Insurance Glossary of Terms – Part 2: N to Z

In this second part of The Insurance Glossary, we look at all things from Names to Wear & Tear.


An individual member underwriting with unlimited liability. Since 6 March 2003 no person has been admitted as a new member to underwrite on an unlimited liability basis.


Net claims

Gross claims less reinsurance recoveries.


Net premium

The amount of the premium that is left after the subtraction of some or all permitted deductions such as brokerage and (for certain types of business) profit commission.


Non-disclosure (of a material fact)

See duty of disclosure.


Non-proportional reinsurance

A type of reinsurance in which the reinsurer does not share similar proportions of the premiums earned and the claims incurred by the reassured plus certain associated expenses. Compare proportional reinsurance. Excess of loss reinsurance is an example of non-proportional reinsurance.


Open market basis

See open market business.


Open market business

Insurance business that may be offered to and placed with any managing agent that is willing to underwrite it on behalf of its managed syndicate. It excludes business that is underwritten pursuant to a binding authority.



This may refer to – (a) the communication by a broker to an underwriter of a client’s acceptance of his quotation; or (b) the amount of the sum insured that is covered by a particular slip where more than one slip is used to arrange cover.


Overall premium limit (or overall premium income limit) (OPL)

In relation to a member, the limit for the time being prescribed on the amount of insurance business which is to be underwritten on his behalf from time to time, such limit being expressed as the maximum permissible amount of his premium income allocable to any year of account.


Overriding commission

A commission that is paid by a reinsurer to the reassured to cover the latter’s overheads in administering the reinsurance.



Where a syndicate exceeds its allocated capacity. Depending on the scale of the problem the managing agent of the syndicate may be required to cease underwriting some or all new business and the members may be required to make available additional funds at Lloyd’s to cover the overwriting.



A harmful event which may be covered under a contract of insurance or reinsurance as an insured peril or excluded from it.


Personal accident insurance

A type of insurance which provides for the payment of specified sums in the event that the insured suffers some bodily injury as a result of an accident.


Personal lines insurance

Insurance which is sold to individual consumers such as buildings, contents and travel insurance. This term is used in contrast to commercial lines.


Placement (of cover)

Where a broker effects an insurance or reinsurance contract with underwriters on behalf of its client.


Placing broker

This term may refer to an individual broker or a broking firm that places cover directly with one or more underwriters. Compare producing broker.



The wording of a contract of insurance or reinsurance.


Policy holder

The person who is insured under a contract of insurance.


Policy limit

Another term for limit of indemnity. It refers to the maximum amount payable under a policy of insurance or reinsurance, either overall or with reference to a particular section of the policy.



The amount charged by an insurer or reinsurer as the price of granting insurance or reinsurance cover, as stated before or after the subtraction of brokerage and other deductions.


Pro rata cancellation

When an insurance contract is terminated mid-term by an insurer, the return premium will usually be calculated on a pro rata basis. For example this means that if a 12 month contract is cancelled 4 months before its expected expiry date then the insured would receive back 4/12 of its premium.


Producing broker

This term may refer to (a) the individual broker who obtains a proposal for insurance or reinsurance for the broking firm for which he works; or (b) a broking firm or individual broker that is responsible for introducing a proposal for insurance or reinsurance to another broking firm. The original producing broker will be the person who deals directly with the client. The term producing broker is often used in contrast to the term of placing broker although it is common for individual brokers and broking firms to undertake both functions.


Profit commission

A commission that is payable according to a pre-determined formula as an incentive and reward for profitable underwriting. The following are examples of profit commission: (a) the commission paid to a coverholder by a managing agent for underwriting a profitable account; (b) the commission paid by a Member to a managing agent in respect of the profitability of its syndicate in a given year of account; and (c) the commission paid by a reinsurer to an insurer in respect of a profitable reinsurance treaty.


Proportional Reinsurance

A type of reinsurance in which the reinsurer shares similar proportions of the premiums earned and the claims incurred by the reassured plus certain associated expenses. Compare non-proportional reinsurance. Quota share treaties and surplus line treaties are examples of proportional reinsurance.


Proposal form

A standard form which is prepared by an insurer and which contains a number of questions which a person seeking insurance is required to answer for the purpose of enabling the insurer to decide whether or not it is willing to grant cover and, if so, the terms on such cover. See duty of disclosure.



A person who seeks insurance (frequently by means of completing a proposal form).


Proximate cause

An insurer will only be liable to pay a claim under an insurance contract if the loss that gives rise to the claim was proximately caused by an insured peril. This means that the loss must be directly attributed to an insured peril without any break in the chain of causation. Compare intervening cause.



Latin for amount. Where an insured or reassured makes a claim it must first be established whether the insurer or reinsurer is legally liable to pay the claim (ie it must be shown the relevant loss is covered under the insurance or reinsurance). If the insurer or reinsurer is liable to pay the claim it must then be established how much is the insurer must pay. For example, there may be deductions for an excess, under insurance or depreciation.


Quota share treaty

A reinsurance treaty which provides that the reassured shall cede to the reinsurer a specified percentage of all the premiums that it receives in respect of a given section or all of its underwriting account for a given period in return for which the reinsurer is obliged to pay the same percentage of any claims and specified expenses arising on the reinsured account.



A statement of the premium that an underwriter requires to underwrite an insurance/ reinsurance risk based on the information supplied by the person seeking cover, either directly or via their broker. A quotation may be conditional, eg it may be subject to the provision of further information, or not. If a quotation is accepted before it is withdrawn, then subject to the satisfaction of any conditions that may attach to the quotation, an insurance/reinsurance contract will be made. Compare indication.



The premium expressed as a percentage of the sum insured or limit of indemnity.


Reinstatement of cover

The restoration of cover following its exhaustion as a result of a loss by payment of an additional (reinstatement) premium. Many reinsurances provide for one or more automatic reinstatement of covers.



A contract under which a reinsurer agrees to pay specified types and amounts of underwriting loss incurred by an insurer or another reinsurer in return for a premium. Reinsurance serves to ‘lay-off’ risk. Reinsurance may be proportional or non-proportional and may take the form of a cover in respect of an individual risk exposure (see facultative risk) or cover in respect of multiple risk exposures (see treaty). Reinsurance accounts for more than half of Lloyd’s total business.



An underwriter of reinsurance. If the reinsurance is underwritten at Lloyd’s the reinsurer(s) will be one or more syndicates. If the reinsurance is not underwritten at Lloyd’s the reinsurer(s) will be one or more insurance companies. Some reinsurances may be underwritten by both syndicates and insurance companies.



Where an insurer agrees to replace irreparably damaged or stolen goods with goods of a similar type and quality under a contract of indemnity instead of paying a cash sum to the insured.



A statement of fact or expectation. Representations made as to material facts at the time of the negotiation of the placement, amendment or renewal of cover must be true whereas representations as to a matter of expectation must be made in good faith.



The amount of money that has been set aside by an insurer or reinsurer to meet outstanding claims, incurred but not reported losses and any associated expenses.



The amount of any loss or combination of losses that would otherwise be payable under an insurance/reinsurance contract which the insured/reassured must bear itself before the insurer or reinsurer becomes liable to make any payment under that contract. Compare deductible and excess. An insured or reassured may be able to insure its retention with another insurer/reinsurer.



A reinsurer that is reinsured under a retrocession.



A reinsurance of a reinsurer by another reinsurer. It serves to ‘lay-off’ risk.



The reinsurer under a retrocession.



This term may variously refer to – (a) the possibility of some event occurring which causes injury or loss; (b) the subject-matter of an insurance or reinsurance contract; or (c) an insured peril.



This may refer to – (a) property that is rescued from danger on land or at sea; or (b) an award that is paid to someone for voluntarily rescuing property at sea from a marine peril.


Salvage value

The estimated cash amount that would be received if damaged property were to be sold.


Short-rate cancellation

When an insurance contract is terminated prior to its expiry date by the insured any return premium that is payable will usually be calculated on a time on risk basis. The result is that the insured will receive less return premium than would be the case if the return premium was calculated on a pro rata basis (see pro rata cancellation).


Short-tail (risk)

A type of insurance where claims are usually made during the term of the policy or shortly after the policy has expired. Property insurance is an example of short tail business. The opposite of short tail business is long tail business.


Soft market

When the availability of some or all classes of insurance or reinsurances is high relative to demand for such insurance or reinsurance. Competition amongst insurers and reinsurers leads to downward pressure on premiums and to the availability of more extensive coverage terms. Compare hard market.


Stop loss reinsurance

Also known as excess of loss ratio reinsurance. This is a form of excess of loss reinsurance which provides that the reinsurer will pay some or all of the reassured’s losses in excess of a stated percentage of the reassured’s premium income in respect of its whole account or a specified account, subject (usually) to an overall limit of liability which may be expressed as a percentage of the relevant premium income or an amount.



The right of an insurer which has paid a claim under a policy to step into the shoes of the insured so as to exercise in his name all rights he might have with regard to the recovery of the loss which was the subject of the relevant claim paid under the policy up to the amount of that paid claim. The insurer’s subrogation rights may be qualified in the policy. In the context of insurance subrogation is a feature of the principle of indemnity and therefore only applies to contracts of indemnity so that it does not apply to life assurance or personal accident policies. It is intended to prevent an insured recovering more than the indemnity he receives under his insurance (where that represents the full amount of his loss) and enables his insurer to recover or reduce its loss.


Sum insured

The maximum amount that an insurer will pay under a contract of insurance. The expression is usually used in the context of property and life insurance where (subject to the premium cost) the insured determines the amount of cover to be purchased.


Sunrise clause

A clause that provides retroactive cover in respect of losses occurring before the inception of a (re) insurance contract.


Sunset clause

A clause which restricts cover to claims notified during the period from the inception of a (re) insurance contract to a specified date after the expiry of that contract.



The termination of a life insurance policy while the life assured is still alive in return for a cash sum.


Syndicate [*]

A member or group of members underwriting insurance business at Lloyd’s through the agency of a managing agent or a substitute agent to which a syndicate number is assigned by the Council. Except where it is expressly otherwise provided the several groups of members to which in different years a particular syndicate number is assigned by or under the authority of the Council shall be treated as the same syndicate, notwithstanding that they may not comprise the same members with the same individual participations.


Syndicate allocated capacity [*]

In relation to a syndicate, the aggregate of the member’s syndicate premium limits of all the members for the time being of the syndicate.


Syndicate business forecast

A statement of the expected range of results of each open year of account of a syndicate that is submitted to Lloyd’s by its managing agent in mid year together with the managing agent’s expectations for the next year of account.


Syndicate business plan

A plan of the underwriting of a given syndicate for a given year of account that is prepared by the managing agent of a syndicate and submitted to Lloyd’s for approval in advance of the commencement of underwriting for that year of account.


Syndicate number

The unique identifying number assigned to a syndicate by the Council of Lloyd’s.


Syndicate reinsurance

The reinsurance of a syndicate by one or more reinsurers. Such reinsurance can only be arranged by a Lloyd’s broker.


Term life insurance

A life insurance policy that pays the sum insured only if the life assured dies within the period of the policy which is for a fixed period.


Terms of business agreement TOBA

Each Lloyd’s broker that wishes to do business with a managing agent must enter into an agreement with the managing agent which records the general terms and conditions on which business will be conducted between them.


Third party

Someone other than the insured or his insurer who has suffered injury or loss.


Third party liability

The liability that an insured has to a third party.


Total loss

Where the subject matter of an insurance is lost, destroyed or damaged beyond repair.



A reinsurance contract under which the reassured agrees to offer and the reinsurer agrees to accept all risks of certain size within a defined class.


Uberrima fides

Latin for utmost good faith.


Unaligned member

A member that is either (a) not affiliated to the managing agent of a particular syndicate; or (b) not affiliated to any managing agent.


Under insurance

Where the sum insured does not represent the true value of the property insured. See average for an explanation of the consequences of under insurance.



This term may refer to (a) The process of evaluating, defining and pricing insurance and reinsurance risks including where appropriate the rejection of such risks. (b) The acceptance of the obligation to pay or indemnify the insured or reassured under a contract of insurance or reinsurance.



Depending on the context this term may refer to: (a) the individual who is responsible for underwriting a particular insurance or reinsurance contract and who is either an employee of a managing agent, an insurance company or reinsurance company or an employee of a coverholder or any similar underwriting agent. (b) an individual member or company that insures or reinsures a risk.



Depending on the context this term may refer to: (a) the employees of managing agents, insurance companies and reinsurance companies and their respective underwriting agents that underwrite insurance or reinsurance risks; (b) the members or other carriers that underwrite a particular contract of insurance or reinsurance; (c) members collectively; or (d) insurers and reinsurers collectively.


Underwriting agent [*]

A managing agent or a members’ agent.


Underwriting capacity

Depending on the context this term may refer to: (a) a member’s allocated capacity (b) syndicate allocated capacity, with or without the addition of cover from qualifying quota share reinsurance; (c) the total underwriting capacity of all syndicates combined, with or without the addition of cover from qualifying quota share reinsurance; or (d) the underwriting capacity of an insurance company or a reinsurance company. Underwriting stamp The stamp that is applied to a slip by an underwriter to signify his acceptance of a risk. It shows the number and pseudonym of the syndicate or the name of the (re)insurance company for whom the underwriter acts and has a space for his underwriting reference to be inserted. The underwriter will insert his line on a slip next to his underwriting stamp.


Unearned premium

The proportion of premium that relates to the unused period of cover.


Utmost good faith

Contracts of insurance and reinsurance are contracts of utmost good faith. In the event that either party fails to observe utmost good faith towards the other in regard to the negotiation of cover then the other party may avoid the contract. The duty of utmost good faith requires each party to inform the other all material facts during the negotiation of the placement, renewal or alteration of cover. An insured has a separate duty of good faith when making a claim under an insurance policy.


Void policy

A contract which has no legal effect and is therefore unenforceable in a court of law. For example, an insurance contract where the policyholder does not have an insurable interest.


Voidable contract

A contract which may be voided at the option of either party. For example, an insurer may avoid a policy from inception for the misrepresentation or non-disclosure of material facts during the negotiation of the placement, renewal or alteration of cover. A insurer may also avoid a policy from the date of the presentation of a fraudulent claim.



Where an insured or reassured promises that something will or will not be done during the period of cover or that a particular state of affairs exists or does not exist at the inception of cover. If the promise is untrue or is not kept then the insurer/reinsurer may disclaim all liability under the policy from the date of the breach, regardless as to whether the false declaration was material to the underwriting of the contract or causative of any loss.


Wear and tear

The amount deducted from a claims payment in recognition of the depreciation of the property insured through usage of it over time. Where cover is provided on a ‘new for old basis’ i.e. where the insurer agrees to replace an old item with a similar new one, no such deduction is made.