GLOSSARY

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Glossary
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Accounting year Burning cost
Under the accounting year system any premium or loss The term “burning cost” is used particularly in the expe-
movement taking place during that accounting year is rience rating of non-proportional or excess of loss rein-
credited or debited based on the terms and conditions surance treaties. The burning cost is a mathematical re-
in the reinsurance contract for the relevant accounting sult obtained by dividing losses incurred over a defined
year irrespective of when the risk incepted, or when the period by the premiums earned over that same period.
loss may have occurred. Generally a minimum period of five years is required,
but the longer the period the greater the reliability of the
Asset (Accounting) result, other factors being equal. Generally this result is
known as the “pure burning cost” because it does not in-
An asset, in the context of company accounting, is an clude any loading for volatility nor for the expenses and
element that has a positive financial value and which is profit of the reinsurer.
owned or controlled by the company.

Captive (re)insurance company

Back-to-back cover
A captive (re)insurance company is a company which is
When a reinsurance cover is back-to-back with the un- wholly owned by another usually non-insurance com-
derlying policy it means that the underlying policy and pany with the objective to insure the risks of its parent
the reinsurance cover will operate according to the same organization. Captive (re)insurance companies may also
terms, and that the reinsurer will follow the settlements be created by industry groups e.g. OIL, a captive insu-
of the reinsured. This condition exists when the contract rance company that insures close to $ 3 Trillion of global
contains a full reinsurance clause. assets for its 50+ members.

Balance sheet Cash loss clause

The balance sheet of a company records the overall The cash loss clause in a proportional reinsurance
financial condition of the company at a given point contract is a provision that should a loss have to be paid
in time, usually at the end of the company’s financial by the cedant which exceeds the amount stated in the
year. It summarises three main elements – the assets clause, then the reinsurer will within a short fixed time
of the company, the liabilities of the company, and the period put the cedant in funds for its share of the loss.
shareholders’ equity. Cash loss payments are credited back to the reinsurer in
the next quarterly or half-yearly account.
Basis points
A basis point is one hundredth of one percentage point. Catastrophe Excess of Loss Treaty
A catastrophe excess of loss treaty is usually used to
Benevolent society describe the “per event” or “per occurrence” reinsu-
A benevolent society is generally a group of people who rance cover. Such treaties are frequently arranged to
have set up an organisation for charitable purposes to protect property insurance accounts covering fire and
service a targeted section of the community by organi- natural perils, and marine portfolios where a particularly
sing events, or through sponsorships. severe incidence of a catastrophic nature may affect a
number of policy holders at the same time, for example,
a flood or earthquake or hurricane which affects a num-
Bordereaux ber of policies at the same time (claims frequency).
Reinsurance bordereaux are reports prepared by the
reinsured for the reinsurers detailing risks, premiums
Cedant
and/or losses ceded to the reinsurance. The type of re-
port and the periods at which it must be sent to reinsu- See under ceding company.
rers is detailed in the treaty wording.
Ceding company
The insurance company passing or ceding business to
the reinsurer. Also termed “reinsured” or “cedant”.

Ceding commission
A deduction allowed by the reinsurer on the premium
due on the cession.

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Cession Cover
That part of the original insurance which is reinsured. A term used to denote the contract or agreement of in-
surance or reinsurance which protects or “covers” the
Cession on an automatic basis party transferring the risk. In non-proportional treaties
the “cover” is the amount the reinsurer is willing to pay
Under treaty based reinsurance, the reinsured must exceeding the retention or deductible for which the ce-
cede, and the reinsurer must accept all cessions falling ding company and underlying reinsurers if any are liable.
within the scope of the treaty. Thus if a risk falls within
the scope of the treaty, the risk is ceded to the treaty on
an “automatic basis”. Cut-through clause
A clause that provides that, in the event of the insurance
company’s insolvency, any part of a loss which may be
Claims discovered basis covered by a reinsurance contract is paid directly to the
Under coverage on a claims discovered basis, losses dis- insured by the reinsurer. The cut-through clause is so
covered during the term of the reinsurance contract will named because it «cuts through» the usual payment pro-
be covered by the reinsurance, irrespective of when the cess firstly from the reinsurer to the insurance company
claim occurred or when the policy was issued. However and then secondly from the insurance company to the
such reinsurance contracts may limit when the claim oc- insured, substituting that process by omitting the insu-
curred or the policy was issued to a defined period in the rance company altogether, and having that part of the
past e.g. this coverage shall only apply to policies issued claim settled directly from the reinsurer to the insured.
or claims which occurred since 1995. This should only change the routing of the payment
and should not result in any increased risk for the rein-
Claims made basis surer, but complications can arise where the reinsurer
Under coverage on a claims made basis, reinsurers will has already paid the amount to the insurance company
cover claims made to the reinsured during the period of – which is now in liquidation – and is then being asked
the reinsurance regardless of when the policy was is- a second time to pay directly to the insured – which re-
sued, the loss actually occurred or when the claim was sults in the reinsurer having to pay twice and hope it can
discovered. However such reinsurance contracts may li- recover some part of the first payment from the liqui-
mit when the claim occurred or the policy was issued or dator.
the claim was discovered to a defined period in the past
e.g. this coverage shall only apply to policies issued or Deductible
claims which occurred, or claims which were discovered The amount, in non-proportional reinsurance, below
since 2001. which the reinsured will retain losses for its own account.
In a stop loss treaty, this amount can be expressed either
Clean-cut accounting as an annual monetary amount or as a ratio of claims to
premium (Claims Ratio).
Clean cut Accounting only applies to treaties using the
accounting year system. It is based on the period of
the treaty contract as opposed to period of the various Earned premiums
policies covered by the treaty contract. It results in the Earned premiums are the result of adding written pre-
reinsurer on the current treaty year commuting its lia- miums and incoming premium reserve or portfolio if any,
bilities at the end of that treaty year, and the reinsurer and subtracting outgoing premium reserve or portfolio.
on the subsequent treaty year assuming those liabilities.
This is effected by way of a Premium Portfolio Transfer
as regards unearned premium and an Outstanding Loss Escrow account
Portfolio Transfer as regards outstanding losses. An escrow account is an account held by a bank on be-
half of the reinsured and the reinsurer. Both parties have
rights to withdraw money under conditions defined in
Clean-cut treaty the reinsurance or collateral agreements. For example
See under accounting year. the reinsured can withdraw money if the amount in the
account exceeds the collateral required by the reinsu-
Combined ratio rer. The reinsurer can withdraw money if the reinsured
goes into liquidation or fails to pay the reinsurer within
The combined ratio is the result of dividing the incurred
an agreed time frame.
losses plus the expenses by the total premiums earned.

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Excess of loss Gross net retained premium income
A non-proportional reinsurance, where the reinsurer’s Gross retained premium income less premium returns,
liability only attaches when a loss exceeds a certain cancellations and rebates, plus premiums paid for rein-
amount and then only for the excess of that figure up to surance cessions inuring to the benefit of the present
an upper limit. cover, if any.

Ex-gratia Guild
A “claim payment” made by the reinsured “as a favour” A guild was a medieval association originally of
without a legal or contractual obligation. If a claim is paid craftsmen and/or merchants, which regulated how their
in full or in part by a reinsured without admission of lia- trade functioned in the area over which they had control.
bility and without waiver of right, it is paid ex-gratia. Some guilds became quite powerful. Often guilds also
provided aid to any member who was in distress or his
Facultative reinsurance family. Today guilds are still popular but generally have
much less power.
An agreement between the reinsured and the reinsu-
rer relating to one specific risk, which the reinsurer has
agreed to reinsure on such terms and conditions as may Hours clause
be prescribed by the reinsurer. An hour s clause defines the time period during which
claims resulting from the same event may be bundled to-
Follow the fortune gether as one loss to the cover. The time period is usually
a number of consecutive hours.
The dictum “follow the fortunes” is used when refer-
ring to proportional reinsurance. As the reinsurer takes
its percentage share of the premium and pays its same Incidental exposures
percentage share of the losses, it is said to “follow the Incidental exposures are those which arise during the
fortunes” of the ceding company. course of normal business in addition to the main expo-
sures to be covered. For example where a large client has
Friendly society its main exposures in Kenya, but has also a small facto-
ry in Nigeria. Then the factory in Nigeria is incidental to
A friendly society is generally a group of people who the main risk in Kenya. However care needs to be taken
have set up a mutual organisation for a financial and/or with incidental risks, as the result can be a large loss in
social purpose. Thus friendly societies were often set up a completely unexpected location as far as the reinsurer
for organising life and pensions insurance for a targeted is concerned.
section of the community, which could include such co-
vers as funeral expenses and even savings. Some even
set up co-operative stores and became involved with Incurred losses
banking. They remain popular today, especially in deve- Incurred losses are the result of paid losses minus in-
loping countries. coming outstanding loss reserve or portfolio if any plus
outgoing outstanding loss reserve or portfolio.
Fronting/fronts
An arrangement whereby a licensed insurance company Indemnity
agrees to issue a policy on a risk(s) at the request of an The principle of indemnity is a defining characteristic of
entity, often a captive (re)insurance company on behalf insurance. The purpose of an insurance contract is to
of its industrial parent, which is not licensed to write bu- make the insured “whole” in the event of a loss – to put
siness in the country concerned, with the intention that the insured back in the position it was before the loss.
the risk(s) be ceded 100% to that unlicensed entity/cap- Thus the insured should make neither a profit nor a loss
tive (re)insurance company. Today many countries have from the occurrence of the insured event. In a reinsu-
specific regulatory requirements with regard to fronting. rance contract the reinsurer is only liable to pay a loss
after it has been paid by the ceding company, so it is a
GNPI contract of indemnity.
GNPI is Gross Net Premium Income. Gross Net Premium
Income is the gross premium charged by the cedant to
the policyholder less cancellation and return premiums
and less premium paid for reinsurance covers inuring to
the benefit of the reinsurance cover being considered.

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Insurable interest Long tail business
Insurable interest is an essential requirement that an in- Long-tail business is used to describe those classes of
sured must have so that the insurance company is legally business where claims are generally only known, and/or
able to issue a qualifying insurance policy. If the insured adjusted and/or paid many months or even years after
does not have a financial interest in the subject of in- the date of occurrence. Classes of business would in-
surance and suffers no financial loss when the insured clude many liability lines, for example general liability,
event happens then the insured does not have an insu- motor liability, marine and aviation liability, D&O, and
rable interest and it is not possible to issue an insurance employers’ liability. In these classes it can be much more
policy to cover that event. difficult to assess the final outcome of a portfolio of bu-
siness, to estimate the incurred but not reported claims
Intermediary (IBNR) and to assess proper reserves.
A reinsurance intermediary or broker is an individual
or a company that offers and/or negotiates, and places Loss any one risk
reinsurance risks on behalf of its principal, a ceding Each and every loss affecting any one risk is considered
company/reinsured generally without the authority to as an individual claim under the cover irrespective of the
bind. It may also act as an adviser to the reinsured and number of risks affected in the same loss occurrence.
may earn a fee from the reinsured or a commission from “Any One Risk” has the equivalent meaning.
the reinsurer.
Loss corridor
Insured A loss corridor is a formula that requires the ceding com-
The insured is the individual or company covered by an pany to pay losses which would otherwise be payable by
insurance policy. reinsurers above a certain retention or loss ratio up to a
limit or higher loss ratio. Thus, for example “reinsurers
Layered shall be liable for all losses up to a loss ratio of 76% and
for all losses exceeding a loss ratio of 105%. The rein-
A term used to describe a slice of cover where the risk sured shall be its own reinsurer and liable for all losses
is placed in blocks (layers). Each layer of the programme exceeding a loss ratio of 76% and up to a loss ratio of
operates consecutively and each may be underwritten 105%”.
by a different reinsurer.

Losses occurring basis

Liability (Accounting)
Under coverage on a losses occurring basis a reinsurance
A liability, in the context of company accounting, is an will respond to losses that occur during the contract pe-
element that has a negative financial value and which is riod. Thus if a loss actually happens during the period of
payable to equity holders, other lenders and those who the reinsurance, it is covered.
supply the company with goods or services.
Loss Participation
LIBOR Just as a cedant can benefit from a profit commission
LIBOR is shorthand for London InterBank Offered Rate. where a pro-rata treaty makes a profit, so it may be
It is based on a formula using data from certain defined obliged to participate in losses. Loss participation can
banks in London based on what they consider they would apply in either a pro-rata or an excess of loss treaty.
be charged if they were to borrow from other banks. This can be as a co-reinsurer, where the cedant simply
takes a share of the treaty like any other reinsurer, or it
Lloyd’s syndicate can be in the form of a loss corridor. A loss corridor is a
formula that requires the ceding company to pay losses
A Lloyd’s syndicate is an entity made up of one or more
which would otherwise be payable by reinsurers above a
underwriters who underwrite risks, possibly on behalf of
certain retention or loss ratio up to a limit or higher loss
themselves, and on behalf of their names. A name may
ratio. Thus, for example “reinsurers shall be liable for all
be an individual or a corporation who has put up funds
losses up to a loss ratio of 76% and for all losses excee-
as may be prescribed by Lloyd’s from time to time, so
ding a loss ratio of 105%. The reinsured shall be its own
that the syndicate is permitted to accept business within
reinsurer and liable for all losses exceeding a loss ratio of
the Lloyd’s market infrastructure.
76% and up to a loss ratio of 105%”.

Loss ratio
The loss ratio is the result of dividing losses paid by pre-
miums written.

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Maximum possible loss Obligatory reinsurance
The maximum monetary loss which could be sustained A reinsurance agreement under which the original rein-
by insurers on a single risk as a result of a single fire or sured must cede and the reinsurer must accept all risks
explosion when the most unfavourable circumstances falling into the class of business covered by the reinsu-
combine and when, as a consequence, the fire is not at rance agreement.Off-set
all or not satisfactorily fought against and is therefore See under set-off.
only stopped by impassable obstacles or a lack of physi-
cal property.
Original insured
The original insured is the client, the policyholder, who
Minimum and deposit premium has purchased the underlying insurance cover, the sub-
A minimum agreed premium paid by the reinsured to ject matter of the reinsurance, from the reinsured.
the reinsurer at the inception of a reinsurance contract
and which is subject to adjustment at a later date when
all of the relevant rating facts are known. Adjustments Policies issued basis
are normally made once the reinsured’s premium for the Under coverage on a policies issued basis, a reinsurance
period is known. will respond to losses which occur during the period of
the policy. Generally policies are issued on an annual
12 month basis, although they can be issued for a lon-
MLP ger period. The policy term may be different from the
The strictest interpretation is Maximum POSSIBLE Loss. reinsurance contract term, but reinsurance cover will be
This is the maximum possible loss, the very highest and available until all policies issued during the reinsurance
worst estimate of loss which could occur under any fo- contract term have expired or have been renewed.
reseen or foreseeable circumstance. This will usually be
the same as the sum insured at any location, unless the Policyholder
terrain is so vast that it can be segmented for estimation
purposes. However there is also the interpretation Maxi- The policyholder is an individual, or group of individuals
mum PROBABLE Loss which is the worst case scenario or company(s) in who’s name the policy is held. They are
assuming that all fire prevention and risk reduction mea- usually also the insured under the policy, but this need
sures will function as foreseen. For example, the sprin- not be so.
kler system works as it should, the fire brigade arrives as
foreseen, and the water pressure is as it should be. Pools and pooling arrangements
Pooling is a risk spreading device where a combination
Net retained loss of insurance companies in a specific class of insurance
Such loss or portion of loss in respect of which liability is agree to share the premiums and losses in agreed pro-
assumed by the reinsured for its own account and which portions.
is excluded from the reinsurance agreement.
Portfolio
Non-proportional Portfolio transfers arise in proportional treaties. Portfo-
See under excess of loss. lio transfers can be “incoming” or a credit to a reinsurer,
or “outgoing”, a debit to the reinsurer. Portfolios can ap-
Novate ply to losses or premiums. When a treaty provides for a
loss portfolio, the liability for outstanding losses at the
To novate is to substitute an existing obligation with an end of the annual treaty period are debited and transfer-
alternative or new obligation. It is commonly used in in- red from reinsurers participating in that year, and trans-
surance/reinsurance to replace the party providing the ferred and credited to reinsurers in the following year.
cover with another insurer or reinsurer. The new party When a treaty provides for a premium portfolio transfer,
then takes over all the rights and obligations of the old the unexpired liabilities and premium at the end of the
party and the old party no longer has any obligations treaty year are transferred to the reinsurer participating
under the cover. The new party takes over all the rights in the treaty in the subsequent year.
and obligations as if it were the party from the beginning
of the contract. This novation requires the agreement of
the other party – in this case the insured or reinsured. Probable maximum loss – PML
Without the insured’s or reinsured’s agreement novation The maximum loss that might be expected at a cautious
cannot take place except under a court order. estimate to occur as a result of a single loss event taking
into consideration all the circumstances of the risk.

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Profit and loss account Reinstatement premium
The profit and loss account of a company records inco- A reinstatement premium under excess of loss reinsu-
me (credit) and payments (debit) during a given period – rance contracts is an amount paid to re-establish the li-
usually a period of 12 months, known as the company’s mit of the contract after a loss. The amount of the reins-
financial year. This is the accumulation of all the daily tatement premium and its method of calculation is stated
accounting entries that have been made recording inco- in the contract.
me and payments.
Reinsurance
Property Reinsurance is a transaction where a reinsurer, in return
All land, buildings, structures, plant, equipment, for receiving premium, agrees to indemnify the ceding
vehicles, contents and all materials of whatever descrip- company against all or part of a loss that it may suffer
tion whether fixed or not. under a specific policy or in a defined portfolio of poli-
cies that it has issued.
Proportional
A generic term describing quota share, surplus and fa- Reinsured
cultative obligatory reinsurance in which the reinsurer The party issuing the original policy of insurance and
shares a proportional part of the business ceded by the ceding the business to the reinsurer.
ceding company. Also known as pro rata reinsurance.
Reinsurer
Quota share reinsurance A reinsurance company or Lloyd’s syndicate which ac-
Quota share reinsurance is a sub-type of proportional cepts the risks which the insurance company insures.
reinsurance treaty where the ceding company cedes an
agreed-on percentage of every risk it insures that falls Reinsurance agreement
within the class or classes of business covered by the
reinsurance treaty to the reinsurer or reinsurers. The An agreement whereby an insurance company i.e. the
reinsurer or reinsurers pay the same percentage of any reinsured transfers part of its risk under insurance po-
loss. licies it writes by means of a separate contract with a
reinsurer.
Rate on line (ROL)
The term “rate on line” is the mathematical result of divi- Reinsurance brokerage
ding the reinsurance premium payable under a specified The remuneration paid to a reinsurance intermediary
non-proportional reinsurance treaty by the limit under and deducted from the reinsurer’s premium.
that same treaty, for example, a catastrophe treaty with
a limit of 5 million and a premium of 1 million will have a Retention
rate on line of 20%.
If that part (expressed as an amount or percentage) which
is retained by the ceding company, then it is known as a
Reciprocity “net” retention OR if that part (expressed as an amount
Concept of a two-way transaction between the parties to or percentage) which is kept by the ceding company
spread the risks of both parties; generally a transaction AND its quota share reinsurers, then it is known as a
which is expected to be profitable for both parties over “gross” retention.
the long term.
Retrocession
Reinstatement A reinsurance of a reinsurance (the cedant becomes a
The restoration of cover under an excess of loss treaty “retrocedant”)
after its exhaustion, wholly or partially following pay-
ment of claims. Where reinstatements are applicable, the Richter scale
number of reinstatements and the method of calculation
The Richter scale is a numerical scale which rates the
of the additional or reinstatement premium payable is
magnitude of an earthquake. Large earthquakes will
specified.
have magnitudes higher than a rating of 6. As it is a loga-
rithmic scale the difference of “1” is equal to a thirtyfold
difference in magnitude!

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Risk excess of loss treaty Short tail loss
Under a risk excess of loss treaty, or per risk excess of Short tail business, such as property or car hull insu-
loss treaty, the reinsurer pays any loss on an individual rance, is generally business where claims are expected
risk in excess of a predetermined amount up to a speci- to settle relatively quickly, generally within three years.
fied upper limit. This ensures that the exposure of the A short tail loss is thus a loss under a class of business
company (claims severity) is reduced to a fixed sum. considered short tail, and where the loss is expected to
However a per risk excess of loss treaty does not offer settle within three years.
any protection against any accumulation of losses ari-
sing out of one event or an aggregation of losses occur-
ring within a calendar year (claims frequency). Sliding-scale Commission
A sliding scale commission is a commission that varies
inversely with the loss ratio. Thus, for example, the com-
Run-off cover mission might reduce by 0.5% for every increase in the
Run-off cover protects the cedant for new claims and/ loss ratio of 1%.
or the payment of claims outstanding under a defined
portfolio of business as from the commencement date
of the cover. The cover may be limited in time and/or Slip
amount, in which case claims exceeding that time limit The reinsurance slip is a document, often in abbreviated
and/or amount will again be payable by the cedant. format, which contains all the material information with
respect to the risk to be placed including the terms and
conditions. Either the cedant or its intermediary will
Scenario analysis show this slip to prospective reinsurers. If terms are
Scenario analysis is a process to try to better understand agreed with reinsurers, pricing and additional terms and
the effect of potential future events on a portfolio of bu- conditions will be included in the slip plus each individual
siness by imagining a number of potential and possible out- reinsurer’s agreement to it. The slip is placed to 100%.
comes and, in the case of existing or proposed reinsurance The slip forms the basis of the reinsurance contract.
structures, understanding how those structures would
cope with those outcomes, and whether the cover would
properly respond, and be adequate to cover all losses. Stop loss
A specialised form of excess of loss reinsurance, usual-
ly applicable to certain lines of insurance showing wide
Set-off loss variation. The reinsurer is not responsible for the
The merging (wholly or partially) of the credits/debits amount by which any individual claim exceeds a fixed
between the contractual parties under one or more sum, but instead indemnifies the reinsured in respect of
agreements, whereby one party pays the net debit ba- an annual loss ratio on a particular portfolio in excess of
lance due to the other party. a stipulated level.

Severity
Surplus (Accounting)
Severity concerns the AMOUNT of the loss. An insurer
when calculating premium rates will base them on “ave- The surplus is the balance of assets remaining after the
rage” expected losses. A loss with a high severity is a deduction of liabilities. Negative surplus can occur when
loss where the amount is higher than the average loss the liabilities of a company exceed its assets.
expected by the insurer.
Surplus reinsurance
Short tail business Surplus reinsurance is a sub-type of proportional reinsu-
Short-tail business is used to describe those classes of rance treaty where the ceding company cedes a propor-
business where claims are generally known, adjusted tion only of those risks which exceed its gross retention
and paid within 12 months of the date of occurrence. (that is to say the amount retained by the ceding company
Classes of business would include property (although and its quota share reinsurers, if any) up to a defined li-
some loss of profits claims can take longer to adjust), life mit where those risks also fall within the class or classes
and personal accident, motor physical damage, and ma- of business covered by the surplus reinsurance treaty.
rine and aviation hull. Where a ceding company negotiates more than one sur-
plus treaty, the treaties are known as 1st surplus, 2nd
surplus etc. A 2nd surplus treaty would only qualify for a
cession once the 1st surplus capacity has been exhausted.

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Systemic Underwriting year
Systemic risk arises in the financial markets and is the Under the Underwriting Year system, premiums and
risk of failure of an entire market, as opposed to a fai- losses are credited or debited based on the terms and
lure of a single investment. Thus an investor can lose an conditions in the reinsurance contract for the relevant
entire portfolio of investments in a particular market as underwriting year when the original policy was written
opposed, for example, to an equity investment in a single and accounts are rendered for each agreed period un-
company which collapses. til the liability under all policies written during that un-
derwriting year is extinguished.
Treaty
Under “Treaty” reinsurance the reinsurer agrees to ac- Utmost good faith
cept all business falling within the scope of the treaty, See under Uberrimae fidei.
for example, all business written in the fire department.
A Treaty is the document that reflects this agreement Written premium
between the reinsurer and the reinsured.
Written premium in the reinsurance context is the pre-
mium resulting from all policies issued during (usually)
Treaty reinsurance an annual treaty period, and falling within the scope of
A treaty reinsurance is a reinsurance agreement the treaty.
between a ceding company and a reinsurer which co-
vers a portfolio of business. Reinsurance treaties can be
divided into two basic forms: a) Proportional in which
the ceding company cedes a share of the premium to
the reinsurer, who pays an equal share of the loss and b)
Non-proportional where the reinsurer only indemnifies
the ceding company for losses which exceed a predeter-
mined amount. Sub-forms include on the proportional
side - Quota-Share, Surplus and Facultative Obligatory
treaties, and on the non-proportional side - Excess of
Loss, Catastrophe and Stop-Loss treaties.

Two risk warranty

A two risk warranty clause in a catastrophe excess of loss
treaty stipulates that at least two risks must be involved
in the event for a claim to be made under the treaty. This
is to prevent the catastrophe treaty being used for per
risk or single risk claims.

Uberrimae fidei or utmost good faith

A legal Latin term meaning “of the utmost good faith”. A
legal requirement in insurance and reinsurance contracts
where one party generally has all the knowledge about
the risks it wants to place and the other party is reliant
on receiving the full information on those risks. A breach
of utmost good faith, especially in regard to full and vo-
luntary disclosure of the elements of the risks to be co-
vered, will be grounds for redress and even rescinding
the contract.

Ultimate net loss

Is the gross loss suffered by the ceding company less
any recoveries from other reinsurance which reduce the
loss to the treaty in question.
It is the amount actually paid or payable for the settle-
ment of a claim for which the ceding company is liable
(and it may include or exclude defense costs), after de-
ductions are made for any eligible recoveries.

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