Glossary

Probability of ruin is the percentile of the probability distribution corresponding to the point at which capital is exhausted. Typically, a minimum acceptable probability of ruin is specified, and economic capital is derived therefrom.

Probably maximum loss (PML) is a property loss control term referring to the maximum loss expected at a given location in the event of a fire at that location, expressed in dollars or as a percentage of total values.

A probationary period refers to a provision in some disability income policies stipulating that benefits will not be payable for sickness commencing during a specified time period (e.g., 15–30 days) after inception of the policy. The purpose is to clarify that the policy is not intended to cover disability resulting from preexisting disease.

Process refers to the whole course of proceedings in a legal action. Process also is the legal means by which a person is given notice of a legal proceeding or required to appear in court.

Process risk is a way of expressing the variation in potential outcomes based on the size of the sample. The risk decreases as the sample size increases. For example, loss forecasts rely on historical loss data. Increased amounts of credible loss information reduce the amount of process risk inherent in the calculation. In insurance terminology, the law of large numbers is directly related to the credibility of the loss predictions on which premiums are based. The risk decreases as the number of exposure units increases.

Process wastewater is any water that comes into contact with any raw material, product, by-product, or waste.

A producer-owned reinsurance company (PORC) is a captive or a rent-a-captive cell owned or used by a broker or managing general agent (MGA) for reinsurance of selected risks that it produces for the purposes of retaining the underwriting income. May be set up by insurance companies to circumvent state laws regarding the amount of commissions that can be paid to their producing agents.

Producer in an insurance context is another term commonly used for an agent, broker, or other insurance representative who has responsibility for selling insurance.

A product is the subject of product liability insurance; defined in the standard Insurance Services Office, Inc. (ISO), commercial general liability (CGL) policies to include property—other than real property—manufactured, sold, handled, distributed, or disposed of by the named insured or others involved with the named insured in the stream of commerce. The definition of "product" includes containers, parts and equipment, product warranties, and provision of or failure to provide instructions and warnings.

Production contracts in an insurance context are risk transfer techniques often used by farmers who raise livestock, such as poultry. It is a written legal agreement between integrators (typically a large specialized livestock-oriented business) and producers/farmers defining the terms and conditions affecting producer production payments. With this agreement, the producer/farmer provides land, labor, housing, and equipment. In return for these production inputs, producers receive a set payment from the integrator based on pounds of crop or livestock produced. One of the key advantages for producers/farmers is the shift of a significant portion of production and market risk to the integrator. Contract livestock producers are somewhat insulated from price fluctuations in the livestock markets and, since they do not own the livestock, have less capital at risk.