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PARTICIPATE
To share in the writing of a risk.
PARTICIPATING INSURANCE
A designated class of insurance that shares in the dividends declared by the primary insurer to policyholders. While mutual insurers issue participating policies mostly, and stock insurers usually issue nonparticipating policies, either type of insurer may seek authorization from its domiciliary state insurance department to issue the other type of policy.
PARTICIPATING REINSURANCE
The sharing of risks, as in quota share and surplus share reinsurance, in which the reinsured and the reinsurer participate pro rata in all losses beginning with the first dollar. See PRO RATA REINSURANCE.
PAYBACK PERIOD
A term used in rating per occurrence excess covers showing the number of years at a given premium level required to accumulate total premiums equal to the indemnity. Synonymous with AMORTIZATION PERIOD.
PENALTY FOR UNAUTHORIZED REINSURANCE, ANNUAL STATEMENT
+ The inability of a licensed insurer to increase its Annual Statement policyholder surplus when purchasing pro rata reinsurance, which is a major reason for purchasing it, if the purchase is made from a reinsurer not licensed or approved by the domiciliary state insurance department of the insurer. Where Annual Statement credit is not allowed in the purchase of pro rata reinsurance, the licensed insurer must establish an unearned premium reserve liability on its Statement for such reinsurance, and possibly other reserves as well, which decreases the insurer's Statement policyholder surplus, hence the penalty. If excess of loss reinsurance is purchased, the penalty is the requirement that the insurer establish a reserve liability for the amount of loss recoverables, as is the case for loss recoverables from an unauthorized pro rata reinsurer. Any penalty can be reduced by the insurer's withholding funds due the reinsurer (shown in the insurer's Annual Statement as a liability, "funds held") or by the reins
PER OCCURRENCE EXCESS
+ An excess of loss reinsurance where the reinsured company's loss retention and the reinsurer's limit of liability apply to the loss arising from a single occurrence, regardless of the number of risks or policies involved. May be casualty or property: if property insurance, the reinsurance would be called catastrophe excess; if casualty, which would require two or more coverages or policies to be involved in a given loss, the contract is called a clash cover.
PER RISK REINSURANCE
Reinsurance in which the reinsurance limit and the reinsured's loss retention apply "per risk," rather than per accident, per event, or in the aggregate.
PML
See PROBABLE MAXIMUM LOSS
POLICIES
+ Any of the ceding company's (or reinsured's, in excess of loss) policies, binders, contracts of insurance, or reinsurance covered by the reinsurer.
POLICY PROFILE
A study which segregates an insurer's policies into various groupings (for example, by policy limit or policy premium).
POLICYHOLDER
The party in whose name an insurance policy is issued.
POLICYHOLDER SURPLUS
1) The net worth of an insurer as reported in its Annual Statement. For a stock insurer, the sum of its surplus and capital. For a mutual insurer, its surplus. 2) The amount by which the assets of an insurer exceed the liabilities. Another name for surplus to policyholders.
POLICY-YEAR EXPERIENCE
Simplistically, the segregation of all premiums and losses attributable to policies having an inception or renewal date within a given twelve-month period. More specifically, the total value (losses paid plus loss reserves) of all losses arising from (regardless of when reported) policies incepting or renewing during the year is divided by the fully developed earned premium for those same policies. The finally developed earned premium will always equal the written premium for those policies. POLICY-YEAR EXPERIENCE resembles ACCIDENT-YEAR EXPERIENCE in that, while the experience is developing, loss reserves are used in the calculation, but the ultimate result cannot be finalized until all losses are settled. POLICY-YEAR EXPERIENCE is different in that premiums earned from policies incepting during a one-year period of time will earn over the course of both the year of inception and a later year(s). Similarly, losses to be included will be occurring over the same extended time period. Also known as UNDERWRITING YEAR.
POLICY-YEAR EXPERIENCE
See ACCIDENT-YEAR EXPERIENCE.
POOL
Any joint underwriting operation of insurance or reinsurance in which the participants assume a predetermined and fixed interest in all business written. Pools are often independently managed by professionals with expertise in the classes of business undertaken, and the members share in the premiums, losses, expenses, and profits. An "association" and a "syndicate" (excluding that of Lloyd's of London) are both synonymous with a pool, and the basic principles of operation are much the same.
PORTFOLIO
A defined body of a) insurance (policies) in force (known as a premium portfolio), b) outstanding losses (known as a loss portfolio), or c) company investments (known as an investment portfolio). (The reinsurance of all existing insurance as well as new and renewal business is therefore described as a running account reinsurance with portfolio transfer or assumption.)
PORTFOLIO REINSURANCE
The transfer of a portfolio of premiums or outstanding loss reserves to a reinsurer; the reinsurance of a runoff. Only policies in force (or losses outstanding) are reinsured, and no new or renewal business is included. Commonly used by an insurer when retiring from an agency, a territory, or from the insurance business entirely. Known also as assumption reinsurance.
PORTFOLIO RETURN
If the reinsurer is relieved of liability (under a pro rata reinsurance) for losses happening after termination of the treaty or at a later date, the total unearned premium reserve on business left unreinsured (less ceding commissions thereon) is normally returned to the cedent. Also known as a RETURN PORTFOLIO or Return of Unearned Premium.
PORTFOLIO RUNOFF
Continuing to reinsure a portfolio until all ceded premium is earned, or all losses are settled, or both. While a loss runoff is usually unlimited as to time, a premium runoff can be for a specified duration.
POSTJUDGMENT INTEREST
Interest which accumulates after entry of the court judgment before it is paid.
PREJUDGMENT INTEREST
+ Interest assessed against the defendant in a lawsuit from the time of the injury (or in some instances from the time of filing suit) until the rendering of the court judgment. Commonly considered as part of the loss for insurance purposes rather than an expense, if the interest becomes part of the judgment. Prejudgment interest, allowed in many states, is designed to encourage defendants to settle quickly by allowing interest to accrue (in the event of a verdict for the plaintiff) from a point in time in advance of the verdict.
PREJUDICE
+ Injury, damage or loss, especially to one's legal rights or claims.
PREMIUM
The monetary consideration in contracts of insurance and reinsurance.
PREMIUM BASE
The reinsured company's premiums (written or earned) to which the reinsurance premium rate is applied to produce the reinsurance premium. Also known as BASE PREMIUM, SUBJECT PREMIUM, and UNDERLYING PREMIUM.
PREMIUMS EARNED
When used as an accounting term, premiums earned describe the premiums written during a period, plus the unearned premiums at the beginning of the period, less the unearned premiums at the end of the period.
PRIMARY
+ An adjective applied in reinsurance to these nouns: insurer, insured, policy, and insurance meaning respectively: 1) the primary insurer is the insurance company which initially originates the business, i.e., the ceding company in pro rata reinsurance, or the reinsured in excess of loss reinsurance (the first insurer in the insurance-reinsurance relationship, hence primary); 2) the primary insured is the policyholder of the primary insurer; 3) the primary policy is the initial policy issued by the primary insurer to the primary insured; 4) the primary insurance is the insurance covered under the primary policy issued by the primary insurer to the primary insured (sometimes called "underlying insurance").
PRIORITY
The term used in some reinsurance markets outside the U.S. to mean the retention of the primary company in a reinsurance agreement.
PRIORITY OF REIMBURSEMENT
+ See REIMBURSEMENT PRIORITY.
PRO RATA REINSURANCE
A generic term describing quota share and surplus share reinsurance in which the reinsurer shares a proportional part of the ceded insurance liability, premiums, and losses of the ceding company. Also known as PARTICIPATING REINSURANCE and Proportional Reinsurance. See QUOTA SHARE and SURPLUS SHARE.
PROBABLE MAXIMUM LOSS
The anticipated maximum property fire loss that could result, given the normal functioning of protective features (firewalls, sprinklers, a responsive fire department, etc.), as opposed to MFL (Maximum Foreseeable Loss), which would be a similar valuation, but on a worst case basis with respect to the functioning of the protective features. Underwriting decisions would typically be influenced by PML evaluations, and the amount of reinsurance ceded on a risk would normally be predicated on the PML valuation.
PRODUCER COMMISSION
The same as BROKERAGE COMMISSION.
PROFESSIONAL REINSURER
A term used to designate an organization whose business is mainly reinsurance and related services, as contrasted with other insurance organizations which may operate reinsurance assuming departments in addition to their basic primary insurance business.
PROFIT
See Profit
PROFIT COMMISSION
See CONTINGENT COMMISSION.
PROFIT MARGIN
As a pricing factor (along with expenses and losses), the return the reinsurer expects from the degree of net risk taken. As with any investment, the reinsurer expects a larger return from risky than safe investments.
PROPORTIONAL REINSURANCE
Another name for PRO RATA REINSURANCE.
PROSPECTIVE RATING PLAN
The formula in a reinsurance contract for determining the reinsurance premium for a specified period on the basis, in whole or in part, of the loss experience of a prior period (as opposed to retrospective rating, which is based on loss experience for the same period). Also known as Experience Rating. See SPREAD LOSS REINSURANCE.
PROVISIONAL COMMISSION
The tentative amount which is subject to subsequent adjustment.
PROVISIONAL PREMIUM
The tentative amount which is subject to subsequent adjustment.
PROVISIONAL RATE
The tentative amount which is subject to subsequent adjustment.
PUNITIVE DAMAGES
Damages awarded separately and in addition to compensatory damages, usually on account of malicious or wanton misconduct, to serve as a punishment for the wrongdoer and possibly as a deterrent to others. Sometimes referred to as exemplary damages when intended to make an example of the wrongdoer.
PURE LOSS COST
The ratio of reinsured losses incurred under a reinsurance agreement to the ceding company's subject earned premium for that agreement, before loading. Also known as BURNING COST.
PURE PREMIUM
1) That part of the premium which is sufficient to pay losses and loss adjustment expenses but not other expenses. 2) Also the premium developed by dividing losses by units of exposure, disregarding any loading for commission, taxes, and expenses. 3) In crop-hail insurance, the ratio of incurred loss to liability, or the dollars of loss per $100 of insurance in force.
PYRAMIDING SURPLUS
The consolidating of two or more insurer policyholder surpluses (net worths) by the consolidating parent insurer, as required by proper accounting, which can distort the parent's ability to write a larger premium volume than NAIC IRIS test ratios consider acceptable. The distortion is revealed by applying the IRIS test ratio to each insurer's policyholder surplus, independent of the consolidated total. (The term can also be adapted to the pyramiding of reinsurers' liability. See Page 93 of the Property Per Risk chapter of Reinsurance, revised 1997).
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