Glossary

Private company directors and officers liability insurance insures directors and officers of privately held companies against claims alleging mismanagement of the firm. Unlike publicly held corporations, the shares of privately held organizations are not traded on major stock exchanges. In addition, ownership is usually restricted to a small number of persons, typically the executives and managers who operate the company. As a result, the potential for high-dollar securities class action lawsuits is negligible under private company directors and officers (D&O) liability insurance. Consequently, premiums for private company D&O insurance policies are substantially lower than for comparable limits written for publicly held organizations.

Private crop-hail insurance is the first type of crop insurance written in the United States. It typically covers the single peril of hail. The perils of fire and wind can also be included in this coverage but only for some crops and some locales. Private crop-hail insurance is usually purchased for high-yielding crops in areas of the country susceptible to hail. Unlike federal crop insurance, private insurers offer and underwrite this policy. It is sold by licensed insurance agents, and the premiums depend, for a large part, on past loss experience. One advantage of private crop-hail coverage (over hail coverage available through federal crop insurance) is the ability to get spot coverage (coverage on an acre-by-acre basis).

A private equity firm is a company that raises money in private markets (i.e., from institutional investors such as pension funds or from wealthy individuals), rather than from public markets (such as major stock exchanges) and then uses these monies to make various types of investments. The most well-known private equity firms operate by buying all of the shares of a company listed on a public stock exchange (such as the New York Stock Exchange (NYSE)). Since it now owns the corporation, the private equity firm then brings in a new management team, in an attempt to make the newly purchased company more profitable and thus more valuable. Ultimately, the private equity group resells the company later, hopefully for a higher price per share than the one for which it was originally acquired on the public market.

A private letter ruling is a ruling by the Internal Revenue Service (IRS) regarding how a specific transaction will be taxed.

Private placement refers to an investment opportunity involving the sale of stock to investors, for which the normal, more involved, registration requirement with the Securities and Exchange Commission (SEC) is waived. Typically, detailed information concerning such investments must be provided to the SEC. However, in recent years, a number of group captive insurers have been exempted from such filing requirements and were formed by means of private placements.

The Private Securities Litigation Reform Act of 1995 is a law aimed at reducing the number of claims against corporate directors and officers that allege securities violations.

A privileged communication is a communication made between parties during certain "special" relationships that is protected from disclosure to third parties. The most common protected relationships are those of attorney/client, cleric/penitents, and husband/wife.

Privity of contract is the relationship that exists between two parties by virtue of their having entered into a contract. Privity of contract provides that a contract cannot confer rights or impose obligations upon any person who is not a party to the contract. This concept incorporates the legal principle that a contract may not impose duties on a noncontracting party, nor may a noncontracting party claim any right or benefit as being guaranteed by the contract.

Probability is a numerical measure of the chance or likelihood that a particular event will occur. Probabilities are generally assigned on a scale from 0 to 1. A probability near 0 indicates an outcome that is unlikely to occur, while a probability near 1 indicates an outcome that is almost certain to occur.

Probability analysis is a technique used by risk managers for forecasting future events, such as accidental and business losses. This process involves a review of historical loss data to calculate a probability distribution that can be used to predict future losses. The probability analyst views past losses as a range of outcomes of what might be expected for the future and assumes that the environment will remain fairly stable. This technique is particularly effective for companies that have a large amount of data on past losses and that have experienced stable operations. This type of analysis is contrasted to trend analysis.