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SAP
See STATUTORY ACCOUNTING PRINCIPLES


SECOND SURPLUS
A supplementary treaty to a FIRST SURPLUS TREATY.


SELF-INSURED OBLIGATION
+ An exposure of an insurance company within the classes of its reinsured business for which the company has issued its policy (or certificate) to itself, has made a premium declaration on its books, or has prepared an internal memorandum with details of the exposure, the purpose being to cover such self-insured obligation under its reinsurance contracts. Contrast with an uninsured obligation, for which there would be no coverage. Some question the validity of this type of transaction because it violates the contract law principle that an entity cannot contract with itself.


SEMI-AUTOMATIC TREATY
See FACULTATIVE SEMI-OBLIGATORY TREATY.


SETOFF (noun)
+ The reduction of the amount owed by one party to a second party under one agreement or transaction by crediting the first party with amounts the second party owes the first party under other agreements or transactions for the purpose of determining the amount, if any, the first party owes to the second. A person asserting a setoff does not seek to recover amounts owed to the person in excess of the amount offset. Under bankruptcy and insolvency statutes, the amounts which may be offset must be mutual debts. This requires that the debts must be owed to and from the same parties in the same capacity. A bankruptcy trustee or a liquidator of an insurer is a different party from the debtor or insolvent insurer. If the liquidator has a claim against a person under special statutory rights granted to the liquidator (such as the right to void preferential transfers or fraudulent conveyances), the claim by the liquidator is owed as a different party than a claim which the liquidator owes as a successor-in-interest t


SINGLE RISK REINSURANCE
See FACULTATIVE REIN-SURANCE.


SLIDING SCALE COMMISSION
+ A contractual formula used in pro rata treaty reinsurance under which the ultimate ceding commission payable varies inversely to the loss ratio, within stated parameters. In effect, a retroactive pricing mechanism for pro rata reinsurance.


SLIP
+ See BINDER and COVER NOTE.


SOCIAL INFLATION
The increasing of insurance losses caused by higher jury awards, increase in liberal treatment of claims by workers compensation boards, legislated rises in compensation benefit levels (in some cases retroactively), and new concepts of tort and negligence, among others.


SOFT MARKET
See HARD MARKET.


SPECIAL ACCEPTANCE
+ The extension of a reinsurance treaty to embrace a specific risk not automatically included within its terms (e.g., a different class of business, an inordinate size of obligation, or an excluded risk). Once accepted, all other treaty terms apply. However, at least one arbitration has declared that a special acceptance required a termination notice separate from the notice canceling the treaty, otherwise the acceptance would lose its "special" nature.


SPECIAL COVERS
A general term used to describe reinsurance agreements written to protect the primary company against certain unusual situations, usually contingent in nature, rather than for the repayment of normal losses suffered under the primary company's policies.


SPECIAL EXCEPTION
See SPECIAL ACCEPTANCE.


SPECIAL TERMINATION
+ A clause in a reinsurance treaty providing that, if one or more conditions arise, the treaty or agreement can be cancelled immediately. Some conditions could be: the acquisition, control, or merger by or with another company; the loss of a significant part of the company's policyholder surplus; a sudden and substantial change in the company's management; the failure to remit premiums; and insolvency or liquidation. The clause should state which party may initiate the termination, the conditions necessary, the notice requirements, and the method of terminating existing business (i.e., whether to cut off or to run off). Also known as Sudden Death Clause.


SPREAD LOSS REINSURANCE
A type of excess of loss property reinsurance which provides for a periodic adjustment of the reinsurance premium rate based on the reinsured's experience for preceding years (usually five), plus a loading for the purpose of compensating the reinsurer for a) its expenses, b) the possibility of unusual losses, c) those losses occurring at the end of the period of the treaty which the reinsurer might not have a chance to recoup if the treaty is not renewed, d) a catastrophe possibility, and e) the reinsurer's profit. In casualty reinsurance, adjustments to the above may be required for such other factors as economic and social inflation. Also known as CARPENTER PLAN.


STATUTORY ACCOUNTING PRINCIPLES
Those accounting procedures required by state law which must be followed by insurance companies in submitting their financial statements to state insurance departments. Such principles differ from generally accepted accounting principles (GAAP) in important respects, e.g., SAP requires that expenses must be recorded immediately and cannot be deferred to track with premiums as they are earned and taken into revenue. See GAAP.


STATUTORY POLICYHOLDER SURPLUS
See POLICYHOLDER SURPLUS.


STATUTORY SUCCESSOR
+ The party designated by law (e.g., a liquidator, conservator, or receiver appointed by a court) to receive reinsurance proceeds due an insolvent insurer's estate (instead of other claimants, such as guaranty funds or individual policyholders).


STOP-LOSS REINSURANCE
See AGGREGATE STOP-LOSS REINSURANCE.


STRENGTHENING RESERVES
See RESERVE STRENGTHENING.


STRUCTURED SETTLEMENT
+ The loss payment by the insurer in the form of a lump sum to the claimant (or its attorney), plus a discounted dollar amount (the premium) to an annuity company (affiliated or not with the insurer), which annuity company agrees to pay the claimant (the annuitant) an amount per year for either a period of years or for the lifetime of the annuitant.


STUB POLICY
An insurance policy written for less than one year.


SUBJECT PREMIUM
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, PREMIUM BASE, UNDERLYING PREMIUM, and Subject Matter Premium Income.


SUDDEN DEATH CLAUSE
+ See SPECIAL TERMINATION.


SUNSET
+ A provision in a contract limiting coverage to losses reported to the reinsurer within a certain number of years from a given point in time, such as the end of the contract year in which the loss occurs.


SURPLUS CREDIT
See CREDIT FOR AUTHORIZED REINSURANCE, ANNUAL STATEMENT


SURPLUS LIABILITY
That portion of a reinsured company's gross liability on any one risk which exceeds the amount the company is willing to retain net for its own account. See NET RETAINED LIABILITY.


SURPLUS RELIEF
1) The result of reinsurance ceded on a portfolio basis to offset extraordinary drains on the reinsured's policyholder surplus. The need for policyholder surplus relief is created when an insurance company wishes to write more policies, or larger policies, or both, than its policyholder surplus (assets minus liabilities) can finance. Put another way, the initial costs of writing primary insurance policies (which must be expended immediately) exceed the initial premium income (which is not available to offset costs until it is earned over the policy period, usually twelve months as required by law), and the company is therefore limited in its policy writings by the amount of its net worth, or policyholder surplus. 2) A designation of a reinsurance the main purpose of which is to finance new or in-force business, or both. See FINANCING FUNCTION, PORTFOLIO, PORTFOLIO REINSURANCE, CEDING COMMISSION, and TURN.


SURPLUS SHARE REINSURANCE
+ A form of pro rata reinsurance indemnifying the ceding company against loss to the extent of the surplus insurance liability ceded, on a share basis similar to quota share. Essentially, this can be viewed as a variable quota share contract wherein the reinsurer's pro rata share of insurance on individual risks will increase as the amount of insurance increases, given the same reinsurer's retained line, in order that the primary company can limit its net exposure to one line, regardless of the amount of insurance written. First surplus is the amount of surplus on each risk (one or more multiples of the reinsured's line) that must apply first to the first surplus contract. Second surplus, third surplus, etc., reinsurances are the remaining portions of the surplus liability that must apply to each such respective contract after deducting the amount(s) ceded to the underlying surplus contract or contracts.


SURPLUS TO POLICYHOLDERS
See POLICYHOLDER SURPLUS.


SYNDICATE
An association of individuals or organizations to pursue certain insurance objectives. For example, individual underwriters in Lloyd's of London associate in separate syndicates to write marine insurance, reinsurance, life insurance, etc., entrusting the administrative details of each syndicate to a syndicate manager. See POOL.