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Financial reinsurance

REINSURANCE: A form of reinsurance that considers the time value of money and has loss containment provisions transacted primarily to achieve financial goals, such as capital management, tax planning, or the financing of acquisitions. Also see Finite Reinsurance.
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A form of reinsurance that considers the time value of money and has loss containment provisions. One of its objectives is the enhancement of the cedant’s financial statements or operating ratios, e.g., the combined ratio loss portfolio transfers and financial quota shares.
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UK: There is no clearly accepted definition but financial reinsurance is more concerned with the time value of money and financial goals than risk transfer. The intention is to stabilise the cedant’s balance sheet and provide capital support. The cedant pays a premium to cover defined losses on a multi-year basis up to an agreed maximum. A profit share element converts a conventional treaty into financial reinsurance. The cedant benefits from credit enhancement by improving key ratios such as the combined ratio. Specific financial reinsurance products include: time and distance policies; loss portfolio transfers; spread loss treaty; adverse development cover; blended cover.
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REINSURANCE: This is a form of reinsurance involving less underwriting risk transfer and more investment or timing risk transfer from the cedant. These contacts are often on a multi-line, multi-year basis. They typically absorb at least the cost associated with claims differing from expected claims experience, and often carry excess of loss terms and multiple options Premiums usually reflect the time value of money to a large extent than traditional excess of loss contracts.

Financial responsibility clause

In automobile insurance, a provision in the policy stating that the insured has the minimum amount of liability insurance coverage required by the state’s financial responsibility law. Each state has some form of financial responsibility law.
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The clause in an auto policy stating that, when the policy is certified as future proof of financial responsibility, the policy will comply with the financial responsibility laws to the extent required.

Financial responsibility law

US: A statutory provision requiring owners of automobiles to provide evidence of their ability to pay damages arising out of the ownership, maintenance, or use of an automobile.
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Financial responsibility law (particularly applicable to Automobile Insurance in various States in USA) is a law which requires an individual to prove that he or she is able to pay for damages resulting from an accident. A financial responsibility law does not specifically require the individual to have insurance coverage; instead, the law requires the individual to be able to demonstrate the financial capacity to pay, even if the individual is not at fault. This type of law is commonly associated with automobiles. Financial responsibility laws exist because not all states have a compulsory insurance law. However, many states consider an individual with an insurance policy to be compliant with a financial responsibility law, since most insurance policies have a minimum coverage that meets the state standard.
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When applied to automobile operations, this term signifies the minimum statutory limits of an operator’s responsibility for bodily injury and property damage caused by negligent operation of the vehicle.

FINANCIAL RESPONSIBILITY LAW

A state law that requires all automobile drivers to show proof that they can pay damages up to a minimum amount if involved in an automobile accident or convicted of a moving violation. The proof of ability to pay can be in the form of liability insurance or a cash bond. Fault is not an issue as all parties to an accident must show financial responsibility. (See SR-22).

Financial Risk

Possibility that a project may fail for lack of adequate capital. This is a speculative risk, not normally within the scope of risk management unless potential suppliers of capital are reluctant to venture their funds because the project involves excessive pure risk.