Travelers 2010 Annual Report Download - page 56

Reported claim development
method ................. An actuarial method to estimate ultimate claim counts for a given
cohort of claims such as an accident year/product line component.
If the reported-to-date counts are then subtracted from the
estimated ultimate counts, the result is an indication of the IBNR
counts.
The approach is the same as that described in this glossary under
the ‘‘paid loss development method’’, but based on the growth in
cumulative claim counts rather than paid losses. The basic premise
of the method is that cumulative claim counts for a given cohort of
claims will grow in a stable, predictable pattern from year-to-year,
based on the age of the cohort.
Residual market (involuntary
business) ................ Insurance market which provides coverage for risks for those unable
to purchase insurance in the voluntary market. Possible reasons for
this inability include the risks being too great or the profit potential
too small under the required insurance rate structure. Residual
markets are frequently created by state legislation either because of
lack of available coverage such as: property coverage in a
windstorm prone area or protection of the accident victim as in the
case of workers’ compensation. The costs of the residual market are
usually charged back to the direct insurance carriers in proportion
to the carriers’ voluntary market shares for the type of coverage
involved.
Retention ................. The amount of exposure a policyholder company retains on any one
risk or group of risks. The term may apply to an insurance policy,
where the policyholder is an individual, family or business, or a
reinsurance policy, where the policyholder is an insurance company.
Retention rate ............. Current period renewal premiums, accounts or policies as a
percentage of total premiums, accounts or policies available for
renewal.
Retrospective premiums ...... Premiums related to retrospectively rated policies.
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 on equity ........... The ratio of net income (loss) less preferred dividends to average
shareholders’ 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.
Risk retention group ......... An alternative form of insurance in which members of a similar
profession or business band together to self insure their risks.
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