Travelers 2005 Annual Report Download - page 51

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Claims and claim adjustment expense
reserves ......................... See “Loss reserves.”
Combined ratio .................... The sumof the loss and LAE ratio, the underwriting expense
ratio and, where applicable, the ratio of dividends to
policyholders to net premiums earned. Acombined ratio under
100% generally indicates an underwriting profit. A combined
ratio over 100% generally indicates an underwriting loss.
Commercial lines. .................. Thevarious kinds of property and casualty insurance that are
written for businesses.
Commercial multi-peril policies...... Refers to policies which cover both property and third-party
liability exposures.
Commutation agreement. ........... An agreement between a reinsurer and a ceding company
whereby the reinsurer pays an agreed upon amountin exchange
for a complete discharge of all obligations, including future
obligations, between the parties for reinsurance losses incurred.
Deductible ........................ The amountof loss that an insured retains.
Deferred acquisition costs........... Primarily commissions and premium-related taxes that vary with
and are primarily related to the production ofnew contracts and
are deferred and amortized to achieve a matching of revenues
and expenses when reported in financial statements prepared in
accordance with Generally Accepted Accounting Principles
(GAAP).
Direct written premiums ............ The amountscharged by an insurer to insureds in exchange for
coverages provided in accordance with the terms of an insurance
contract. The amounts exclude the impact of all reinsurance
premiums, either assumed or ceded.
Earned premiums or premiums
earned .......................... That portion of property casualty premiums written that applies
to the expired portion of the policy term. Earned premiums are
recognized as revenues under both Statutory Accounting
Practices (SAP) and GAAP.
Excess liability ..................... Additional casualty coverage above a layer ofinsurance
exposures.
Excess of lossreinsurance ........... Reinsurance that indemnifies the reinsured ag ainst all or a
specified portion of losses over a specified dollar amount or
“retention.”
Expense ratio...................... See “Underwriting expenseratio.”
Facultative reinsurance ............. The reinsurance of all or a portion of the insuranc e provided by
a single policy. Each policy reinsured is separately negotiated.