A factor applied to the anticipated projected losses (or loss cost) for an excess of loss reinsurance agreement in order to develop the reinsurance premium (or rate). This factor provides for the reinsurer’s loss adjustment expense, overhead expense, and profit margin as well as the perceived “riskiness” of the loss projection, i.e. the degree to which the loss projection lacks confidence or credibility. See also Rating.

A mechanism contained in a proportional or an excess of loss agreement that requires the ceding insurer to be responsible for a certain amount of ultimate net loss above the company’s designated retention and below the designated reinsurance limit, and which would otherwise be reimbursed under the reinsurance agreement. A loss corridor is usually expressed as a loss ratio percentage of the reinsurer’s earned premium, or a combined ratio if the reinsurance agreement provides for a ceding commission to the company. Loss corridors are employed to mitigate the volatility or variability of reinsurance loss projections and pricing risk and to enhance the alignment of interests of the ceding insurer and the reinsurer.

Another name for claims reserve. The expression is also often used in association with the reserve deposited by a reinsurer with the cedant to cover in part outstanding claims (exact terms would indicate which party received the investment income on associated assets).

An amount of loss which exceeds the original policy limits, but is otherwise covered under the policy, for which the insurer is potentially responsible by reason of its action or omissions, including failure to settle within the policy limits, in defending the insured under the policy. Typically an Excess Policy Limits loss is awarded by a court after an insured brings suit against its insurance carrier.

A factor applied to the pure loss cost to produce a reinsurance rate of premium.

A financial reinsurance transaction in which loss obligations that are already incurred and which are expected to ultimately be paid are ceded to a reinsurer. In determining the premium paid to the reinsurer, the time value of money is considered, and the premium is therefore less than the ultimate amount expected to be paid. The difference between the premium paid for the transaction and the amount reserved by the cedent is the amount by which the cedent’s statutory surplus increases. Other terms used in context with Lloyd’s contracts are loss portfolio-rollover and reinsurance to close. Regulations apply to these transactions to ensure that sufficient underwriting risk is transferred by the ceding insurer to the reinsurer. Loss portfolio transfers may be used when an insurer is exiting a line of business, for certain long tail occurrence claims, or in mergers and acquisitions.
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A form of financial reinsurance involving the transfer of loss obligations already incurred that, when ultimately paid, will exceed the consideration paid to the reinsurer for undertaking such obligations. The amount by which the transferred obligations exceed the consideration paid is the resultant increase to the cedant’s statutory surplus.

The provision in a reinsurance contract that designates that the losses to which the reinsurance applies are those losses that actually happen during the term of the reinsurance even if the original policies that cover the losses are issued (as new or renewal policies) prior to the inception of the reinsurance contract. (See also Policies Attaching.)