Broker (Insurance Broker) - an intermediary between an insurance buyer and the insurance market. Insurance brokers are often retained by very large insurance buyers. Retail insurance brokers deal directly with customers. Wholesale insurance brokers are intermediaries between retail brokers or independent insurance agents and specialty insurance companies that sell excess and surplus lines insurance. Reinsurance brokers are intermediaries between insurance companies and reinsurance companies.

Capacity - the maximum amount of insurance coverage (measured in premium dollars) that a company can sell. Companies make judgments about how much insurance coverage they can prudently provide. One factor in determining capacity is state government regulations that define minimum statutory surplus requirements. Capacity also refers to the amount of insurance coverage available 1) to a particular policyholder or 2) in the marketplace in general.

Combined Ratio - a measurement commonly used within the property-liability insurance industry to measure underwriting profit or loss. It is a combination of an expense ratio and a loss ratio.

Deferred Annuity - an annuity contract under which premiums are accumulated at interest, but where the benefit payment period is postponed or deferred until some future date.

Excess Insurance - provides a policyholder with an extra layer of insurance protection against catastrophe losses or claims that exceed the maximum limit of the policyholder's main policy.

Expense Ratio - measures the ratio of statutory underwriting expenses (salaries, marketing costs, premium taxes, etc.) to written premiums.

Facultative Reinsurance - reinsurance bought or sold on an individual account basis. That is, the reinsurance company looks at each individual risk and determines whether to share in the potential profits or losses for that risk.

Immediate Annuity - an annuity under which income payments begin one period (usually 30 days) after the annuity is purchased. This type of annuity is also referred to as a single premium immediate annuity (SPIA).

Involuntary Costs - insurance company costs incurred as a result of participating in state insurance pools (for example, workers' compensation). Insurance companies must participate in these pools as a condition of doing business in the state.

Liability Insurance - a form of coverage in which the insured party is indemnified against injury or damage claims from other parties.  It includes coverages such as workers' compensation, professional liability and automobile liability.  Also referred to as casualty insurance.

Lloyd's of London - insurance marketplace where brokers, representing clients with insurable risks, deal with Lloyd's underwriters, who represent investors. The investors are grouped together into syndicates that provide capital to insure the risks.

Loss Adjustment Expenses - expenses incurred in the process of evaluating, defending and paying claims.

Loss Ratio - measures the ratio of loss and loss adjustment expenses incurred to earned premiums.

Loss Reserves - the amount of money an insurance company expects to pay for claim obligations resulting from losses which have occurred that are covered by insurance policies it has sold.

Loss Reserve Development - how the latest estimate of an insurance company's claim obligations compares to an earlier projection. The term usually applies to all obligations for a particular line of business, for example medical liability.

Pools (Insurance Pools) - a group of insurance companies that pool their underwriting capacity, often for extremely large risks, such as aviation.

Premiums - the cost of insurance coverage, often described as "written" or "earned." Written premiums refer to premiums for all policies sold during a specific accounting period. Earned premiums refer to premiums an insurance company has recorded as revenues during a specific accounting period. For example, a one-year policy sold Jan. 1 would produce just three months' worth of "earned premium" in the first quarter of the year.

Primary Insurance - insurance that provides the first layer of insurance coverage before excess insurance or reinsurance applies.

Professional Liability Insurance - insurance bought by doctors, lawyers, accountants, real estate agents and others to protect themselves against claims alleging they were negligent in fulfilling their professional duties and responsibilities. Often called medical liability insurance (medical malpractice insurance) when bought by health care providers (doctors, hospitals, dentists, etc.).

Reinsurance - insurance coverage that insurance companies buy from reinsurance companies to limit their potential claim losses on a particular risk or on a group of risks. All or part of a policy can be reinsured, as can entire types of business. Reinsurance "spreads the risk" among a number of insurance companies, reducing the impact of losses on individual companies and thereby allowing them to provide more insurance than they otherwise would be able to sell. See "treaty" and "facultative" reinsurance.

Self-insured Retention - similar to a very large deductible. When insurance company customers buy insurance only to cover losses above a certain level (in excess of a self-insured retention), the insurer's exposure to losses is reduced, as is premium volume.

Statutory Accounting - accounting practices set by state insurance departments. Insurance companies follow these practices when preparing annual statements. Statutory accounting stresses evaluation of a company's solvency.

Statutory Surplus - the amount left after an insurance company's liabilities are subtracted from assets. Statutory surplus is not a figure based upon "generally accepted accounting principles" (GAAP). Rather, it is based upon "statutory" accounting practices prescribed or permitted by state and foreign insurance regulators.

Structured Settlement - a single premium immediate annuity purhcased from a life insurance company used to fund future payments in connection with a claim filed by or on behalf of an injured party.

Subrogation - the process in which an insurance company pays a claim and then recovers all or part of that amount from the third party actually responsible for the loss.

Surety Bonds - an insurance contract that guarantees the performance of a certain act in a stated period of time (for example, completion of a construction project). If the party identified defaults, the surety company is responsible for the financial loss resulting from the failure to perform the act.

Surplus Lines Insurance - generally refers to insurance for unusual risks (for example, a unique business) or one-time risks (such as the transfer of a valuable animal from one zoo to another) that cannot be insured using standard policy forms and rates.

Treaty Reinsurance - a contract between two insurance companies for sharing the insurance coverage for a group of risks.

Underwriter - the person who evaluates applications for insurance coverage, decides whether to accept or reject the risk and sets a price for the coverage. The term "underwriter" can also refer to an insurance company.