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Insurance terminology

Our handy guide will help you make sense of the jargon.

Acquisition cost

The total of net commission and operating expenses incurred in the generation of net earned premium and often expressed as a percentage of net earned premium. The operating expenses are after the transfer of direct costs for claims settlement expenses which are included in net incurred claims expense.

Best estimate

The actuary's expectation of future cost to settle all outstanding claims net of any margin for uncertainty, representing a 50% probability that the reserves are adequate to settle all future claims

Casualty insurance

Insurance that is primarily concerned with the losses resulting from injuries to third persons or their property (i.e. not the policyholder) and the resulting legal liability imposed on the insured. It includes, but is not limited to, general liability, employers’ liability, workers’ compensation, professional liability, public liability and motor liability insurance.

Catastrophe reinsurance

A reinsurance contract (often in the form of excess of loss reinsurance) that, subject to specified limits and retention, compensates the ceding insurer for losses in  related to an accumulation of claims resulting from a catastrophe event or series of events.


The amount payable under a contract of insurance or reinsurance arising from a loss relating to an insured event.

Claims incurred

The aggregate of all claims paid during an accounting period adjusted by the change in the claims provision for that accounting period.

Claims provision

The estimate of the most likely cost of settling present and future claims and associated claims adjustment expenses plus a risk margin to cover possible fluctuation of the liability.

Loss ratio

Net claims incurred as a percentage of net earned premium.

Combined operating ratio

The sum of the loss ratio and expense ratio. A combined operating ratio below 100% indicates profitable underwriting results. A combined operating ratio over 100% indicates unprofitable underwriting results.

Deferred acquisition costs

Acquisition costs relating to the unexpired period of risk of contracts in force at the balance sheet date which are carried forward from one accounting period to subsequent accounting periods.  

Excess of loss reinsurance

A form of reinsurance in which, in return for a premium, the reinsurer accepts liability for claims settled by the original insurer in excess of an agreed amount, generally subject to an upper limit.

Expense ratio

Underwriting and administrative expenses as a percentage of net earned premium.

General insurance

Generally used to describe non-life insurance business including property and casualty insurance.

Gross claims incurred

The amount of claims incurred during an accounting period before deducting reinsurance recoveries.

Gross earned premium (GEP)

The total premium on insurance earned by an insurer or reinsurer during a specified period on premiums underwritten in the current and previous underwriting years.

Gross written premium (GWP)

The total premium on insurance underwritten by an insurer or reinsurer during a specified period, before deduction of reinsurance premium.

Incurred but not reported (IBNR)

Claims arising out of events that have occurred before the end of an accounting period but have not been reported to the insurer by that date.


Classes of insurance business involving coverage for risks where notice of a claim may not be received for many years and claims may be outstanding for more than one year before they are finally quantifiable and settled by the insurer.

Margin for uncertainty

The margin held over and above the actuarial best estimate in order to provide greater certainty that claims reserves will be sufficient to settle all outstanding claims as they fall due

Net claims incurred

The amount of claims incurred during an accounting period after deducting reinsurance recoveries.

Net claims ratio

Net claims incurred as a percentage of net earned premium.

Net earned premium (NEP)

Net written premium adjusted by the change in net unearned premium for a year.

Net investment income

Gross investment income net of foreign exchange gains and losses and investment expenses.

Net written premium (NWP)

The total premium on insurance underwritten by an insurer during a specified period after the deduction of premium applicable to reinsurance.

Outstanding claims provision

The amount of provision established for claims and related claims expenses that have occurred but have not been paid.

Personal lines

Insurance for individuals and families, such as private motor vehicle and homeowners insurance.

Policyholders’ funds

Those financial assets held to fund the insurance provisions of the Group.


Amount payable by the insured or reinsured in order to obtain insurance or reinsurance protection.


Classes of insurance business involving coverage for risks where claims are usually known and settled within 12 months.


The amount of claims recovered from reinsurance, third parties or salvage.


An agreement to indemnify a primary insurer by a reinsurer in consideration of a premium with respect to agreed risks insured by the primary insurer. The enterprise accepting the risk is the reinsurer and is said to accept inward reinsurance. The enterprise ceding the risks is the cedant or ceding company and is said to place outward reinsurance.


The insurer that assumes all or part of the insurance or reinsurance liability written by another insurer.


That amount of liability for which an insurance company will remain responsible after it has completed its reinsurance arrangements.


The process of reviewing applications submitted for insurance or reinsurance coverage, deciding whether to provide all or part of the coverage requested and determining the applicable premium.

Underwriting expenses

The aggregate of policy acquisition costs, and administrative, general and other expenses attributable to underwriting operations.

Underwriting result

The amount of profit or loss from insurance activities exclusive of net investment income and capital gains or losses.

Underwriting year

The year in which the contract of insurance commenced or was underwritten.

Unearned premium

The portion of a premium representing the unexpired portion of the contract term as of a certain date.

Written premium

Premiums written, whether or not earned, during a given period.