given number of years (Endowment) depending on the terms of the policy.  Life insurance policies may be for a fixed period (term assurance) or giving cover for a indefinite term.

LIFE REINSURANCE / LIFE REASSURANCE  – the transfer of life business to reinsurers.
Majority of Reinsurance Contracts for Life are proportional treaties, as majority of insurance contracts – in the UK at least are fixed premium contracts thus even though the Life Assured gets older the premium paid for the Life Policy stays at the same amount throughout the Policy  holder’s life. Thus if reinsurance was placed on an X/L basis and at a renewal the cost of the cover increased the Reinsured could not pass that increase onto existing policy holders.
Most Whole Life policies are reinsured on Surplus Treaties, whilst most Term business is on Quota Share.

LIIBC (LONDON INTERNATIONAL INSURNACE BROKERS COMMITTEE)
– see LMBC

LIMIT – The maximum amounts (re)insured.

LIMIT OF INDEMNITY– Another term for Policy Limit. It refers to the maximum amount payable under a policy of insurance or reinsurance, either overall or with reference to a particular section of a policy.

LINE Version 1– The proportion of an insurance or reinsurance risk that is accepted by an underwriter or which an underwriter is willing to accept. “I will take a line (share) of X%” When it refers to a line that is entered on a slip it is commonly expressed as a percentage of the limit of indemnity.
The word is also loosely used to describe; a class of business. “I underwrite the following lines of business

LINE Version 2 A term used specifically in connection with a Surplus Treaty. One line is equal to the reinsured’s retention on a risk. A Surplus Treaty (proportional) is likely to have its total capacity expressed as x number of lines, subject to a maximum treaty capacity e.g. Retention 100,000 – 10 Line Surplus, Max Limit for 1 Risk 1,000,000

LINE Version 3 Class of Business “we underwrite these Lines” (Classes)

LINE SLIP– An agreement between a group of two or more insurers and a broker according to which each member of the group agrees to accept a proportion of all risks of a specified type that are underwritten by one or more designated members of the group who act as leading underwriters. Normally business may only be produced to the line slip by the broker who placed it.  Under a line slip the Binding Underwriters are taking a share of the risk themselves and binding other Underwriters. See also Binding Authority.

LINE TO STAND See Written Line

LLOYD’S – Depending on the context this term may refer to – (a)  the Society of individual and corporate underwriting members that insure and reinsure risks as members of one or more syndicates. Lloyd’s is not an insurance company; (b) the underwriting room in the Lloyd’s Building in which managing agents underwrite insurance and reinsurance on behalf of their syndicate members. In this sense Lloyd’s should be understood as a market place; or (c) the Corporation of Lloyd’s which regulates and provides support services to the Lloyd’s market.

LLOYD’S ACT (1992)– The most recent of seven private Acts of Parliament that define the powers of the Society of Lloyd’s. The Council of Lloyd’s was made the governing body of Lloyd’s under this Act.

LLOYD’S AGENT  – A firm that is appointed to conduct or arrange surveys of ships and cargoes for Lloyd’s underwriters, other insurers and commercial interests throughout the world. Many Lloyd’s agents also undertake non-marine surveys, act as loss adjusters and provide information about shipping movements and losses. There are over 300 Lloyd’s agents, 160 of whom have authority to settle claims on behalf of Lloyd’s underwriters and insurance companies. Not to be confused with a Lloyd’s Managing Agent.

LLOYD’S AMERCAN TRUST FUNDs   Trust fund(s) that are maintained in the USA for the protection of holders of US dollar denominated policies issued prior to 31st July 1995

LLOYD’S BROKER– A firm (or individual) that is permitted by the Council of Lloyd’s to broke insurance business at Lloyd’s, which is to say to place insurance and reinsurance risks with and on behalf of syndicates.

LLOYD’S CANADIAN TRUST FUND– A trust fund that is maintained in Canada for the protection of holders of insurance policies covering Canadian risks. It is a premiums trust fund.

LLOYD’S DOLLAR TRUST FUND – These funds are maintained in the USA for the protection of holders of US dollar denominated policies which incepted on or after 1 August 1995 (when the fund was established). They are premiums trust funds.

LLOYD’S FRANCHISE BOARD– A committee of the Council of Lloyd’s which is responsible for developing and directing the implementation of the commercial policy of the Lloyd’s Franchise and for directing and regulating the business at (re)insurance of Lloyd’s. Lloyd’s Franchise Board is answerable to the Council of Lloyd’s.

LLOYD’S MARKET – This term may refer to the place where business is transacted between managing agents and Lloyd’s brokers (see underwriting room) or to the syndicates that provide cover at Lloyd’s.

LLOYD’S MARKET BOARD– The committee of the Council of Lloyd’s that was formerly responsible for the development and growth of Lloyd’s worldwide business. It was abolished in 2002 in anticipation of the transfer of its responsibilities to Lloyd’s Franchise Board.

LLOYD’S MANAGING AGENT Is responsible for the day to day managing of the syndicate and for reporting to the Franchise Board as well.

LLOYD’S REGULATORY BOARD – The committee of the Council of Lloyd’s that was formerly responsible for the regulation of the Lloyd’s market. It was abolished in 2002 in anticipation of the transfer of its responsibilities to Lloyd’s Franchise Board

LLOYD’S POLICY SIGNING OFFICE  (LPSO) Lloyd’s Policy Signing Office used to be part of the Corporation of Lloyd’s.  Its initial purpose was to take responsibility for the Checking and Signing of all policies on behalf of all subscribing underwriters. This role over time evolved into handing Premiums and Claims on behalf of most if not all Lloyd’s Underwriters.

LLOYD’S SOVENCY TEST – A test that is undertaken annually to ensure that members of the Society have sufficient eligible assets to meet their underwriting liabilities. The test is undertaken at member level and also on an aggregate basis for all members taking in account the centrally held assets of the Society such as the Central Fund. Any member that fails the solvency test at member level will be required to provide additional funds or cease underwriting. The centrally held assets of the Society must be sufficient to cover any shortfall of assets at member level.

LLOYD’S SYNDICATE A grouping together of investors whether individuals (called Names or Members ) or Corporate (Corporate Members) to accept (Re)insurance under the banner of Lloyd’s.

LLOYD’S UNDERWRITERS– This term may variously refer to –
(a)  the professional underwriters who are employed by Lloyd’s Managing Agents to underwrite insurance and reinsurance business on behalf of the members of the syndicates  that those agents manage.
(b) the members of one or more syndicates that underwrite a particular policy; or
(c)  all members (of the Society) collectively.

LLOYD’S WAITER– A liveried member of Lloyd’s staff

LMA (Lloyd’s Market Association) A trade association representing Lloyd’s syndicates

LMBC (LONDON MARKET BROKERS COMMITTEE) . Was a Trade Association representing London Brokers, especially Lloyd’s Brokers, now referred to as LIIBC (London and International Insurance Brokers Association)

LMP (London Market Principles) The name given in the early 2,000’s to the plan to introduce Contract Certainty at placement time – deal now, detail now.  As the project developed it name was changed to MRS (Market Reform Slip) and this in turn was revised to MRC (Market Reform Contract)

LMP slip – A standard form slip introduced as part of a process to improve standards of placing slips and contract certainty into the London Market. As it has evolved its name has also changed – now referred tp as the MRC (Market Reform Contract)

LOD – Losses Occurring During see Period

LONDON MARKET A very general description of all of the component parts making up the insurance and reinsurance market place in London. e.g. Lloyd’s, Companies, Brokers, Loss Adjusters, Solicitors, Accountants………..

LONG TAIL  A term used to describe an insurance risk that has the potential for claims development or new claims to be reported a number of years after expiry of the term of the policy. e.g. Liability Classes, Employer’s Liability. NOT to be confused with LONG TERM. See also Short Tail the converse e.g The Property classes, where results should be known fairly quickly

LONG TERM
Normally refers to a Life Policy – a policy that will go on for a long period of time. NOT to be confused with LONG TAIL

LOSS – This term generally refers to some injury, harm, damage or financial detriment that a person sustains. Losses may be insured or uninsured. Whether a loss is covered by a policy or certificate of insurance depends on the terms of that document and local law.

LOSS ADJUSTER– A person who is appointed to investigate the circumstances of a claim under an insurance policy and to advise on the amount that is payable to the policyholder in order to settle that claim. Loss adjusters are generally appointed by underwriters.

LOSS EVENT– The event which causes a loss, for example a fire or hurricane.

LOSS BURDEN Sum of all losses pertaining to a specific period of cover

LOSS FREQUENCY Ratio of expected number of losses to the number of risks in a specified time period

LOSSES OCCURRING BASIS (LOD)
One of the bases of cover under a Excess of Loss Contract (X/L) – see Period
A system utilised in excess of loss reinsurance whereby the reinsurer is responsible for all claims occurring during the currency of the treaty without reference to the period of the original policies.

LOSS PORTFOLIO See also Portfolios. A payment made to an incoming reinsurer or charged to an outgoing reinsurer  in respect of  losses outstanding as at the dates of inception or cancellation of a proportional reinsurance treaty  respectively. It is normally calculated at 90% of the Case Reserves for the share of the risks ceded to the treaty. It is normally adjustable in the event of major discrepancies, at the option of the reinsured after three years. This is rarely done.

 LOSS PORTFOLIO TRANSFER (LPT)
A financial reinsurance contract under which liabilities for all outstanding losses including any IBNR (incurred but not reported losses) are transferred to a Third Party. Peace of mind for the Reinsured and the regulator.

LOSS RATIO Losses expressed as a percentage of Premiums

LOSS RATIO STABILISATION COVER See “Stop Loss Reinsurance”

LOSS RESERVES– see Reserves

LSW London Special Wording
A clause or wording that has been designed for and by the whole market – not for one particular party.
e.g. LSW1001 (Several Liability Clause) is a generic clause stating that if one (re)insurer goes into liquidation the other (re)insurers shares do NOT increase
LMA 3333 (Several Liability Clause) concept the same but makes very specific additional mention of Lloyd’s

MANAGING AGENT (Lloyd’s)– A company that is permitted by Lloyd’s to manage the underwriting of a syndicate. A managing agent is deemed to be an “authorised person”.

MANAGING GENERAL AGENT – see MGA
MANAGING GENERAL UNDERWRITER – see MGU

MandD – see Minimum and Deposit Premium

MARKET AGREEMENT– An agreement between all the underwriters in a certain section of the Lloyd’s market.

MAR POLICY:   A market term for the form of marine policy used by Lloyd’s and the London company market. It is a basic contract form to which the conditions agreed by the insurers subscribing a marine insurance contract are  attached.

MARINE INSURANCE ACT (1906). Consolidating legislation that set out a range of Rules Governing Insurance and Marine Insurance in particular. In the 2010’s some of the Acts’ core principles were reviewed

MARKET VALUE CLAUSE:   A provision that may be used in property damage insurance form covering some risks which obligates the insurance company, in the event of loss, to pay the established cash selling price of the destroyed or damaged stock, rather than the actual case value as provided in the Standard Fire Policy.

MATERIAL FACT– This refers to any fact which would influence the judgment of a prudent underwriter in deciding whether to accept an insurance/reinsurance risk and the terms on which he would be willing to grant cover. See Duty of disclosure.

MATERIAL REPRESENTATION– A statement that is made to an underwriter during the negotiation of cover or the amendment or renewal of cover which would have influenced the judgment of a prudent underwriter in deciding whether to accept an insurance/reinsurance risk and the terms on which he would be willing to grant cover.

MEDIATION A form of Alternative dispute resolution in which the parties agree to submit the dispute to an impartial mediator, whose purpose and goal is to achieve  is to achieve a mutually acceptable settlement and compromise  rather than issue a formal ruling.

MDP – see Minimum and Deposit Premium

MEANS – The minimum level of wealth that a member of Lloyd’s must demonstrate he, she or it has in order to underwrite at Lloyd’s. The means of all members must be held in approved form and must be maintained in value so long as the member has actual or potential outstanding underwriting liabilities.

MEMBER (OF THE SOCIETY OF LLOYD’S) A person admitted to membership of the Society. There are two types of member: an individual member (otherwise known as a Name) and a Corporate member.

MEMBERS AGENT (Lloyd’s) An agent appointed by a member to provide services and perform duties of the same kind and nature as those set out in the standard members’ agent’s agreement. These services and duties include advising the member on which syndicates he should participate and the level of participation on such syndicates and liaising with the members’ managing agents. When there were 000’s of “names” e.g 32,000 in the Mid 1980’s this was a thriving area of operation.

MEMBERS AGENT’s AGREEMENT  (Lloyd’s) A standard form of contract between a member and his member’s agent, which sets out the services, duties, powers and remuneration of the member’s agent and obligations of the member. The terms of the contract with the exception of the amount of the members’ agent’s remuneration are set by the Council of Lloyd’s.

MEMBERS ALLOCATED CAPACITY (Lloyd’s) That part of overall premium limit of a member  that is allotted to a particular syndicate for a given year of account. It represents the amount of premium that the Member may accept in respect of that syndicate for that year of account.

MGA (Managing General Agent)
An insurance agent who is vested with underwriting authority from an insurer. Depending on the agreement MGAs can perform functions ordinarily handled only by insurers, such as binding coverage, underwriting and pricing and settling claims.

MGU (Manging General Underwriter)
Used in life and health companies instead of managing general agent (MGA). The terms have been used interchangeably, and there is little real distinction

MIA (1906) – see Marine Insurance Act (1906)

MINIMUM PREMIUM:   The smallest premium which an (re)insurer will accept for writing a particular contract for a designated period. In Excess of Loss reinsurance there is also likely to a Deposit Premium payable, probably Quarterly, in advance. (At the start of each Quarter).

MINUMUM AND DEPOSIT PREMIUM (MandD)
The initial premium payable by the reinsured under an Excess of Loss contract. This is normally payable in equal instalments e.g. 1/1,1/4, 1/7, 1/10, with an adjustment the end of the year based on the reinsured’s final GNPI (Gross Net Premium Income)

MISREPRESENTATION OF RISK– A misstatement of fact that is made by the insured or his broker to an underwriter during the negotiation of the placement, amendment or renewal of cover which causes the underwriter to grant, amend or renew cover on an incorrect basis of fact. If the misrepresentation is material the underwriter may avoid the contract on the basis that the insured has breached his duty of utmost good faith. Compare duty of disclosure.

MIXED SYNDICATE – A syndicate which is made up of Names and/or MAPAs and corporate members.

MORAL HAZARD – Those personal characteristics of a prospective insured or its employees or associates that may increase the probability or size of an insurance loss.

MPL (Maximum Possible Loss) One of a series of initials such as EML (Estimated Maximum Loss) used to highlight that the numbers being quoted are not based on the actual value at risk. “Possible” – Things that should help reduce an insurance loss,  do work as they were intended to.

MPL (Maximum Probable Loss). One of a series of initials such as EML (Estimated Maximum Loss) used to highlight that the numbers being quoted are not based on the actual value at risk. “Probable” – Things that should help reduce an insurance loss, are in place and do work as they were intended to.

MRC – Market Reform Contract – The official name given to London Market Placement documents (The slip), to reflect the fact that the market placements have been reformed to be based on “deal now, detail now, contract certainty at placement time, whereas previously it had been based on deal now, detail LATER (if you were lucky). The word “contract” was intentionally chosen to make it clear that a fully claused document with underwriters’ shares attached could operate as the final contract – thus no need for a Specific Policy.

MRS (Market Reform Slip) the name of the document used for placing risks after the initial phase of Contract Certainty when it was called a LMP (London Market Principles) slip.

Multi Line contracts Insurance or reinsurance contracts whose cover extends over several main classes of business.

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