ART Glossary

The ART Glossary is an alphabeticised listing of terms and phrases used by professionals in our market. For those of you engaged in the weather trading market please visit our Weather Trading Glossary.

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A bond where redemption value is related to the occurrence of catastrophes.

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Retention of risk by the policyholder calculated by reference to the total of claims to be retained.

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Generic phrase used to denote various non-traditional forms of re/insurance and techniques where risk is transferred to the capital markets.

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Retention of risk by the policyholder, calculated on the basis of retention of claims in total over a year.

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Debt securities which depend on a pool of underlying receivables. In ART these refer to insurance-linked securities.

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The likelihood that a catastrophe bond will experience some losses during a year.

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A way of quantifying basis risk. Used to describe average difference between losses from portfolios and gains from hedges.

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A method of measuring performance of hedges: the lower the basis risk the better the hedges performance.

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Mixture of insurance/reinsurance and other risk management techniques on a single policy.

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Capital instrument issued by government or private corporation. Redemption may be linked to an event (eg. CAT bond).

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An exchange where financial instruments are traded.

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A type of option that gives the holder the right to buy (but not obliged), and the seller is obliged to sell.

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Amount of reinsurance that can be underwritten by an entity or market.

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Establishment of trading company in a ‘no-tax’ haven.

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Common term for a catastrophe.

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A Cat-in-a-Box trigger is a parametric trigger that pays out a pre-defined amount based on specific parameters of an event.

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Catastrophe bonds, also called cat bonds, are an example of insurance securitisation to create risk-linked securities which transfer a specific set of risks.

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An options contract that gives the purchaser the opportunity but does not oblige them to exercise the option.

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An insurance company buying reinsurance cover.

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Collateralised reinsurance refers to a reinsurance contract or program which is fully-collateralised.

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Risk from a company’s commercial activities as distinct from insurable risk.

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Agreement to swap future insurer claims liabilities into a cash payment to the buyer.

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Credit made available related to specific events and limits.

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Contract to supply equity at fixed interest.

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Contract where future liability is based on difference (eg. an index price above a fixed minimum).

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The combining of traditional re/insurance and the capital markets.

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Share that can be converted to another class (eg. debenture (fixed interest) to an ordinary share).

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Formula to measure the insurable risk of a company.

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Sum of the daily Heating or Cooling degree days over a specified period.

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Company or entity set up for a specific purpose (eg. reinsuring catastrophe risk).

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First part of loss borne by policyholder.

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Used in connection with a bond issue, describes the amount of risk faced by holders of the bonds.

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Term created to better forecast demand for energy.

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A financial contract the value of which is derived from another (underlying) asset, such as an equity, bond or commodity.

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The process of eliminating the middle-man.

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Place of incorporation.

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The insurable risk from an occurrence such as a catastrophe (eg. earthquake, hurricane).

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Reinsurance which pays on the basis of the excess of claims over and above a pre-determined retention limit.

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Derivatives that are either complex or are available in emerging economies (plain-vanilla) – typical exchange traded.

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The expected loss is the average loss cat bond investors can expect to transpire over a certain period, divided by the capital sum invested.

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Reserve fund set up to hold the premiums for finite reinsurance from a single insured.

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The sponsor of a cat bond might wish to extend the deals maturity date in order to asses and calculate all claims, especially if an event has taken place close to the end of the bond’s risk period, this is called the extension period.

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A reduced premium paid by the sponsor of a cat bond during the extension period.

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A method of mitigating risk in various financial transactions.

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Re/Insurance policy with an ultimate limit of indemnity often with direct link between premium and claim amounts.

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Borrowing at a fixed rate.

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Borrowing at a pre-determined variable rate.

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Commits user to buying or selling an asset at a specific price on a specific date in the future.

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Expenses of providing a service.

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Fronting is when the ceding company (insurer) underwrites a policy and transfers the entire risk to a reinsurer.

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Forward contract that is traded on an exchange.

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Describes a risk management scheme which integrates financial and event risk within one program

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Options contracts based on an index.

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Funds set up to meet in full or part the cost of claims from insolvent insurance companies.

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Insurance-linked securities, or ILS, are essentially financial instruments which are sold to investors whose value is affected by an insured loss event.

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Using an insurance contract to hedge against financial risks.

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An exchange of financial instruments to give each party their preferred position.

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Amount of money put at risk by a derivative is much bigger than the down payment that was made when it was traded.

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Insurance of liability risks where notification and payment of claims are intrinsically delayed.

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Longevity risk refers to the risk of the members of a pension plan or policy holders of certain annuities and life policies living longer than expected.

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Transfer of an insurance portfolio where amount transferred reflects the total expected cost of unpaid losses.

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An insurance company that is owned by policyholders, to provide coverage for its members.

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Non-proportional reinsurance is based on loss retention.

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A common form of derivative.

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Loss whose cost has not been fully determined and paid.

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A derivative, or debt security that is not traded on an exchange but traded directly between two parties.

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Opposite to an experience account. Money is moved from the experience account to the payment account to be specifically paid out in losses.

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Retention of risk of fixed amounts for each individual loss.

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A hedge which correlates perfectly with the risk.

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Insurer who takes the first element of the risk.

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Amount representing capital base.

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A promise to repay the principal on defined terms.

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An investment opportunity which requires no registration with the SEC.

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The probability of exhaustion is the likelihood that a cat bond, or transaction will suffer a complete loss.

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When the primary insurer and the reinsurer share liabilities in a distinctly defined proportion as explained within the underlying treaty.

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Reinsurance contract which takes a defined pro rata share of all risks within treaty limits.

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This type of option gives the holder of an underlying asset the right to sell at a specified price, and the seller is obliged to buy.

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Reinsurance on a percentage basis of a fixed share of all risks.

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Give priority in payment of interest in shares of capital, redeemable shares can be bought back by the insurer.

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Pooling of reinsurance risks within fixed limits of a group of reinsurers.

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A financial structure established to allow investors (often external or third-party) to take on the risk

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Multi-year deals, whether catastrophe bonds or collateralized reinsurance agreements, that don’t use a parametric trigger (indemnity/industry loss trigger) could expose investors to greater risks than they are being compensated for, over time.

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This refers to the reinsuring of a reinsurance contract.

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Insurance where the premium is adjustable after the claims to reflect the cost of loss.

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System of calculating insurance capital needed with reference to different elements of risk.

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Evaluation of risk by comparison.

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An exposure to loss (property, liability etc.).

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Methods of funding the cost of risk (eg. insurance, credit and financial reserves).

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Identification, evaluation and control of risk.

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Collective insurance buying.

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Collective insurance companies i.e. underwriter of risk.

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Rule 144A is an indication of the type of placement.

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The process of settling claims for an account that has stopped accepting new risks.

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Securing the cash flows associated with insurance risk.

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Funded from organisations own financial resources.

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PCS Option contracts which limit the aggregate amount of losses that can be included in the contract to $20 billion.

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Someone who wants to accept a risk because of the likelihood of substantial profit.

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Contract which uses a formula to spread the cost of losses over a number of years.

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Option on difference between two contracts.

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Reinsurance which covers the total cost of claims within fixed limits.

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Price where future or option contract operates.

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Additional funding to augment policyholder surplus in times of need.

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Two companies exchange cash flow linked to a liability or asset.

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Risk that claims may become payable earlier than expected.

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Term to describe a specific class of bonds within an offering, usually each tranche offers varying degrees of risk to the investor.

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The transfer of the financial consequences of a risk to another by legal contract and/or insurance.

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Fund established to safeguard resources.

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The separation of different elements such as loss control from the actual risk financing.

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Product which allows buyer to partially or fully offset climate related risks.

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An investment which doesn’t correlate with an index or market results.

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Security where no interest is paid.

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