Glossary

A professional reinsurer is a company whose business is confined solely to reinsurance and the peripheral services offered by a reinsurer to its customers. This is in contrast to primary insurers, which exchange reinsurance or operate reinsurance departments as adjuncts to their basic business of primary insurance.

The professional services exclusion is an exclusion commonly endorsed onto general liability policies and found within directors and officers (D&O) liability insurance policies. As a modification of commercial general liability (CGL) policies, the exclusion serves to segregate general liability from professional (errors and omissions (E&O)) exposures, leaving only the former insured. For example, it would not interfere with coverage of a physician's premises liability if someone falls and is injured while in the office, but it would exclude any liability arising from the physician's providing of medical care. As part of a D&O policy, the intent of the exclusion is similar: to preclude coverage of traditional professional services that are sometimes performed by individuals covered by the D&O policy but should be separately insured. The exclusion would apply in the following situation. Assume that a corporation's chief counsel is an officer of the corporation and therefore covered by the D&O policy. The chief counsel reviews a merger and acquisition agreement with a competitor firm, concluding that the merger does not violate antitrust laws. But 3 months later, the antitrust division of the US Department of Justice challenges the merger, which, after protracted litigation, does not take place. The competitor firm then sues the chief counsel for rendering an erroneous legal opinion that cost the competitor millions of dollars in legal and consulting fees. The professional services exclusion would preclude coverage for the chief counsel in this situation because the services provided were those of a lawyer rather than those of a traditional director or officer. Coverage for this exposure is available under a lawyers professional liability policy or under an employed lawyers professional liability policy.

Profit center captives are captives that have the primary function of earning underwriting income by writing unrelated risk.

A profit commission is a provision found in some reinsurance agreements that provides for profit sharing. Parties agree to a formula for calculating profit, an allowance for the reinsurer's expenses, and the cedent's share of such profit after expenses.

A profit sharing plan is a defined contribution benefit plan that does not promise a set amount at retirement. Up to 15 percent of employee compensation can be contributed on behalf of any employee annually.

Program business refers to groupings of insurance customers or applicants with common operations that often form associations or risk purchasing groups (RPGs). Examples include ambulance services, new car dealerships, and mental health facilities.

A program business captive is a captive that insures or reinsures a "program"—that is, a group of homogeneous risks, none of which is individually underwritten. It may or may not be owned by the program business agency or producer.

Progressive injury or damage describes injury or damage that happens gradually and worsens over time. For example, wood rot starts slowly and gets progressively worse over time. For insurance purposes, this most often refers to injury or damage that occurs over multiple policy periods and thus raises questions about which policy(ies) may be triggered for the loss.

Prohibited risk is any class of business excluded by underwriters of an insurance company that will not be insured under any condition.

Prohibited transactions refer to two types of transactions (involving employee pension and welfare plan funds) that are prohibited under the Employee Retirement Income Security Act (ERISA). These are (1) self-dealing and (2) party-in-interest transactions. Under the first type, fiduciaries are barred from using employee benefit plan assets to profit personally, such as by investing pension plan monies in a company in which a fiduciary holds a majority interest. The second type, party-in-interest transactions, is what would otherwise be legitimate business transactions, yet are prohibited if they are conducted with a "party-in-interest." The Act defines a party-in-interest as any fiduciary, legal counsel, employee of an employer-sponsored benefit plan, or service provider to the plan. For example, pension plan funds cannot be used to buy or sell property to or from the family member of any trustee or anyone else who is a party-in-interest. In the event a fiduciary engages in a prohibited transaction, various monetary penalties will be levied against the employer-sponsor of the plan.