Glossary

A rated insurer is an insurance company that has received a financial size and strength rating from a rating agency such as A.M. Best and Standard and Poor's.

A rated policy is a life insurance policy that is issued at a premium rate higher than standard to cover an individual classified as a substandard risk. A rated policy may also contain special limitations and exclusions. Also known as a rate up policy.

Rate discrimination involves an insurer using different rates for exposures of the same risk type and classification. This is illegal in most states.

Rate making refers to the process of using underwriting information to calculate a premium for the exposure.

A rate manual contains classifications and rates for a given line of insurance.

The rate of natural change is birth rate minus death rate. In the absence of migration, this would be the change in the population.

Rate on line (ROL) is the calculation in percent derived by dividing reinsurance premium by reinsurance limit; the inverse is known as the payback or amortization period. For example, a $10 million catastrophe cover with a premium of $2 million would have an ROL of 20 percent and a payback period of 5 years.

Rating in an insurance context means determining the amount of premium to be paid to insure or reinsure a risk. Guaranteed cost rates are fixed during the policy period. Loss sensitive rates are those that can be adjusted after the end of a policy period, based upon the insured's actual loss experience.

A rating bureau is an organization that collects statistical data (such as premiums, exposure units, and losses), computes advisory rating information, develops standard policy forms, and files information with regulators on behalf of insurance companies that purchase its services. Years ago, insurers were required by law in most states to belong to the designated rating bureau and to use its rates and policy forms. Today, however, these organizations serve in an advisory capacity for most services and most coverage lines; generally, insurers are free to use their products and services as they see fit. The best known rating bureaus are National Council on Compensation Insurance (NCCI) (for workers compensation insurance), the Surety Association of America (SAA) (for surety bonds and crime insurance), Insurance Services Office, Inc. (ISO) (for most commercial and personal lines other than workers compensation insurance), and American Association of Insurance Services, Inc. (AAIS) (for many commercial and personal lines other than workers compensation).

The rating class in an insurance context is the classification for rating purposes of an individual exposure.