Travelers 2006 Annual Report Download - page 56

44
Retrospective rating. ........... A plan or method which permits adjustment of the final premium or
commission on the basis of actual loss experience, subject to certain
minimum and maximum limits.
Return onequity. .............. The ratio of net income to average equity.
Risk-based capital (RBC) .......A measure adopted by the NAIC and enacted by states for
determining the minimum statutory capital and surplus requirements
of insurers. Insurers having total adjusted capital less than that
required by the RBC calculation will be subject to varying degrees of
regulatory action depending on the level of capital inadequacy.
Riskretention group ........... An alternative form of insurance in which members of a similar
profession or business band together to self insure their risks.
Run-off business. .............. An operation which has beendetermined to be nonstrategic; includes
non-renewals of inforce policies and a cessation of writing new
business, where allowed by law.
Salvage....................... The amount of m oney an insurer recovers through the sale of
property transferred to the insurer as a result of a loss payment.
S-curve method. ............... A mathematical function which depicts aninitial slow change,
followed by a rapid change and then ending in a slow change again.
This results in an “S” shaped line when depicted graphically. The
actuarial application of these curves fit the reported data to-date for
a particular cohort of claims to an S-curveto project future activity
for that cohort.
Second-injury fund............. Theemployer of an injured, impaired worker is responsible only for
the workers’ compensation benefit for the most recent injury; the
second-injury fund would cover the cost of any additionalbenefits for
aggravation of a prior condition. The costis shared by the insurance
industry and self-insureds, funded through assessments to insurance
companies and self-insureds based on either premiums or losses.
Self-insuredretentions ......... That portion of the risk retained by a person for its own account.
Servicing carrier ............... An insurance company thatprovides, for a fee, various services
including policy issuance, claims adjusting and customer service for
insureds in a reinsurance pool.
Statutory accounting practices
(SAP)...................... The practices and procedures prescribed or permitted by domiciliary
state insurance regulatory authorities in the United States for
recording transactions and preparing financial statements. Statutory
accounting practices generally reflect a modified going concern basis
of accounting.
Statutory surplus............... As determinedunder SAP, the amount remaining after all liabilities,
including loss reserves, aresubtracted from all admitted assets.
Admitted assets are assets of an insurerprescribed or permitted by a
state to be recognized on the statutory balance sheet. Statutory
surplus is also referred to as “surplus” or“surplus as regards
policyholders” for statutory accounting purposes.