Invento glossary · 100 terms

P&C Insurance Terms

The vocabulary of writing, rating, and administering property and casualty policies, from A to Z.

A

AAIS (American Association of Insurance Services): An advisory organization that develops standard policy forms, rating information, and statistical services for property and casualty insurers. Member carriers can adopt AAIS programs instead of building their own from scratch. This helps smaller and regional carriers offer filed, consistent products.; Example: A regional mutual insurer adopts the AAIS homeowners program, using its standard forms and rating information as the basis for its own state filing.
Actual cash value (ACV): A valuation method that pays the cost to replace damaged property minus depreciation for age and wear. It results in lower claim payments than replacement cost coverage. ACV is common on older property and on some personal property coverage.; Example: A 10-year-old roof that would cost 20,000 dollars to replace is valued at 8,000 dollars on an actual cash value basis after depreciation.
Actuary: A specialist who uses statistics and financial theory to measure risk. In P&C insurance, actuaries set rates, estimate loss reserves, and analyze trends. Their work underpins a carrier's pricing and financial stability.; Example: An actuary analyzes five years of claims data and recommends a 6 percent rate increase for homeowners policies in a hail-prone territory.
Additional insured: A person or organization added to a policy who is covered for specified claims, even though they are not the named insured. It is common in commercial contracts, where one party requires the other to extend coverage. Endorsements define exactly what the additional insured is covered for.; Example: A contractor adds a property owner as an additional insured on its general liability policy, as required by their construction contract.
Adjuster: The person who investigates a claim, determines whether it is covered, and settles the loss. Adjusters may work for the insurer, as independent contractors, or for the policyholder as public adjusters. Their findings determine how much is paid.; Example: After a kitchen fire, an adjuster inspects the damage, reviews the policy, and approves a 35,000 dollar claim.
Admitted carrier: An insurer licensed by a state's insurance department to sell insurance in that state. Its rates and forms are subject to state regulation. Policyholders of admitted carriers are generally protected by the state guaranty fund if the insurer fails.; Example: A homeowner buys coverage from an admitted carrier whose rates and policy forms were filed with and reviewed by the state.
Agent: A licensed representative who sells insurance on behalf of one or more insurers. Captive agents represent one company, while independent agents represent several. Agents often handle quotes, binding, and customer service.; Example: An independent agent compares quotes from three carriers and places a small business owner's coverage with the best fit.
Aggregate limit: The most a policy will pay for all covered losses during the policy period. Once the aggregate is used up, no further claims are paid until the policy renews. It is common in liability policies alongside a per-occurrence limit.; Example: A general liability policy has a 1 million dollar per-occurrence limit and a 2 million dollar aggregate limit for the year.
Application: The form a prospective policyholder completes with information about the risk. Underwriters use it to decide whether to offer coverage and at what price. Answers on the application become part of the basis for the policy.; Example: A restaurant owner's application lists the building's construction type, square footage, annual sales, and prior claims.

B

Bind: To put coverage into effect. Binding usually happens after a quote is accepted and before the formal policy is issued. Once bound, the insurer is obligated to cover losses under the agreed terms.; Example: The agent binds a commercial property policy at 2 p.m., so coverage is in force before the customer closes on the building that afternoon.
Binder: A temporary agreement that puts coverage in force until the formal policy is issued. It summarizes the key terms, such as coverages, limits, and effective date. Lenders often accept a binder as proof of insurance at closing.; Example: A homebuyer's lender accepts a binder as proof of coverage at closing, and the full policy arrives two weeks later.
Bordereau: A report listing the policies or claims covered under an agreement. It is commonly sent from managing general agents to carriers, or from carriers to reinsurers. Bordereaux let the receiving party monitor the business written on its behalf.; Example: Each month, an MGA sends the carrier a premium bordereau listing every policy it bound, with limits and premiums.
Broker: A licensed intermediary who represents the insurance buyer rather than the insurer. Brokers shop the market and place coverage with the carrier that best fits the client's needs. They are especially common for larger commercial risks.; Example: A broker markets a manufacturer's property and liability coverage to six carriers and recommends the best combination of price and terms.

C

Cancellation: Ending a policy before its expiration date. Either the insurer or the policyholder may cancel, subject to the policy terms and state law. Any unearned premium is usually refunded, sometimes with a penalty.; Example: A homeowner sells their house and cancels the policy midway through the term, receiving a refund of the unused premium.
Catastrophe (CAT): A single event, such as a hurricane, wildfire, or hailstorm, that causes many insured losses at once. Catastrophes can strain an insurer's finances and are a major reason carriers buy reinsurance. They are often tracked and reported separately from normal losses.; Example: A hailstorm generates 2,400 claims for a regional carrier in a single afternoon and is coded as a catastrophe event.
Ceded premium: The portion of premium an insurer pays to a reinsurer in exchange for transferring part of its risk. It reduces the premium the insurer keeps. Ceded premium is reported separately in financial statements.; Example: Under a 40 percent quota share treaty, an insurer cedes 4 million dollars of its 10 million dollars in written premium to its reinsurer.
Cedent: The insurer that transfers risk to a reinsurer. It is also called the ceding company. The cedent remains responsible to its policyholders even after buying reinsurance.; Example: A regional carrier acts as the cedent when it purchases catastrophe reinsurance from a global reinsurer.
Certificate of insurance (COI): A document that summarizes a policy's coverage as proof of insurance for a third party. It lists the insurer, policy numbers, limits, and effective dates. A COI provides information but does not change the policy's terms.; Example: Before a landscaping company starts work, the property manager requests a certificate of insurance showing its liability limits.
Claim: A policyholder's or third party's request for payment under the terms of a policy. The insurer investigates the loss and decides whether and how much to pay. Claim history also affects future pricing and eligibility.; Example: After a pipe bursts, a homeowner files a claim for water damage to their basement.
Claims-made policy: A liability policy that covers claims first made during the policy period, regardless of when the incident happened. Coverage is usually subject to a retroactive date. It is common for professional liability insurance.; Example: A doctor's claims-made policy covers a lawsuit filed this year, even though the treatment in question happened two years ago after the retroactive date.
Coinsurance: In property insurance, a clause requiring the insured to carry coverage equal to a set percentage of the property's value. If coverage falls short, the claim payment is reduced proportionally. Common coinsurance percentages are 80, 90, and 100 percent.; Example: A building worth 1 million dollars with an 80 percent coinsurance clause should be insured for at least 800,000 dollars; insuring it for 600,000 dollars reduces claim payments by a quarter.
Combined ratio: The loss ratio plus the expense ratio. It shows whether an insurer is making a profit on its underwriting. A combined ratio below 100 percent means an underwriting profit, and above 100 percent means a loss.; Example: A carrier with a 68 percent loss ratio and a 29 percent expense ratio has a combined ratio of 97 percent, an underwriting profit.
Commercial lines: Insurance products sold to businesses. Examples include commercial property, general liability, commercial auto, and workers compensation. Commercial lines often involve more complex underwriting than personal lines.; Example: A carrier's commercial lines unit writes property and liability coverage for restaurants, retailers, and contractors.
Commission: The payment an insurer makes to an agent or broker for placing a policy. It is usually a percentage of the premium and may differ for new and renewal business. Commissions are part of an insurer's underwriting expenses.; Example: An agent earns a 15 percent commission on a 4,000 dollar commercial policy, or 600 dollars.
Coverage: The protection a policy provides against specified losses. Coverage is defined by the policy's insuring agreements, limits, and exclusions. Different coverages within one policy may have different limits and deductibles.; Example: A homeowners policy includes coverage for the dwelling, personal property, loss of use, and personal liability.
Coverage form: The standardized document that defines what a policy covers, excludes, and requires of the insured. Many carriers use forms developed by advisory organizations such as AAIS or ISO. The form, together with the declarations and endorsements, makes up the policy.; Example: A carrier issues its commercial property policies on an AAIS coverage form, adding its own endorsements where needed.

D

Declarations page: The summary page of a policy. It lists the named insured, policy period, covered property or risks, limits, deductibles, and premium. It is usually the first page a policyholder reads.; Example: The declarations page shows a dwelling limit of 400,000 dollars, a 1,000 dollar deductible, and an annual premium of 1,850 dollars.
Deductible: The amount the policyholder pays toward a covered loss before the insurer pays. Higher deductibles usually lower the premium. Deductibles can be a flat amount or a percentage of the insured value.; Example: A policyholder with a 1,000 dollar deductible has a 6,000 dollar covered loss, so the insurer pays 5,000 dollars.
Direct written premium: Premium on policies an insurer writes itself, before any reinsurance is ceded. It measures how much business the carrier is producing. It is reported by line of business and state in regulatory filings.; Example: A carrier reports 50 million dollars of direct written premium in homeowners insurance for the year.

E

Earned premium: The portion of written premium that corresponds to coverage already provided. Premium is earned gradually over the policy period. Insurers use earned premium to calculate loss ratios.; Example: On a 1,200 dollar annual policy, 600 dollars has been earned at the six-month mark.
Effective date: The date and time a policy's coverage begins. Losses before the effective date are not covered. It is shown on the declarations page.; Example: A new auto policy has an effective date of 12:01 a.m. on June 1, so an accident on May 31 is not covered under it.
Endorsement: A written change to an existing policy that adds, removes, or modifies coverage. Endorsements can be issued at the start of a policy or mid-term. They often come with a premium adjustment.; Example: A homeowner adds an endorsement to cover a 15,000 dollar engagement ring, increasing the annual premium by 120 dollars.
Excess and surplus lines (E&S): Coverage written by non-admitted insurers for risks the standard admitted market will not insure. E&S carriers have more freedom in rates and forms. Policies are typically placed through specially licensed surplus lines brokers.; Example: A business with an unusual hazard that admitted carriers decline finds coverage through an excess and surplus lines insurer.
Excess of loss reinsurance: Reinsurance that pays losses above a set retention, up to a limit. The insurer keeps losses below the retention and the reinsurer covers the layer above. It protects against large individual losses or catastrophes.; Example: Under an excess of loss treaty, the insurer pays the first 1 million dollars of any loss and the reinsurer pays the next 4 million dollars.
Exclusion: A provision that removes specific risks, property, or circumstances from coverage. Exclusions clarify what the policy does not cover. Some can be bought back with an endorsement.; Example: A standard homeowners policy excludes flood damage, so the homeowner buys a separate flood policy.
Expense ratio: Underwriting expenses divided by premium. It shows how much of each premium dollar goes to operating costs such as commissions, salaries, and technology. Lower expense ratios give carriers more room to price competitively.; Example: A carrier spends 30 million dollars on underwriting expenses against 100 million dollars of premium, an expense ratio of 30 percent.
Experience rating: Adjusting a policyholder's premium based on their own past loss history compared with what is expected for similar risks. Better-than-expected history lowers premium, and worse history raises it. It is widely used in workers compensation.; Example: A manufacturer with fewer injuries than expected receives an experience modification that lowers its workers compensation premium by 12 percent.
Expiration date: The date and time a policy's coverage ends. Coverage stops unless the policy is renewed. It is shown on the declarations page.; Example: A policy with an expiration date of 12:01 a.m. on January 1 must be renewed to keep coverage in force into the new year.
Exposure: The basic unit of risk on which premium is calculated. Common exposure bases include insured value, square footage, payroll, sales, and number of vehicles. Premium is usually the rate multiplied by the exposure.; Example: A contractor's general liability premium is based on its payroll exposure of 800,000 dollars.

F

Facultative reinsurance: Reinsurance negotiated separately for an individual policy or risk. The reinsurer evaluates each risk and can accept or decline it. It is used for large or unusual risks that fall outside a carrier's treaties.; Example: A carrier buys facultative reinsurance for a single 50 million dollar office tower that exceeds its treaty limits.
Filing: Submitting rates, rules, or policy forms to a state insurance department. Depending on the state and line, filings may need approval before use or may be filed for information. Accurate, timely filings are central to compliance.; Example: A carrier files a 5 percent rate increase for homeowners policies with the state and implements it after approval.
First-party coverage: Insurance that pays the policyholder for their own losses. Property damage, theft, and business interruption are typical examples. It contrasts with third-party coverage, which pays others.; Example: When a storm damages a store's roof, the owner's first-party property coverage pays for the repair.

G

GAAP: Generally accepted accounting principles, the standard financial reporting rules used for investors and lenders. Insurers prepare GAAP statements alongside statutory statements for regulators. GAAP generally reflects a going-concern view of the business.; Example: An insurer reports higher equity under GAAP than its statutory surplus, partly because GAAP allows deferral of acquisition costs.
General liability (GL): Coverage for a business's legal liability for bodily injury and property damage to others. It also typically covers personal and advertising injury. GL is one of the most commonly purchased commercial coverages.; Example: A customer slips in a retail store and is injured, and the store's general liability policy covers the medical claim.

H

Homeowners policy: A personal lines package policy covering a home, personal belongings, additional living expenses, and personal liability. Coverage forms differ in which perils are covered. It is usually required by mortgage lenders.; Example: A family's homeowners policy pays to repair fire damage, replace furniture, and cover hotel costs while the house is repaired.

I

Incurred but not reported (IBNR): A reserve for losses that have happened but have not yet been reported to the insurer. Actuaries estimate IBNR from historical reporting patterns. It is especially important for liability lines, where claims may surface years later.; Example: At year end, a carrier sets aside 3 million dollars of IBNR reserves for liability accidents that occurred but have not yet been reported.
Incurred losses: Paid losses plus the change in loss reserves for a period. They represent the total cost of claims attributable to that period. Incurred losses are used to calculate the loss ratio.; Example: A carrier pays 5 million dollars in claims and increases reserves by 1 million dollars, for 6 million dollars of incurred losses.
Inland marine: Coverage for property that moves or is used in transportation, such as contractors' equipment, tools, and goods in transit. It also covers certain fixed property like bridges and communication towers. Inland marine forms are flexible and often tailored.; Example: A contractor buys inland marine coverage for 150,000 dollars of tools and equipment that move between job sites.
Insured: The person or organization covered by a policy. A policy may cover the named insured plus other defined insureds, such as family members or employees. Who qualifies as an insured is set out in the policy language.; Example: Under a homeowners policy, the named insured's spouse and children living in the home are also insureds.
Insurer: The company that issues a policy and pays covered claims. It is also called the carrier. Insurers are regulated by state insurance departments.; Example: A regional mutual insurer issues and services homeowners policies in four states.
ISO (Insurance Services Office): An advisory organization that provides standard policy forms, loss costs, and rating information to P&C insurers. It is part of Verisk. Many carriers base their products on ISO or AAIS programs.; Example: A carrier writes its commercial general liability business on ISO coverage forms with its own rate deviations.

L

Limit of liability: The maximum amount an insurer will pay under a policy or a specific coverage. Limits may apply per occurrence, per person, or in the aggregate. Losses above the limit are the policyholder's responsibility.; Example: A policy with a 300,000 dollar liability limit pays only that amount on a 400,000 dollar judgment, leaving the insured responsible for the rest.
Line of business: A category of insurance, such as homeowners, commercial auto, or workers compensation. Carriers track results, rates, and filings by line of business. Each line has its own forms and rating rules.; Example: A carrier's results show its homeowners line is profitable while its commercial auto line is losing money.
Loss adjustment expense (LAE): The cost of investigating and settling claims, separate from the claim payments themselves. It includes adjuster fees, legal costs, and claims staff expenses. LAE is often included in the loss ratio.; Example: A claim pays 20,000 dollars to the policyholder and incurs 2,500 dollars in adjuster and legal fees as loss adjustment expense.
Loss ratio: Incurred losses, often including loss adjustment expenses, divided by earned premium. It shows how much of each premium dollar goes to paying claims. It is a primary measure of underwriting performance.; Example: A carrier with 6 million dollars of incurred losses on 10 million dollars of earned premium has a 60 percent loss ratio.
Loss reserve: Money an insurer sets aside to pay claims that have occurred but are not yet settled. It includes reserves for known claims and for IBNR. Accurate reserving is essential to an insurer's solvency.; Example: When a liability lawsuit is filed, the carrier sets a 150,000 dollar loss reserve while the case proceeds.
Loss run: A report of an insured's claim history with an insurer. It usually lists claim dates, descriptions, amounts paid, and reserves. Underwriters request loss runs when evaluating new business.; Example: A business switching carriers provides five years of loss runs showing two small claims, helping it qualify for a better rate.

M

Managing general agent (MGA): An agency given authority by an insurer to underwrite, bind, and sometimes handle claims on its behalf. MGAs often specialize in niche markets. The carrier remains responsible for the policies the MGA writes.; Example: An MGA specializing in self-storage facilities underwrites and binds policies on behalf of a national carrier.
Mutual insurance company: An insurer owned by its policyholders rather than by shareholders. Profits may be returned to policyholders as dividends or kept to strengthen surplus. Many regional P&C carriers are mutuals.; Example: A farm mutual insurer returns a dividend to its policyholders after a year of favorable results.

N

NAIC: The National Association of Insurance Commissioners, the organization of US state insurance regulators. It develops model laws, statutory accounting principles, and financial reporting standards. Insurers file their statutory statements in NAIC formats.; Example: A carrier prepares its statutory annual statement following the NAIC's accounting and reporting instructions.
Named insured: The person or organization specifically named on the declarations page as the policyholder. The named insured has the broadest rights under the policy, such as cancelling or changing coverage. Others may qualify as insureds through the named insured.; Example: The declarations page lists Main Street Bakery LLC as the named insured on its commercial package policy.
Named perils: Coverage that applies only to the causes of loss specifically listed in the policy. If a peril is not listed, the loss is not covered. It is narrower than open perils coverage.; Example: A named perils policy covers fire, wind, and theft, but not damage from a burst pipe because that peril is not listed.
Non-renewal: An insurer's decision not to renew a policy when it expires. State laws usually require advance written notice and sometimes a stated reason. Policyholders must find replacement coverage before the expiration date.; Example: After several large claims, a carrier sends a non-renewal notice 60 days before the policy expires.

O

Occurrence policy: A liability policy that covers incidents that happen during the policy period, no matter when the claim is made. A claim filed years later is still covered if the incident occurred while the policy was in force. Most general liability policies are written on an occurrence basis.; Example: A contractor is sued in 2026 for faulty work done in 2023, and the occurrence policy in force in 2023 responds.
Open perils: Coverage for all causes of loss except those specifically excluded. It is also called special form coverage. The burden is on the insurer to show that an exclusion applies.; Example: Under an open perils policy, damage from a falling tree is covered because no exclusion applies to it.

P

Peril: A cause of loss, such as fire, wind, hail, lightning, or theft. Policies define which perils are covered. Rating often varies by exposure to specific perils.; Example: Wind and hail are the most significant perils for homeowners policies in the Great Plains.
Personal lines: Insurance sold to individuals and families. It includes homeowners, renters, personal auto, and umbrella coverage. Personal lines are typically more standardized and higher in volume than commercial lines.; Example: A carrier's personal lines division writes 80,000 homeowners and auto policies across three states.
Policy: The contract between insurer and insured that sets out coverage, terms, and conditions. It is made up of the declarations, coverage forms, and endorsements. The policy governs how claims are handled.; Example: A commercial policy combines a declarations page, a property coverage form, a liability coverage form, and six endorsements.
Policy administration system (PAS): The core insurance system that manages a policy across its life cycle. It handles quoting, rating, binding, issuing, endorsing, renewing, and cancelling. A modern PAS lets carriers launch products faster and keep accurate policy records.; Example: An underwriter quotes, binds, and issues a homeowners policy entirely within the policy administration system, which then schedules the renewal.
Policy period: The span of time between a policy's effective and expiration dates. Most P&C policies run for six months or one year. Coverage applies to losses that occur during this period, depending on the policy type.; Example: A commercial property policy has a one-year policy period from March 1 to March 1.
Policyholder surplus: An insurer's assets minus its liabilities, measured on a statutory basis. It is the financial cushion available to pay unexpected claims. Regulators and rating agencies watch it closely.; Example: A carrier with 200 million dollars of statutory assets and 140 million dollars of liabilities has 60 million dollars of policyholder surplus.
Premium: The amount a policyholder pays for insurance coverage. It is calculated from rates, exposures, and rating factors. Premium may be paid in full or in installments.; Example: A small business pays an annual premium of 3,200 dollars for its commercial package policy.
Premium audit: A review after the policy period of actual exposures, such as payroll or sales, to calculate the final premium. The initial premium is based on estimates. If actual exposures were higher, additional premium is owed; if lower, a refund is due.; Example: A premium audit finds a contractor's actual payroll was 900,000 dollars instead of the estimated 800,000, so additional premium is billed.
Pro rata cancellation: A cancellation in which the policyholder receives a refund of unearned premium in full proportion to the unused time. No penalty is applied. It is typical when the insurer cancels the policy.; Example: A 1,200 dollar annual policy cancelled by the insurer after three months returns 900 dollars on a pro rata basis.

Q

Quota share reinsurance: Reinsurance in which the insurer and reinsurer share premiums and losses in a fixed percentage. It helps carriers grow by reducing the capital they need to support each policy. It is often used by newer or fast-growing carriers.; Example: Under a 30 percent quota share, the reinsurer receives 30 percent of premiums and pays 30 percent of every loss.
Quote: An insurer's offer of coverage at a stated premium, based on the information provided. Quotes usually remain valid for a set period. The customer can accept the quote to bind coverage.; Example: A homeowner receives a quote of 1,650 dollars a year for a policy with a 400,000 dollar dwelling limit.

R

Rate: The price per unit of exposure used to calculate premium. Rates are developed by actuaries and filed with regulators. Premium is generally the rate multiplied by the exposure, adjusted by rating factors.; Example: A rate of 0.45 dollars per 100 dollars of building value produces a base premium of 2,250 dollars on a 500,000 dollar building.
Rate manual: The document containing an insurer's rates, rules, and rating factors for a line of business. Underwriters and rating engines follow it to calculate premiums. It is filed with regulators in most states.; Example: An underwriter checks the rate manual to find the factor for frame construction in rating territory 4.
Rating algorithm: The defined sequence of base rates, factors, and steps used to calculate a policy's premium. It specifies the order in which factors are applied and how results are rounded. Implementing it exactly as filed is essential for compliance.; Example: The rating algorithm starts with a base rate, applies territory, construction, and deductible factors in order, then adds policy fees.
Rating factor: A characteristic of a risk that raises or lowers premium in the rating algorithm. Examples include construction type, territory, protection class, and deductible. Each factor is supported by actuarial data.; Example: A home with a newer roof receives a rating factor of 0.92, lowering its premium by 8 percent.
Reinstatement: Restoring a policy that has lapsed or been cancelled, often after a missed payment is made. In reinsurance, it also means restoring a limit after it has been used by a loss. Reinstatement terms are set by the policy or treaty.; Example: A policy cancelled for non-payment is reinstated with no gap in coverage after the customer pays within the grace period.
Reinsurance: Insurance that insurers buy to transfer part of their risk to another company. It protects carriers from large or concentrated losses and supports growth. Reinsurance is arranged through treaties or facultative agreements.; Example: A coastal carrier buys catastrophe reinsurance so a major hurricane will not threaten its solvency.
Reinsurer: A company that accepts risk from insurers through reinsurance. Reinsurers spread risk across many carriers and regions. Their financial strength matters to the carriers that rely on them.; Example: A global reinsurer covers catastrophe losses for dozens of regional carriers across different states.
Renewal: Continuing a policy for a new term after it expires. Renewals may come with updated rates, terms, or coverages. Most carriers offer renewal automatically unless they choose to non-renew.; Example: At renewal, a homeowners policy continues for another year with a 4 percent premium increase.
Replacement cost: A valuation method that pays the cost to replace damaged property with new property of like kind and quality, without deducting depreciation. It provides fuller recovery than actual cash value. Insurers may require repairs to be completed before paying the full amount.; Example: A 10-year-old roof is replaced at a cost of 20,000 dollars, and replacement cost coverage pays the full amount minus the deductible.
Retention: The amount of risk an insurer keeps for its own account rather than ceding to reinsurers. The term also refers to the share of policies that renew. Both meanings are important measures of a carrier's strategy and health.; Example: A carrier keeps the first 500,000 dollars of every loss as its retention and also retains 88 percent of its policies at renewal.

S

Schedule rating: Adjusting premium up or down for characteristics of a specific risk that the base rates do not capture. Credits or debits are applied within limits set in the rate filing. Examples include management quality and safety programs.; Example: An underwriter applies a 10 percent schedule rating credit to a warehouse with an excellent sprinkler system and safety program.
Short-rate cancellation: A cancellation in which the refund of unearned premium is reduced by a penalty. It is typically used when the policyholder cancels before expiration. The penalty compensates the insurer for upfront costs.; Example: A policyholder cancels a 1,200 dollar annual policy after three months and receives a short-rate refund of about 810 dollars instead of 900.
Statutory accounting principles (SAP): The accounting rules set by the NAIC that US insurers follow when filing financial statements with state regulators. SAP is more conservative than GAAP and focuses on an insurer's ability to pay claims. For example, certain assets that cannot easily be turned into cash are excluded.; Example: Under SAP, an insurer cannot count certain furniture and equipment as admitted assets, which lowers its reported surplus.
Statutory annual statement: The detailed financial report each US insurer files annually with state regulators. It is prepared under SAP in a standard NAIC format. Regulators use it to monitor solvency and market conduct.; Example: A carrier files its statutory annual statement by March 1, including detailed schedules of premiums, losses, and reserves by line.
Subrogation: An insurer's right, after paying a claim, to recover the amount from the party responsible for the loss. It helps keep premiums down by shifting costs to those at fault. Recoveries may also reimburse the policyholder's deductible.; Example: After paying for water damage caused by a contractor's faulty plumbing, the insurer recovers the 30,000 dollars from the contractor's insurer through subrogation.

T

Territory: A geographic area used as a rating factor, because loss experience varies by location. Territories may be defined by ZIP code, county, or distance from the coast. They are filed as part of the rating plan.; Example: Homes in a coastal territory receive a higher rating factor than identical homes 50 miles inland.
Third-party coverage: Insurance that pays others for injury or damage the policyholder is legally responsible for. Liability insurance is the main form of third-party coverage. It also usually pays for the policyholder's legal defense.; Example: When a visitor is injured on a business's premises, the business's third-party liability coverage pays the visitor's claim.
Treaty reinsurance: A reinsurance agreement covering an entire class or portfolio of policies rather than one risk at a time. All policies that fall within the treaty terms are automatically covered. It is the most common form of reinsurance for regular business.; Example: A carrier's property treaty automatically reinsures every homeowners policy it writes during the year.

U

Underwriter: The professional who evaluates risks and decides whether and on what terms to insure them. Underwriters review applications, inspections, and loss history. They balance growth against profitability.; Example: An underwriter reviews a restaurant's application and inspection report and approves coverage with a higher deductible.
Underwriting: Evaluating a risk to decide whether to insure it, and at what price and terms. It combines guidelines, data, and professional judgment. Sound underwriting is the foundation of an insurer's profitability.; Example: During underwriting, the carrier learns a property has an outdated electrical panel and requires its replacement as a condition of coverage.
Underwriting guidelines: An insurer's written rules for which risks it will accept, decline, or refer for further review. They help underwriters make consistent decisions. Guidelines can also be built into rating and quoting systems.; Example: The underwriting guidelines decline homes with roofs older than 25 years unless an inspection shows them in good condition.
Unearned premium: The portion of written premium for coverage that has not yet been provided. It is a liability on the insurer's balance sheet. If a policy is cancelled, unearned premium is generally refunded.; Example: Three months into a 1,200 dollar annual policy, 900 dollars of the premium is still unearned.

W

Workers compensation: Insurance that provides medical and wage benefits to employees injured on the job. It is required for most employers by state law. In exchange, employees generally cannot sue their employer for workplace injuries.; Example: An employee who injures their back lifting boxes receives medical care and partial wage replacement through workers compensation.
Written premium: The total premium on policies issued or renewed during a period, whether or not the coverage period has passed. It measures how much business an insurer is producing. It becomes earned premium over the policy term.; Example: A carrier writes 12 million dollars of premium in January, which will be earned gradually over the following year.