Earned premium after ceded reinsurance: the portion of net written premium attributable to the expired part of the policy period. The standard revenue base for the loss ratio and other underwriting measures.

The total direct and assumed premium an insurer writes, before deductions for ceded reinsurance and ceding commissions. Written means booked when the policy is issued, whether or not the premium has been collected or earned.

The amount an insurer charges to provide the coverage described in the policy. In a captive, premium is set by actuarial analysis of the insured's own exposures and, because it moves between related parties, must hold up to the arm's length standard.

The premium recorded on an insurer's books when a policy is issued, before any of it has been earned by the passage of the coverage period. Gross written premium is measured before ceded reinsurance, net written premium after. As the policy period elapses, written premium converts to earned premium, with the balance held as the unearned premium reserve.

A bank's commitment to pay on demand against conforming documents. In captive insurance, letters of credit collateralize the fronting insurer's reinsurance recoverable from the captive and can supplement cash and securities in meeting regulatory capital requirements.

The factor produced by experience rating, most prominent in workers compensation, that scales manual premium to the insured's own loss history. A mod of 1.0 is average for the class; below 1.0 earns a credit and above 1.0 a surcharge.

The loss level at which an excess insurance or reinsurance layer begins to pay. Losses below the attachment point stay with the underlying insurer or the captive's retention; losses above it belong to the excess layer up to its limit.

Proportional treaty reinsurance ceding a fixed percentage of every risk in the covered class, with premium and losses split at the same ratio. On a 30 percent quota share, the reinsurer takes 30 percent of premium and pays 30 percent of every loss.

Reinsurance under a standing contract obligating the cedent to cede and the reinsurer to accept all business in defined classes automatically, in contrast to facultative reinsurance negotiated risk by risk. Treaties are proportional (shared premiums and losses) or nonproportional (excess of loss above a retention).

Coverage placed with nonadmitted insurers whose rates and forms are not filed with state regulators, available for risks the admitted market will not write, and placed through licensed surplus lines brokers. Such policies sit outside state guaranty funds.

An actuarial estimate of losses that have already occurred but have not yet been reported. Adding IBNR to reported incurred losses produces the ultimate loss estimate for a period, making it central to captive reserving, pricing, and financial statements.

A stated amount the insured must pay itself, often including defense costs, before a liability policy responds. Unlike a deductible, where the insurer pays from dollar one and collects reimbursement, under an SIR the insured pays first and the insurer pays only the excess.

Coverage that caps a self-funded plan's or captive's losses. Specific stop-loss reimburses when one claimant's losses exceed a set attachment point; aggregate stop-loss reimburses when total losses for the period exceed a set threshold. The standard protection behind self-funded employer health plans and medical stop-loss captives.

A liability insurer formed under the federal Liability Risk Retention Act of 1986, owned by its member-insureds. Once licensed in one state, an RRG can write liability coverage (never workers compensation or property) for members in every state by registration rather than separate licenses. Most RRGs are organized as captives.

A captive that elects taxation under Internal Revenue Code section 831(b), paying federal income tax on investment income only, provided written premiums stay under the inflation-indexed cap ($2.9 million for 2026) and ownership diversification tests are met. The IRS has designated certain micro-captive arrangements as listed transactions or transactions of interest, so the election calls for genuine risk transfer and well-documented structuring.

A sponsored captive that maintains a separate underwriting account, or cell, for each participant, keeping every participant's assets and liabilities walled off from the others. Where domicile law recognizes protected or segregated cells, a claim against one cell cannot reach another cell's assets.

An arrangement in which an existing captive rents its capital, license, and infrastructure to an outside organization for a fee, typically a percentage of premium. The renter gets captive economics, including underwriting, claims handling, and reinsurance access, without capitalizing and licensing its own insurer.

A captive insurance company owned by one organization that insures only the risks of its parent and affiliates, writing no unrelated third-party business. The most common captive form, distinguished from group, association, and rent-a-captive structures. Also called a pure captive.

A captive insurer owned by and insuring a group of unrelated companies, either homogeneous (one industry) or heterogeneous (mixed). Members share risk, contribute capital, and split underwriting results, gaining captive economics at a smaller individual premium than a single-parent captive requires. Also called a multiple-parent captive.

A firm handling administrative functions on a fee basis for self-insured and loss-sensitive programs, typically claims administration, loss control, risk management information systems, and consulting.

Underwriting profit expressed as a percentage of earned premium, equivalent to 100 percent minus the combined ratio; a combined ratio below 100 implies a positive margin.

Consistent adherence to underwriting guidelines and risk-adequate pricing across market cycles, declining underpriced or out-of-appetite business even at the cost of premium volume.

The rules an insurer issues to underwriters and agents governing whether to accept, modify, or reject a prospective insured, including pricing and terms adjustments.

The profit from insurance operations alone, excluding investment income: net premiums minus losses, loss adjustment expenses, and underwriting expenses.

The amount of risk an insurer can assume and retain, determined by the surplus it holds. The concept applies to a single company or to the market as a whole.

A bilateral agreement allocating taxing rights over cross-border income to prevent double taxation. Relevant to captives because treaty terms, or their absence, drive items such as federal excise tax on premiums paid to offshore insurers.

A statutory test of financial strength, typically net written premium divided by capital and surplus, gauging whether premium volume is supportable by the capital base.

Net written premium divided by policyholder surplus: the standard measure of how much premium an insurer writes per dollar of capital. Higher ratios mean greater underwriting exposure on a thinner cushion.

A loan instrument that injects capital into an insurer but is structured so it is not classified as debt, allowing it to count toward statutory surplus. Repayment typically requires regulatory approval.

Managing the settlement and payout of a closed book's claims until liabilities are exhausted, handled in-house or through run-off specialists that acquire reserve liabilities via loss portfolio transfer or acquisition.

The phase of the insurance market cycle marked by low rates, high available limits, flexible terms, and broad availability of coverage. A buyers' market; the opposite of a hard market.

A formal system in which an organization sets aside its own funds to pay losses that would otherwise be commercially insurable. Distinguished from simple deductibles by its deliberate structure, it captures the cash flow value of loss reserves and avoids insurer expense loadings.

Pooling and selling periodic cash flows to capital markets investors, usually as bonds. In insurance it converts underwriting risk into tradable securities, such as catastrophe bonds, with investors bearing losses when the underlying risk deteriorates.

Shifting the risk of loss to another party, contractually through hold harmless and indemnity provisions or financially to an insurer or reinsurer.

The state of an insurer or block of business closed to new writings, where activity is limited to administering and paying existing claims until reserves are exhausted, with no renewal premium against the outflows.

The planned acceptance of losses rather than their transfer, through deductibles, deliberate noninsurance, or loss-sensitive plans. The economic foundation of self-insurance and captives: retained risk keeps the underwriting result.

An arrangement in which multiple insurers or organizations jointly underwrite risks, sharing premiums, losses, and expenses in agreed ratios. It attracts entities too small to self-insure alone that want more control and lower cost.

A collection of exposures insured or reinsured together, deliberately combining different perils and hazards to avoid concentration and improve risk distribution across the portfolio.

Risk control techniques that reduce the frequency or severity of losses, such as training, safety programs, and physical protections, as distinct from financing or transferring the risk.

Amounts a cedent's reinsurers are obligated to pay it for their share of incurred losses. Under statutory accounting, recoverables from unauthorized reinsurers count as admitted assets only if collateralized.

The systematic identification of loss exposures and analysis of their frequency and severity so they can be measured, prioritized, and matched to retention, control, or transfer. Insurers run enterprise versions under frameworks such as ORSA.

Coverage guaranteeing a lessor a specified asset value at a set future date, usually lease end, paying the shortfall between the property's realized value and the value stated in the policy.

A transaction in which a reinsurer cedes risks it has assumed onward to another reinsurer, the retrocessionaire, creating a further layer of transfer within the reinsurance market.

State-mandated coverage sources of last resort, most common in workers compensation, auto liability, and property. Insurers writing those lines share the residual risks' results in proportion to their voluntary premiums in the state.

A pool established by government to write business declined by the voluntary market, such as assigned risk plans, FAIR plans, and joint underwriting associations, with participating insurers sharing the results.

The design of a cession: proportional versus excess-of-loss forms, attachment points, layer limits, cession percentages, and aggregate features that determine how losses are shared between the ceding company and its reinsurers.

The coordinated set of treaties and facultative placements protecting a book of business, layered by attachment point and combining proportional and nonproportional covers to manage net retention and protect surplus.

The consideration a ceding company pays the reinsurer for the liability the reinsurer assumes under the reinsurance agreement.

Remuneration the assuming reinsurer pays the ceding company, compensating it for underwriting and acquisition costs incurred in producing the business. Also called a ceding commission.

The statutory filings an insurer must make with its regulator, centered on the annual statement prepared on statutory accounting principles, reporting admitted assets, reserves, and capital and surplus, plus periodic filings used to monitor solvency and conduct.

Adherence to the insurance laws and regulations of the domicile and each state of operation, spanning licensing, rates and forms, underwriting, claims handling, and solvency rules, verified through examinations and required filings.

The minimum capital an insurer must hold, scaled to its size and risk. Under the NAIC risk-based capital framework, falling RBC ratios trigger escalating regulatory action; captive domiciles also impose fixed statutory minimum capital and surplus.

Insurance written for groups of insureds sharing common operations, such as ambulance services or auto dealerships, often organized through associations or risk purchasing groups.

An unincorporated exchange of subscribers who pool their risks, managed by an attorney-in-fact. Subscribers bear several, proportionate liability, though adequately capitalized reciprocals issue nonassessable policies; member surplus is untaxed until distributed.

A state tax on gross written premium allocable to risks located in that state, measured before ceded reinsurance and net of salvage and subrogation. Captive domiciles levy their own, typically lower, premium tax schedules.

An insurer's statutory net worth: admitted assets minus liabilities, including loss reserves. The cushion available to absorb unexpected losses and the base regulators use to gauge capacity and solvency.

Spreading exposures or investments across imperfectly correlated assets, lines, or geographies so weak results in one are offset by stronger results in another, lowering overall volatility.

A return of premium paid to insureds when a policy's results are better than priced for, most common in workers compensation. Treated for tax purposes as a return of premium rather than income.

The expenses of running an insurance operation, which together with incurred losses and acquisition costs are deducted from revenues to arrive at underwriting profit. Narrowly, underwriting expense is the cost of evaluating and accepting risks.

A policy under which the insured is eligible for policyholder dividends representing a share of the insurer's favorable results. The IRS treats such dividends as a return of premium rather than taxable income.

Coverage written by an insurer not licensed in the buyer's state, generally permitted only when the admitted market will not provide the coverage. The regulatory basis of the surplus lines market; such policies sit outside state guaranty funds.

A transaction between related parties, such as a captive and its parent, that is not negotiated as independent parties would negotiate it. Pricing and terms may not reflect market conditions, so regulators and the IRS expect related-party premiums to be supported by independent actuarial analysis.

The state of the insurance market cycle, which swings between soft (intense competition, low rates, excess capacity) and hard (rising rates, restricted capacity). The cycle is self-reinforcing as profits attract capacity and losses drive it out; also called the underwriting cycle.

Incurred losses (paid plus reserved), often including loss adjustment expense, divided by earned premium. The core measure of claims experience: 50 dollars of losses per 100 dollars of premium is a 50 percent loss ratio.

The estimated value of unpaid claims: on an individual claim the case reserve, and across the book the aggregate of projected future payment obligations, including development on known claims.

A risk control technique aimed at reducing the probability that losses occur, as distinct from loss reduction, which limits severity once they do. Driver training lowers accident likelihood; sprinklers reduce fire damage.

A retroactive reinsurance transaction ceding already-incurred loss liabilities to a reinsurer for a premium below the nominal reserves, reflecting the time value of money. Used to exit lines, close prior years, or shed claims administration.

The change in claim values between initial reserve estimates and final closure, driven by reporting lags and inflation between report and settlement. Actuaries apply loss development factors to immature claims to project ultimate losses, most significant on long-tail lines.

The cost of investigating, defending, and settling claims. Expenses tied to a specific claim, such as outside legal and investigation fees, are allocated loss adjustment expenses (ALAE); costs of the claims operation that cannot be assigned to one claim, such as adjuster salaries, are unallocated (ULAE). LAE sits alongside indemnity payments in loss reserves and the loss ratio.

Structuring assets and cash flows so that cash and readily marketable investments cover claims and expenses as they fall due, without forced sales. For a captive this means matching asset duration to expected loss payout patterns while honoring collateral obligations.

The rate of return on an insurer's invested portfolio, typically net investment income divided by average invested assets over the period, as distinct from realized or unrealized capital gains.

Income earned on invested assets, including interest, dividends, and rent, as distinct from underwriting results. In a captive, reserves and surplus generate investment income for the owner rather than for a commercial insurer.

A licensed insurer that issues a policy and cedes all or most of the risk to another insurer, commonly a captive reinsuring statutory coverages that must be written on admitted paper. A pure front also delegates underwriting and claims handling to the reinsurer or an MGA.

The upswing of the insurance market cycle: rising premiums, tightening terms, and shrinking capacity across most lines, driven by weak investment returns, worsening loss experience, or capital withdrawal. The opposite of a soft market.

Use of a licensed, admitted insurer to issue policies on behalf of a captive or self-insurer without intent to transfer risk, which flows back through a reinsurance or indemnity agreement. The fronting insurer keeps credit risk and charges a fronting fee, typically 5 to 10 percent of premium. Used where financial responsibility laws or contracts require admitted paper.

Construction of pro forma financial statements projected over a multiyear horizon and run under a range of loss scenarios and financial assumptions to test how a program performs in each.

A rating method that compares an insured's actual loss experience to the expected experience for its class, producing an experience modification factor that adjusts premium up or down from the class average.

An analysis to determine whether a contemplated risk financing program, most commonly a captive, is workable for an organization under its circumstances, typically paired with an actuarial analysis of projected losses.

Reinsurance placed risk by risk: each exposure is offered to the reinsurer as a separate transaction, underwritten on its own merits, with terms and pricing negotiated per risk on a facultative certificate. Contrast with treaty reinsurance, which covers a defined portfolio automatically.

The state or country where an insurer is incorporated, which determines its primary regulator. For a captive, the jurisdiction that issues its license and sets its capital, investment, reporting, and tax rules.

The percentage of premium consumed by acquiring, writing, and servicing business, computed on a trade basis (expenses over written premium) or a statutory basis (expenses over earned premium). One of the two components of the combined ratio.

Reinsurance under which the reinsurer indemnifies the cedent only for the portion of a loss above the cedent's retention, up to the layer limit. The standard nonproportional form, most common on casualty lines.

The portion of premium attributable to the expired part of the policy period. Premium is collected up front but recognized as income ratably over the coverage term; the unexpired balance is held as the unearned premium reserve.

The amount subtracted from a covered loss before the insurer pays, generally applied per occurrence. It shifts the first layer of each loss to the insured and typically does not erode the policy limit.

The net economic cost a cedent bears for reinsurance protection: premium ceded less ceding commission and expected recoveries, plus frictional costs such as collateral, brokerage, and forgone investment income. It represents the reinsurer's margin for absorbing volatility.

An agreement dissolving a reinsurance contract, extinguishing the reinsurer's future obligations in exchange for a negotiated present-value settlement, with remaining profits or losses allocated between the parties.

Dollars lost through claims-handling inefficiency: the gap between what was actually paid on claims and what should have been paid, caused by process failures, erroneous payments, poor decisions, or fraud, and typically identified through closed-claim audits.

The loss ratio (incurred losses plus loss adjustment expense over earned premium) plus the expense ratio (all other underwriting expenses over written or earned premium). A result below 100 percent indicates an underwriting profit.

The estimated value of claims that have been reported but not yet paid. On an individual claim this is the case reserve, the amount the claim is expected to finally settle or be adjudicated for.

Assets a captive posts to secure its obligations to fronting insurers or reinsurers, mitigating their credit risk and offsetting nonadmitted reinsurance balances. Usually a bank letter of credit, with reinsurance trusts as the common alternative.

The period over which claims from a coverage year continue to emerge and develop after it ends, characteristic of workers compensation and liability lines. The aggregate of incurred but not reported (IBNR) losses is the tail liability.

The size of a loss, quantified as the amount of damage per claim or as a severity rate relating loss amounts to the values exposed over a period. The counterpart to frequency in describing loss experience.

How often losses occur, commonly banded as low, moderate, or high. Workers compensation and auto collision typically run high frequency, general liability moderate, and property low. Paired with severity to describe an exposure.

The insurer that transfers, or cedes, risk to a reinsurer. The cedent underwrites and issues the original policy, then contractually passes part of that risk on; a reinsurer passing assumed risk onward cedes it to a retrocessionaire.

A firm providing accounting, regulatory, and administrative services to captives, usually acting as the captive's principal representative in its domicile and coordinating its other service providers, including auditors, actuaries, and investment advisers.

An insurance company formed primarily to finance the risks of its owners or participants, licensed under special purpose insurer statutes that apply a lighter regulatory regime on the premise that its insureds are sophisticated buyers.

The process of establishing a licensed captive: feasibility and actuarial work, domicile selection, a business plan with pro forma financials, a license application to the domicile regulator, capitalization to statutory minimums, and appointment of the manager, actuary, and auditor.

The determination of whether a captive insurance company is a workable risk financing vehicle for an organization, based on projected losses, capital requirements, tax treatment, and regulatory factors, normally supported by actuarial analysis.

The jurisdiction where a captive is incorporated and licensed, and whose regulator supervises it. Selection weighs minimum capital and surplus requirements, investment rules, taxation, operating costs, acceptability to fronting insurers and reinsurers, and proximity to operations.

Coordinating an insurer's investment portfolio with its policy obligations so that asset duration, cash flow, and liquidity match the timing and amount of expected claim payments, protecting solvency against interest rate and liquidity mismatch.