Definition of "Financial insurance"

Victoria Ginty real estate agent

Written by

Victoria Gintyelite badge icon

RE/MAX Realty Unlimited

Structured product designed to meet specific needs of the insured that may involve any of the following funding arrangements:

  1. loss portfolio transfers in which the self-insurer transfers the reserves that it had established for its known losses to the insurance company; by concluding such a transfer, the self-insurer can use the capital it had previously set aside for loss reserves;
  2. retrospective transfers in which a self-insurer has losses for which inadequate insurance coverage exists and now these companies require additional insurance coverages so that the limits can be raised to an adequate amount;
  3. prospective loss transfers in which a self-insurer has a requirement to fund in advance its future losses, thereby removing its liability for loss reserves from its balance sheet. The premium paid by the self-insurer to the insurance company reflects the self-insurer's expectation of loss.
Under the three funding approaches, the self-insurer must have adequate loss experience so that the LAW OF LARGE NUMBERS will be able to operate; that is, so that the credibility of the prediction will approach one and the standard deviation of the actual losses (X) from the expected losses (X) will approach zero. This statistical base is important because the self-insurer's loss experience is not combined with another self-insurer's loss experience to form an overall statistical bank from which to develop premiums for a specific category of self-insurers.
This specifically designed structured product enables the self-insurer to eliminate its liability for maintaining loss reserves. Also, this product enables the self-insurer to protect itself against adverse future loss experience resulting in earnings per share not being affected by unexpected losses.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Insurance Terms

Information generated by the medical information bureau (MIB) and made available to member companies concerning medical information of applicants for life and health insurance. Member ...

Company not licensed by a particular state to sell and service insurance policies within that state. ...

Latin phrase meaning "beyond power or authority" describing an act by a corporation that exceeds its legal powers. For example, corporations do not have the authority to engage in the ...

Approved or accepted policy for a particular type of risk. The only type of risk covered by a standard form mandated by law is the fire policy. In 1886, New York adopted a standard fire ...

Insurance on the life of the employee, paid for by the company, with the company being the beneficiary under the policy. This insurance vehicle is being used more and more to fund ...

Entity maintained by the Teachers Insurance Annuity Association. The fund essentially serves college faculties and staff, who pay premiums through salary deductions toward a tax-sheltered ...

Measurement of the response of the cash flow of an insurance company to various interest rate scenarios; for example, how rising interest rates will affect the number of life insurance ...

Acquisition and employment of assets in order to maximize the return on these assets through: establishment of financial planning objectives; development of financial plans by which these ...

Additional amount of surplus generated by an additional amount of capital to be included in book value surplus. This additional surplus is necessary to act as a supplement to the statutory ...

Popular Insurance Questions