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Reinsurance Glossary

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CaptivesAn entity created by a financial institution to insure or reinsure the entitys business. One reason to form a captive is the lack of availability of insurance or reinsurance.

Jumbo LimitsLimits placed on reinsurance offered on a contract or contracts to be reinsured automatically.

Letters of CreditA financial guaranty that there will be sufficient funds available if a valid claim is presented. It is used often as a way to obtain reserve credit.

Modified CoinsuranceA portion of the policy or block of policies normally given to the reinsurer is retained by the ceding company which establishes reserves for the business.

RetrocessionWhen a reinsurer reinsures part of the business it has assumed.

SecuritizationThe act of taking a block of business, pooling those risks and then selling portions of those risks to investors.

Special Purpose Reinsurance VehicleAn entity created to take ceding insurers risks, pool and then securitize them. If an event occurs, the SPRV makes a payment to the ceding company.

TreatyA contract that states the terms of a reinsurance transaction.

Reproduced from National Underwriter Life & Health/Financial Services Edition, January 23, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.