Travelers 2008 Annual Report Download - page 51

Combined ratio ............ The sum of the loss and LAE ratio, the underwriting expense ratio
and, where applicable, the ratio of dividends to policyholders to net
premiums earned. A combined ratio under 100% generally indicates
an underwriting profit. A combined ratio over 100% generally
indicates an underwriting loss.
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 amount in exchange for a
complete discharge of all obligations, including future obligations,
between the parties for reinsurance losses incurred.
Deductible ................ The amount of loss that an insured retains.
Deferred acquisition costs ..... Primarily commissions and premium-related taxes that vary with,
and are primarily related to, the production of new contracts and
are deferred and amortized to achieve a matching of revenues and
expenses when reported in financial statements prepared in
accordance with U.S. Generally Accepted Accounting Principles
(GAAP).
Deficiency ................ With regard to reserves for a given liability, a deficiency exists when
it is estimated or determined that the reserves are insufficient to
pay the ultimate settlement value of the related liabilities. Where
the deficiency is the result of an estimate, the estimated amount of
deficiency (or even the finding of whether or not a deficiency exists)
may change as new information becomes available.
Demand surge ............. Significant short-term increases in building material and labor costs
due to a sharp increase in demand for those materials and services,
commonly as a result of a large catastrophe resulting in significant
widespread property damage.
Direct written premiums ...... The amounts charged 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 of insurance exposures.
Excess of loss reinsurance ..... Reinsurance that indemnifies the reinsured against all or a specified
portion of losses over a specified dollar amount or ‘‘retention.’’
Expense ratio .............. See ‘‘Underwriting expense ratio.’’
Facultative reinsurance ....... The reinsurance of all or a portion of the insurance provided by a
single policy. Each policy reinsured is separately negotiated.
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