Underwriting & Risk Glossary

The discipline that applies mathematical and statistical methods to assess risk in insurance, including calculating premiums, reserves, and the financial impact of uncertain future events.

A deductible that applies to the total of all losses during a policy period rather than to each individual loss, common in commercial property and liability insurance.

The ratio of actual incurred losses to the value at risk over a period, used as a basis for pricing insurance, particularly in reinsurance and large commercial risks.

An insurance company created and owned by a business or group of businesses to insure their own risks, combining self-insurance with the regulatory structure of a licensed insurer.

A high-yield financial instrument that transfers catastrophic risk from insurers and reinsurers to capital market investors, with investors losing principal if a specified catastrophe event occurs.

An arrangement where multiple insurers jointly share a large risk, with each taking a specified percentage share of the premium and claims, commonly used for major industrial risks.

The state of being subject to the possibility of loss, measured by the value of property at risk, the number of units insured, or the potential liability amount.

A premium calculation method that adjusts rates based on the insured's own past claims experience, rewarding good loss histories with lower premiums and penalizing poor histories.

A non-proportional reinsurance arrangement where the reinsurer pays losses that exceed a specified retention amount, up to a defined limit, per occurrence or in aggregate.

A type of reinsurance arranged on a case-by-case basis for individual risks, where the reinsurer has the option to accept or decline each risk presented.

Financial instruments whose value is tied to insurance loss events, allowing insurers to transfer risk to capital markets and investors to access uncorrelated returns.

The number of losses occurring during a given period, used by underwriters and actuaries to predict how often future losses will happen for a particular risk category.

The average cost per loss event, used in conjunction with loss frequency to estimate total expected losses and set appropriate insurance premiums.

The historical record of claims made by an insured or within a risk category, used by underwriters to evaluate past performance and predict future loss potential.

The additional amount added to the pure risk premium to cover the insurer's administrative expenses, profit margin, contingency reserves, and commission payments.

Measures and practices designed to reduce the frequency and severity of insurance losses, such as fire suppression systems, security systems, and safety training programs.

Activities and techniques aimed at minimizing the impact of losses that do occur, including emergency response plans, salvage operations, and damage mitigation measures.

The increased risk that a policyholder may act less carefully or more recklessly because they know they are protected by insurance, potentially leading to more or larger claims.

The tendency of an insured party to be careless about preventing loss because insurance provides financial protection, distinct from moral hazard which involves intentional acts.

A reinsurance arrangement where the reinsurer only pays when losses exceed a specified threshold (retention), typically structured as excess-of-loss or stop-loss coverage.

An event or series of related events that gives rise to one or more insurance claims, with the definition of what constitutes a single occurrence often central to coverage disputes.

A tangible condition or characteristic of property that increases the likelihood or severity of loss, such as faulty wiring, poor construction, or proximity to flood zones.

A specific cause of loss that may trigger an insurance claim, such as fire, flood, theft, earthquake, or collision, which the insurance policy either covers or excludes.

A reinsurance arrangement where the reinsurer shares a fixed percentage of premiums and claims with the insurer, with both parties participating proportionally in all gains and losses.

The largest loss that an insurer expects could occur under a given set of circumstances, used in underwriting to determine policy limits, reinsurance needs, and accumulation management.

The systematic evaluation of potential risks associated with insuring a particular property, person, or business, including the likelihood and potential severity of loss.

The process of grouping similar risks together for pricing purposes, based on characteristics such as property type, location, construction, occupancy, and protection measures.

The underwriting process of choosing which risks to insure and which to decline, based on the insurer's appetite, expertise, and portfolio balance.

The practice of an insured or insurer choosing to bear a portion of the risk rather than transferring it, through mechanisms such as deductibles, self-insured retentions, or captive insurance.

The shifting of financial risk from one party to another, most commonly through insurance where the policyholder transfers risk to the insurer in exchange for premium payment.

Insurance purchased by an insurance company from another insurer (reinsurer) to transfer a portion of its risk exposure, protecting against large or catastrophic losses.

Reinsurance purchased by a reinsurer from another reinsurer, further spreading catastrophic risk exposure through additional layers of risk transfer.

A group of insurance risks combined together to be shared among multiple insurers, spreading potential losses and stabilizing results for difficult-to-insure risk categories.

The technical assessment and improvement of insured risks through engineering analysis, safety recommendations, and loss prevention measures, conducted by specialist risk engineers.

A risk management approach where an organization sets aside its own funds to cover potential losses instead of purchasing insurance, typically used by large corporations for predictable, high-frequency losses.

A reinsurance arrangement that limits the total aggregate losses an insurer bears during a policy period, with the reinsurer covering losses beyond the specified threshold.

An ongoing reinsurance agreement where the reinsurer agrees to accept a defined category or portfolio of risks from the insurer automatically, without individual risk evaluation.

The process by which an insurer evaluates risks, determines whether to accept or reject an insurance application, and sets the terms, conditions, and premium for coverage.