Glossary

As with many other industries, the reinsurance industry has its own terminology. The following glossary provides explanations of specific words or expressions you will find on various parts on this website.

A
Accident insurance	Insurance of individuals or groups against economic risks in the event of death or temporary or permanent disability by accident. A branch of non-life insurance.
Accumulation risk	Risk that arises when a large number of individual risks are correlated such that a single event will affect many or all of these risks.
Acquisition costs	Cost of acquiring, maintaining and renewing insurance business: it includes the intermediaries’ commission, the company’s sales expense, and other related expenses.
Admin Re^SM	Acquisition of a closed block of in-force life and health insurance business either through acquisition or reinsurance, typically assuming the responsibility to administer the underlying policies. Admin Re^SM can also extend to the acquisition of an entire life insurance company.
Asset-backed securities	Security backed by notes or receivables against assets such as auto loans, credit cards, royalties, student loans and insurance.
Asset-liability management (ALM)	Management of a business in a way that coordinates decisions on assets and liabilities. Specifically, the ongoing process of formulating, implementing, monitoring and revising strategies related to assets and liabilities in an attempt to achieve financial objectives for a given set of risk tolerances and constraints.
Aviation insurance	Insurance of accident and liability risks, as well as hull damage, connected with the operation of aircraft.
B
Business interruption insurance	Insurance covering the loss of earnings resulting from, and occurring after, destruction of property; also known as “loss of profits” or “business income protection insurance”.
C
Capacity	Maximum amount of risk that can be accepted in insurance. One factor in determining capacity is government regulations that define minimum solvency requirements. Capacity also refers to the amount of insurance coverage allocated to a particular policyholder or in the marketplace in general.
Casualty insurance	Branch of insurance, mainly comprising accident and liability business, which is separate from property, engineering and life insurance. In the US this term is used for non-life insurance other than fire, marine and surety business.
Catastrophe bonds (cat bonds)	Insurance-linked securities that allow (re)insurance companies to transfer peak insurance risks, including natural catastrophes, to the capital markets in the form of bonds. Catastrophe bonds help to spread peak exposures.
Cession	Insurance that is reinsured: the passing of the insurer’s risks to the reinsurer against payment of a premium. The insurer is referred to as the ceding company or cedent.
Claim	Demand by an insured for indemnity under an insurance contract.
Claims handling	Activities in connection with the investigation, settlement and payment of claims from the time of their occurrence until settlement.
Claims incurred and claim adjustment expenses	All claims payments plus the adjustment in the outstanding claims provision as well as expenses for evaluating and settling claims.
Claims ratio	Sum of claims paid, change in the provisions for unpaid claims and claim adjustment expenses in relation to premiums earned.
Coinsurance	Arrangement by which a number of insurers and/or reinsurers share a risk.
Combined ratio	Sum of the non-life claims ratio and the expense ratio.
Commission	Remuneration paid by the insurer to its agents, brokers or intermediaries, or by the reinsurer to the insurer, for costs in connection with the acquisition and administration of insurance business.
Commutation	Transaction in which policyholders or insurers surrender all rights and are relieved from all obligations under an insurance or reinsurance contract in exchange for a single current payment.
Cover	Insurance and reinsurance protection based on a contractual agreement.
Credit insurance	Insurance against financial losses sustained through the failure, for commercial reasons, of policyholders’ clients to pay for goods or services supplied to them.
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D
Directors' and officers' liability insurance (D&O)	Liability insurance for directors and officers of an entity, providing cover for their personal legal liability towards shareholders, creditors, employees and others arising from wrongful acts such as errors and omissions.
Disability insurance	Insurance against the incapacity to exercise a profession as a result of sickness or other infirmity.
Diversification	Risk reduction technique that limits the risk of accumulation by spreading an organisation’s risks across different geographical locations as well as across different lines of business, in order to increase the number of mutually independent risks.
E
Embedded value	Actuarially determined estimate of the economic value of the in-force life and health insurance operations of an insurance company (excluding any value attributable to future new business). Embedded value earnings, defined as the change in embedded value over the year (after adjustment for any capital movements such as dividends and capital injections), provide a measure of the performance of the life and health operations of an insurance company.
Employers' liability insurance	Insurance taken out by employers covering employees against injuries arising out of their employment.
Engineering insurance	Insurance covering the construction and erection of objects, and the insurance of machinery in operating plants.
European Medium Term Note (EMTN)	Vehicle for raising funds by borrowing from the capital markets or from private investors. The EMTN programme itself is effectively a platform, under a standard documentation framework, from which to launch such issues on an ongoing basis.
Expense ratio	Sum of acquisition costs and other operating costs and expenses in relation to premiums earned.
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F
Facultative reinsurance	Reinsurance of the insurer’s risks on an individual basis. The reinsurance company looks at each individual risk and determines whether to accept or decline coverage.
Financial reinsurance	Reinsurance that combines risk transfer with elements of risk finance.
Fire insurance	Insurance against fire, lightning or explosion; it can also include insurance against windstorm, earthquake, flood and other natural hazards or political risks.
Funded cover	Reinsurance contract under which the ceding company pays premiums to build a fund from which to pay expected claims. The premium less the reinsurance charge is paid out to the ceding company in the future as claim payments, returned premiums, or contingent commissions.
G
Guaranteed Minimum Death Benefit (GMDB)	Feature of variable annuity business. The benefit is a predetermined minimum amount that the beneficiary will receive upon death.
H
Health insurance	Generic term applying to all types of insurance indemnifying or reimbursing for losses caused by bodily injury or sickness or for expenses of medical treatment necessitated by sickness or accidental bodily injury.

I
Impairment charge	Adjustment in the accounting value of an asset.
Incurred but not reported (IBNR)	Provision for claims incurred but not reported by the balance sheet date. In other words, it is anticipated that an event will affect a number of policies, although no claims have been made so far, and is therefore likely to result in liability for the insurer.
Industry loss warranties (ILW)	Index-linked catastrophe contracts with a dual trigger that require a minimum industry loss to occur before the coverage responds to the individual company loss.
Insurance-linked securities (ILS)	In risk securitisation, bonds for which the payment of interest and/or principal depends on the occurrence or severity of an insurance event. The underlying risk of the bond is a peak or volume insurance risk.
L
Layer	Section of cover in a non-proportional reinsurance programme in which total coverage is divided into a number of consecutive layers starting at the retention or attachment point of the ceding company up to the maximum limit of indemnity. Individual layers may be placed with different (re)insurers.
Liability insurance	Insurance for damages that a policyholder is obliged to pay because of bodily injury or property damage caused to another person or entity based on negligence, strict liability or contractual liability.
Life insurance	Insurance that provides for the payment of a sum of money upon the death of the insured. In addition, life insurance can be used as a means of investment or saving.
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M
Mandatory convertible bond	Bond that has a compulsory conversion or redemption feature. Either on or before a contractual conversion date, the holder must convert the mandatory convertible into the underlying stock.
Marine insurance	Line of insurance which includes coverage for property in transit (cargo), means of transportation (except aircraft and motor vehicles), offshore installations and valuables, as well as liabilities associated with marine risks and professions.
Motor insurance	Line of insurance which offers coverage for property, accident and liability losses involving motor vehicles.
N
Net reinsurance assets	Receivables related to deposit accounting contracts (contracts which do not meet risk transfer requirements) less payables related to deposit contracts.
Non-life insurance	All classes of insurance business excluding life insurance.
Non-proportional reinsurance	Form of reinsurance in which coverage is not in direct proportion to the original insurer’s loss; instead the reinsurer is liable for a specified amount which exceeds the insurer’s retention; also known as “excess of loss reinsurance”.
Nuclear energy insurance	Property and liability insurance for atomic reactors, power stations or any other plant related to the production of atomic energy or its incidental processes.
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O
Operating revenues	Premiums earned plus net investment income plus other revenues.
Operational risk	Risk arising from failure of operational processes, internal procedures and controls leading to financial loss.
P
Premium	The payment, or one of the periodical payments, a policyholder makes for an insurance policy.
Premiums earned	Premiums an insurance company has recorded as revenues during a specific accounting period.
Premiums written	Premiums for all policies sold during a specific accounting period.
Present value of future profits (PVFP)	Intangible asset primarily arising from the purchase of life and health insurance companies or portfolios.
Product liability insurance	Insurance of the liability of the manufacturer or supplier of goods for damage caused by their products.
Professional indemnity insurance	Liability insurance cover which protects professional specialists such as physicians, architects, engineers, lawyers, accountants and others against third-party claims arising from activities in their professional field; policies and conditions vary according to profession.
Property insurance	Collective term for fire and business interruption insurance as well as burglary, fidelity guarantee and allied lines.
Proportional reinsurance	Form of reinsurance in which the premiums and claims of the insurer are shared proportionally by the insurer and reinsurer.
Q
Quota-share reinsurance	Form of proportional reinsurance in which a defined percentage of all risks held by the insurer in a specific line is reinsured.
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R
Reinsurance	Insurance for insurance companies which spreads the risk of the direct insurer. Includes various forms such as facultative, financial, non-proportional, proportional, quota-share, surplus and treaty reinsurance.
Reserves	Amount required to be carried as a liability in the financial statements of an insurer or reinsurer to provide for future commitments under outstanding policies and contracts.
Retention	Amount of risk which the policyholder or insurer does not insure or reinsure but keeps for its own account.
Retrocession	Amount of the risk accepted by the reinsurer which is then passed on to other reinsurance companies.
Return on equity (ROE)	Net income divided by time-weighted shareholders’ equity.
Return on investments (ROI)	Investment result excluding result from assets held for linked liabilities divided by average invested assets. Invested assets include investments, funds held by ceding companies, net cash equivalents and net reinsurances assets. Average assets are calculated as opening balance plus one half of the net asset turnover at average foreign exchange rates.
Return on operating revenues	Life and Health business operating result (operating income excluding non-participating realised gains and losses) divided by operating revenues (premiums earned, fee income, net investment income, and participating realised gains and losses).
Return on total revenues	Financial Services operating result (operating revenues less the sum of acquisition costs, claims and claim adjustment expenses and operating costs) divided by operating revenues (premiums earned and net investment income plus trading revenues and fees and commissions).
Risk	Condition in which there is a possibility of loss; also used by insurance practitioners to indicate the property insured or the peril insured against.
Risk management	Management tool for the comprehensive identification and assessment of risks based on knowledge and experience in the fields of natural sciences, technology, economics and statistics.
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S
Securitisation	Financial transaction, in which future cash flows from assets (or insurable risks) are pooled, converted into tradable securities and transferred to capital market investors. The assets are commonly sold to a special-purpose entity, which purchases them with cash raised through the issuance of beneficial interests (usually debt instruments) to third-party investors.

Solvency II	Initiative launched by the European Commission to revise current EU insurance solvency rules. Solvency II focuses on capital requirements, risk modelling, prudential rules, supervisory control, market discipline and disclosure.
Stop-loss reinsurance	Form of reinsurance that protects the ceding insurer against an aggregate amount of claims over a period, in excess of either a stated amount or a specified percentage of estimated benefit costs. An example of this type of cover is Employer Stop Loss (ESL) which is used by US companies to cap losses on self-funded group health benefit programmes. The stop-loss can apply to specific conditions or aggregate losses.

Surety insurance	Sureties and guarantees issued to third parties for the fulfilment of contractual liabilities.

Surplus reinsurance	Form of proportional reinsurance in which risks are reinsured above a specified amount.

T
Tail VaR	See "Value at risk".

Treaty reinsurance	Participation of the reinsurer in certain sections of the insurer’s business as agreed by treaty, as opposed to single risks.

U
Underwriting result	Premiums earned less the sum of claims paid, change in the provision for unpaid claims and claim adjustment expenses and expenses (acquisition costs and other operating costs and expenses)..
V
Value at Risk (VaR)	Maximum possible loss in market value of an asset portfolio within a given time span and at a given confidence level. 99% VaR measures the level of loss likely to be exceeded in only one year out of a hundred, while 99.5% VaR measures the loss likely to be exceeded in only one year out of two hundred. 99% Tail VaR estimates the average annual loss likely to occur with a frequency of less than once in one hundred years.

Some of the terms included in the glossary are explained in more detail in note 1 “Organisation and summary of significant accounting policies” in the Financial Statements.

Swiss Re uses some of the definitions provided by the glossary of the International Association of Insurance Supervisors (IAIS).

Glossary

Catastrophe bonds (cat bonds)

Value at Risk (VaR)

Catastrophe bonds
(cat bonds)