Glossary

Catastrophe reserves are reserves on a captive's balance sheet that are for paying neither known nor incurred but not reported (IBNR) losses. The ideal strategy would be to build up these catastrophe reserves for an emergency when they will be needed.

Catastrophic loss refers to loss in excess of the working layer, usually of such magnitude as to be difficult to predict and therefore rarely self-insured or retained.

Category 3 water is grossly contaminated with pollutants, including fungi and bacteria. Universal exclusions in property and liability insurance policies for losses related to fungi/bacteria automatically apply to Category 3 water losses because of the bacteria and/or fungi in the water. Insurance coverage gaps for losses associated with Category 3 water can be filled using the same risk management tools and environmental insurance products created for fungus/mold risks.

A cat bond lite is a risk-transfer agreement, such as an industry loss warranty (ILW) or collateralized reinsurance contract, that is transformed into a security. The cat bond lite structure seeks to offer cedents an approach to securitization that does not include the sometimes cumbersome, expensive, and time-consuming overhead of traditional catastrophe bonds while still delivering the structural discipline and potential liquidity that catastrophe bonds provide. Consequently, sponsors have gained the ability to complete tactical capital management activities faster and with lower frictional costs while still accessing new sources of capital.

Causes of loss are the perils that can bring about or trigger loss or damage. They can be direct (the action immediately precedes the loss) or indirect (part of an uninterrupted chain of events leading to the loss).

Causes of loss forms are Insurance Services Office, Inc. (ISO), commercial property insurance forms that establish and define the causes of loss (or perils) for which coverage is provided. A causes of loss form is combined with one or more coverage forms, the commercial property conditions form, the common policy conditions form, and the declarations to make up an ISO commercial property policy. There are three causes of loss forms: the basic, broad, and special causes of loss forms. The basic and broad causes of loss forms are named perils forms; they provide coverage for loss from only the particular causes that are listed in the policy as covered. The special causes of loss form is an all risks form; it provides coverage for loss from any cause except those that are specifically excluded.

To cede is when a company reinsures its liability with another. The original or primary insurer, the insurance company that purchases reinsurance, is the "ceding company" that "cedes" business to the reinsurer.

Ceded premiums refer to premiums paid or payable by the captive to another insurer for reinsurance protection.

A cedent is a ceding insurer or a reinsurer. A ceding insurer is an insurer that underwrites and issues an original, primary policy to an insured and contractually transfers (cedes) a portion of the risk to a reinsurer. A ceding reinsurer is a reinsurer that transfers (cedes) a portion of the underlying reinsurance to a retrocessionaire.

Ceding commission is the remuneration paid to the ceding insurer/reinsurer by the assuming reinsurer (either entity could be a captive), compensating the cedent for various expenses that it incurs, such as underwriting and business acquisition expenses.