A captive insurer is an insurance company that insures the risks of associated business. For example, a parent corporation may own both an operating company and a captive insurance company as brother-sister subsidiaries where the captive insures risks of the operating company; such as for illustration: ABC Parent Corporation owns both ABC Manufacturing Company and ABC Captive Insurance Company and ABC Captive Insurance Company insures certain of the risks of ABC Manufacturing Company. This arrangement is often called a single-owner captive. There are many other forms of captive. As an example of an alternative arrangement, a captive may be owned by a number of unrelated companies in the same industry and insure a set of risks unique or common to that group of companies. This form of captive is often referred to as an association captive (meaning that it insures a specific industry or trade group). There are many more ways of classifying captives by type, e.g., pure captives (those that write no outside business) and so on.
Loss in excess of the working layer, usually of such magnitude as to be difficult to predict and therefore rarely self-insured or retained.
A form of reinsurance that indemnifies the ceding company for the accumulation of losses in excess of a stated sum arising from a single catastrophic event or series of events.
A ceding insurer or reinsurer. A ceding insurer is an insurer that underwrites and issues an original, primary policy to an insured and contractually transfers (cedes) a portion of the risk to a reinsurer. A ceding reinsurer is a reinsurer that in turn transfers (cedes) a portion of its reinsurance layer to a retrocessionaire.
A percentage of the reinsurance premium retained by a ceding company to cover its acquisition costs, and sometimes, to provide a profit.
An amount of money set aside to meet future payments associated with claims incurred but not yet settled at the time of a given date.
The sum of two ratios, loss and expense, calculated by dividing incurred losses and all other expenses by earned premiums. Used in both insurance and reinsurance, combined ratio below 100 percent indicates an underwriting profit.
The captive undertakes policy buybacks with all parties to remove their obligations and liabilities. Front companies often undertake this but some are reluctant or price it to be unattractive. If the captive wrote direct policies then the insured would have to take liabilities back, which may not be attractive to the corporate parent.
This covers an insured's income loss resulting from covered losses experienced by an entity which the insured relies upon, i.e. suppliers, manufacturers, distributors.
In reinsurance, an allowance payable to the ceding company in addition to the normal ceding commission allowance. It is a predetermined percentage of the reinsurer's net profits after a charge for the reinsurer's overhead, derived from the subject treaty.
An actuarial term describing the degree of accuracy in forecasting future events based on statistical reporting of past events. Credibility tends to increase with the number of exposure bases in the observed data and to decrease with higher levels of variability in the observed data.