2114 3291 Corinthian Pitch Book Design Revision Digital - Flipbook - Page 12
GLOSSARY
Call Down
A request by the Fund for additional
capacity in the form of an increasing
amendment to an existing LOC from
amounts previously committed.
Cash Flow
The anticipated future availability of
unrestricted cash movements derived from
underwriting activities on a cell by cell, book
by book and treaty by treaty basis.
Catastrophic Risk
Underwriting risk exposures in dollar value
that are many multiples of premiums
assumed. Typically, these risks, while low
probability events, expose the capital base
of a reinsurer since the premiums received
are very low relative to the potential
maximum payout.
Gross Written Premium
The insurance premiums paid by the
ultimate insured policyholders before any
deductions are made for commissions,
aggregate risk protection or any other
program costs associated with the
reinsurance facility on offer.
High Frequency And Low Severity Risk
Insurable events are categorized as a
combination of frequency and severity.
Catastrophic risks are typically considered
high severity, low frequency events (such as
natural disasters). Personal lines automobile
risks are typically considered low severity,
high frequency events.
Letter Of Credit
A financial instrument issued by one
financial institution to another, backed by
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the full faith and credit of the issuing bank,
but almost always ultimately collateralized
by the grantor or customer. Investors issue
LOCs to participate in Proventus, and the
reinsurance companies use the pooled
value of the LOCs to issue outgoing LOCs
to third parties to collateralize underwriting
obligations.
Non-Correlated Risk
attaching context, refers to a defined
period of time (usually 12 months) during
which risks are added with each and every
insurance policy underwritten by the carrier.
Reinsurance
Insurance provided by one licensed
insurance company to another licensed
insurance company.
Risk and return profiles that are not
influenced or impacted by the broader
market of available investing opportunities.
In the context of this investment
opportunity, diversification of geography,
risk type, agent style, carrier participation,
etc. creates a risk return profile that shares
little to nothing with broader market
movements in traditional equity, fixed
income or vanilla alternative investment
opportunities.
Risk-Controlled Investment
Non-Traditional Underwriting
Insurance risk is often categorized by the
length of an insurable events life cycle,
moving from triggering event (date of loss,
or date first reported) through to final claim
settlement or closure. The length of this
event life cycle is characterized as short
or long. The longer the tail cycle following
the identification of an insurable event, the
higher the degree of uncertainty regarding
ultimate claim settlement and therefore,
more risk. Shorter tailed types of risk are
identified as being more predictable in large
numbers than the longer tailed counterpart
risks and is the risk type that these programs
seek out.
Non-Traditional Underwriting, in this
context, seeks to understand the relative
characteristics of a reinsurance program
opportunity by evaluating alignment of risks,
as reflected in mutual participation across
the transactional chain and reasonable of
collateralization.
Proxy Underwriters
Reinsurance panel participants on a
program and in many (though not all) cases,
the commercial insurance carrier issuing
the paper, employ underwriting expertise
to evaluate traditional underwriting risks.
Where identified participant panel subject
experts find the traditional underwriting
metrics appropriate, the Company leverages
that decision making process and considers
it proxy underwriting.
Quota Share Treaty Reinsurance Program
A reinsurers participation behind an
issuing commercial insurance company,
on a portion of the liability of a reinsurance
treaty. A reinsurance treaty, in a risk
Program Directors seek to participate on
quota share treaty reinsurance transactions
that can be reasonably collared from a risk
standpoint through the purchase and use
of loss limitation clauses negotiated into
reinsurance agreements and/or third party
provided aggregate stop loss contracts.
Shorter-Tailed Businesses
Sliding Commission Scale Structures
From the perspective of a reinsurer,
commissions as a concept, or a standard
deduction from gross premiums assumed
to arrive at net premiums to be ceded.
Commissions encompass everything
from producer fees, fronting fees, taxes,
claims administration, etc. A contractual
feature that is consistently negotiated
into a reinsurance agreement is a sliding
commission structure that scales up or
down directly with the ultimate loss (and
loss adjustment expense) ratio. This slide
mechanism has two primary results: (1) it
aligns the interests of the producers with
the reinsurers by ensuring that losses above
expectations are first born by the producers,
and (2) it provides a great ability to predict
ultimate underwriting margin as the range
of potential loss outcomes can be large, but
still produce the same expected margin.
Statutory Capital
A regulatory definition of what can be
considered an asset for determining
adequate and appropriate capitalization
under the local insurance regulations and
laws.
Stop-Loss Control
A contractual feature within a reinsurance
contract, or a purchased standalone
contract that achieves the same outcome,
that seeks to limit the maximum potential
loss to the reinsurer from either a specific
loss event, all loss events together in
aggregate, or some combination of both.
Uncovered Positions
Underwriting risks assumed on a
reinsurance basis without loss limitation or
aggregate stop loss contracts capping the
maximum potential exposure on a specific
treaty year.
Underwriting Retention
The amount of participation being assumed
on a reinsurance treaty arrangement by
any party to the contract. The insurance
carrier offering reinsurance participation
has the option of reinsuring 0% to 100% of
the risk they’re underwriting. The amounts
retained by the insurance carrier, from
the perspective of the reinsurer, is the
underwriting retention being assumed by
the insurance carrier.
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