Glossary

A deposit administration plan is a pension plan administered by a life insurance company where pension funds accumulate in a master group annuity policy until a participant retires. As plan members retire, individual annuity policies are purchased with money from the fund. Also known as deposit administration contract and group deposit administration annuity.

A deposit policy is a contract entered into where the insured puts on deposit with the insurance company a sum of money, and the company, in turn, manages the fund for the insured.

In property and casualty insurance, the deposit premium is the premium deposit required by the insurer on forms of insurance subject to periodic premium adjustment. It is also called "provisional premium." In reinsurance, the deposit premium is the amount of premium (usually for an excess of loss reinsurance contract) that the ceding company pays to the reinsurer on a periodic basis during the term of the contract. This amount is generally determined as a percentage of the estimated amount of premium that the contract will produce based on the rate and estimated subject premium. It is often the same as the minimum premium but may be higher or lower. The deposit premium will be adjusted to the higher of the actual developed premium or the minimum premium after the actual subject premium has been determined by audit or reporting of the actual exposures insured during the coverage period.

Depreciation is the decrease in the value of property over a period of time, usually as result of age, wear and tear from use, or economic obsolescence. Actual physical depreciation (wear and tear from use) is subtracted from the replacement cost of insured property in determining its actual cash value (ACV). Courts in some jurisdictions have allowed insurers to deduct depreciation due to economic obsolescence as well.

Deprivation refers to the loss of use of an asset located in a foreign country due to political interference or circumstances. The economic impact of the deprivation can be insured by political risk insurance policy, subject to a waiting period.

Derecho is a weather term referring to a widespread, long-lived windstorm produced by a fast-moving line or complex of thunderstorms. Derechos are known for destructive straight-line winds. They are often strong enough to cause the same type of damage as a tornado, but the damage typically spreads in one general direction across a broad, continuous path.

A derivative is a financial instrument whose value depends, at least in part, on the value of a related asset or liability. In essence, its value is "derived" from the values of some underlying asset such as a commodity or stocks. For example, if an individual or business owns an option to purchase 1,000 shares of a particular stock at a set price, the value of the option will increase as the value of the stock increases. Risk managers and financial officers often deal in derivatives as a technique for managing their business risks.

A derivative contract is a financial contract (i.e., a promise to pay an amount to the holder of the contract at a specified time or under specified conditions) where the value of the contract is based on certain variables, such as an index of commodity prices.

Derivative investigation coverage is an insuring agreement (known as "Side D" coverage) found within directors and officers (D&O) liability insurance policy forms. Such coverage pays the costs associated with investigations of an insured corporation, although only those involving shareholder derivative claims. (Derivative claims are brought by one or more stockholders, on behalf of the corporation, alleging financial loss to the organization. Any recovery in such suits inures to the benefit of the corporation itself as opposed to the shareholders who institute the action.) However, investigations may also be required by various regulatory agencies, including the Department of Justice (DOJ), the Securities and Exchange Commission (SEC), and others and for which there is no coverage under "Side D" of the policy. As part of an investigation, insureds must usually hire outside counsel, as well as various accounting, financial, and regulatory experts. Such parties assist the organization in managing document requests, responding to interrogatories, and providing depositions. There are three specific drawbacks associated with the investigations coverage contained within "Side D" of a D&O liability policy. First, coverage is limited to shareholder derivative demand investigations only. Second, the vast majority of insurers write Side D coverage with merely a $250,000 sublimit, a figure that is generally inadequate given the speed with which investigation-related costs can accrue. Lastly, virtually no excess D&O insurers will agree to provide "drop down" coverage once the $250,000 sublimit under "Side D" is exhausted. For example, assume an insured expends $1.25 million in investigations expense in conjunction with a derivative claim brought against it. In this situation, its excess insurer will not cover the $1 million that will not be indemnified by the insured's primary D&O insurer.

Derivative lawsuits are a type of lawsuit brought by one or more stockholders, on behalf of the corporation, alleging financial loss to the organization. The alleged harm must be to the corporation as a whole, such as the diminishing of the corporation's assets, for shareholders to pursue an action derivatively. Any recovery in such suits inures to the benefit of the corporation itself as opposed to the shareholders who institute the action.