Captive insurance company formed to finance a particular exposure. It provides an in-house facility for financing risks where conventional insurance is costly or difficult to obtain. Such exposure may include professional indemnity, credit or insolvency risks, product guarantee, warranty or other ‘special situations.

Independent trust or captive created to act as a conduit through which an insurer can transfer insurance risk to the capital market. The SPV sells bonds to investors who will sacrifice principal and/or interest if a defined catastrophe occurs. The SPV like a reinsurer uses the sacrificed funds to indemnify the insurer. The SPV is bankruptcy-remote and holds legal rights over the assets transferred. SPVS do not just apply to insurance-related transactions.

Generic term used by motor insurers to describe vehicles or mobile plant designed for special purposes, e.g. bulldozers, diggers, etc. They may be insured under motor (particularly for Road Traffic Act purposes), engineering or public liability policies. ‘Tool of trade’ risk is covered when they are used on site.

Professional indemnity clause whereby the insurer agrees not to exercise their right of avoidance where the insured shows that any non-disclosure or misrepresentation of facts or untrue statement at inception or any subsequent renewal was entirely innocent. Where the nondisclosure prejudices any claim, the insurer is able to reduce the amount payable to the sum that would have been payable in the absence of such prejudice.

Items that are specific to a particular insurance and not generally applicable. There may be specific exclusions or additions to cover.

Expenses itemised as not being insured under a business interruption policy. They vary directly with turnover and are not at risk when a fire curtails business. For example, packing expenses cease when a business is not producing goods and should not therefore be insured as a part of the gross profit.

UK: A risk where the outcome may range from loss to gain. The prospect of gain induces businesses to take risks. Businesses control speculative risks by means of sound business practices such as hedging, market research, internal controls, etc., and forming limited liability companies. Insurance is not available to protect firms against insolvency. See HOLISTIC RISK MANAGEMENT; ENTERPRISE RISK MANAGEMENT.
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A type of risk not typically insurable, as it is not possible to predict whether it will succeed or fail.
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Risk that entails a chance of gain as well as a chance of loss. Contrast with Pure risk.
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The uncertainty of an event that could produce either a profit or a loss, such as a business venture or a gambling transaction.
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Uncertainty as to whether a gain or loss will occur. For example, in a business enterprise, there is a chance that the business will make or lose money. Speculative risks are not normally insurable.

the situation that can arise when risks are repeatedly reinsured between a number of reinsurers who end up indirectly reinsuring themselves.