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Accident yearexperience

The matching of all claims occurring (regardless of whenreported or paid) during a given 12 month period with allpremium earned over the same period.

Acquisition cost The total of net commission and operating expenses incurred inthe generation of net earned premium and often expressed as apercentage of net earned premium. The operating expenses areafter the transfer of direct costs for claims settlement expenseswhich are included in net incurred claims expense.

Attritional claims ratio Total of all claims with a net cost of less than US$2.5 million as apercentage of net earned premium.

Admitted insurance Insurance written by an insurer that is admitted (or licensed) todo business in the (US) state in which the policy was sold.

Agent One who negotiates contracts of insurance or reinsurance as aninsurance company's representative i.e. the agent's primaryresponsibility is with the insurance carrier and not the insurancebuyer.

Broker One who negotiates contracts of insurance or reinsurance onbehalf of an insured party, receiving a commission from theinsurer or reinsurer for placement and other services rendered.In contrast with an agent, the broker's primary alliance is withthe insurance buyer not the insurance carrier.

Capacity In relation to a Lloyds member, the maximum amount ofinsurance premiums (gross of reinsurance but net of brokerage)which a member can accept. In relation to a syndicate, theaggregate of each members capacity allocated to that syndicate.

Casualty insurance Insurance that is primarily concerned with the losses resultingfrom injuries to third persons or their property (i.e. not thepolicyholder) and the resulting legal liability imposed on theinsured. It includes, but is not limited to, general liability,employers liability, workers compensation, professional liability,public liability and motor liability insurance.

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Catastrophereinsurance

A reinsurance contract (often in the form of excess of lossreinsurance) that, subject to specified limits and retention,compensates the ceding insurer for losses in related to anaccumulation of claims resulting from a catastrophe event orseries of events.

Claim The amount payable under a contract of insurance or reinsurancearising from a loss relating to an insured event.

Claims incurred The aggregate of all claims paid during an accounting periodadjusted by the change in the claims provision for thataccounting period.

Claims provision The estimate of the most likely cost of settling present andfuture claims and associated claims adjustment expenses plus arisk margin to cover possible fluctuation of the liability.

Claims ratio Net claims incurred as a percentage of net earned premium.

Combined operatingratio

The sum of the claims ratio, commission ratio and expense ratio.A combined operating ratio below 100% indicates profitableunderwriting results. A combined operating ratio over 100%indicates unprofitable underwriting results.

Commercial lines Refers to insurance for businesses, professionals and commercialestablishments.

Commission Fee paid to an agent or broker as a percentage of the policypremium. The percentage varies widely depending on coverage,the insurer and the marketing methods.

Commission ratio Net commission expense as a percentage of net earnedpremium.

Credit spread The difference in yield between a corporate bond and a referenceyield (e.g. LIBOR, BBSW or a fixed sovereign bond yield).

Credit spread duration The weighted average term of cash flows for a corporate bond. Itis used to measure the price sensitivity of a bong to changes incredit spreads.

Deductible The amount or proportion of some or all losses arising under aninsurance contract that the insured must bare.

Deferred acquisitioncosts

Acquisition costs relating to the unexpired period of risk ofcontracts in force at the balance sheet date which are carriedforward from one accounting period to subsequent accountingperiods.

Excess of lossreinsurance

A form of reinsurance in which, in return for a premium, thereinsurer accepts liability for claims settled by the originalinsurer in excess of an agreed amount, generally subject to anupper limit.

Expense ratio Underwriting and administrative expenses as a percentage of netearned premium.

Facultativereinsurance

The reinsurance of individual risks through a transactionbetween the reinsurer and the cedant (usually the primaryinsurer) involving a specified risk.

General insurance Generally used to describe non-life insurance business includingproperty and casualty insurance.

Gross claims incurred The amount of claims incurred during an accounting periodbefore deducting reinsurance recoveries.

Gross earned premium(GEP)

The total premium on insurance earned by an insurer orreinsurer during a specified period on premiums underwritten inthe current and previous underwriting years.

Gross written premium(GWP)

The total premium on insurance underwritten by an insurer orreinsurer during a specified period, before deduction ofreinsurance premium.

Incurred but notreported (IBNR)

Claims arising out of events that have occurred before the end ofan accounting period but have not been reported to the insurerby that date.

Insurance profit The sum of the underwriting profit (loss) and investment incomeon assets backing policyholders funds.

Insurance profitmargin

The ratio of insurance profit to net earned premium.

Inward reinsurance The reinsurance or assumption of risks written by anotherinsurer.

Large individual riskand catastrophe claimsratio

The aggregate of claims each with a net cost of US$2.5 millionor more as a percentage of net earned premium.

Lenders mortgageinsurance (LMI)

A policy that protects the lender (e.g. a bank) againstnon-payment or default on a residential property loan.

Lead/non-leadunderwriter

A lead underwriter operates in the subscription market and setsthe terms and price of a policy. The follower or non-lead is anunderwriter of a syndicate or an insurance company that agreesto accept a proportion of a given risk on terms set by the leadunderwriter.

Lender placedinsurance (LPI)

Coverage obtained by the lender when the customer's voluntaryhome building insurance has lapsed, been cancelled or proof ofthe customer's insurance has not been received. Coverage isrequired by the mortgage contract to protect the lender'sinterest in the property if damage was to occur and the customerhad not maintained adequate coverage.

Letters of credit (LoC) Written undertaking by a financial institution to provide fundingif required.

Lloyds Insurance and reinsurance market in London. It is not acompany but is a society of individuals and corporateunderwriting members.

Lloyd's managingagent

An underwriting agent which has permission from Lloyd's tomanage one or more syndicates and carry on underwriting andother functions for a member.

Long-tail Classes of insurance business involving coverage for risks wherenotice of a claim may not be received for many years and claimsmay be outstanding for more than one year before they arefinally quantifiable and settled by the insurer.

Managing GeneralAgent (MGA)

A wholesale insurance agent with the authority to acceptplacements from (and often to appoint) retail agents on behalf ofan insurer. MGAs generally provide underwriting andadministrative services such as policy issuance on behalf of theinsurers they represent. Some may handle claims.

Maximum eventretention (MER)

An estimate of the largest loss to which an insurer will beexposed (taking into account the probability of that loss ata return period of one in 250 years) due to a concentration ofrisk exposures, after netting off any potential reinsurancerecoveries and inward and outward reinstatement premiums.

Multi peril cropscheme

US federally regulated crop insurance protecting against cropyield losses by allowing participating insurers to insure a certainpercentage of historical crop production.

Net claims incurred The amount of claims incurred during an accounting period afterdeducting reinsurance recoveries.

Net claims ratio Net claims incurred as a percentage of net earned premium.

Net earned premium(NEP)

Net written premium adjusted by the change in net unearnedpremium for a year.

Net investment income Gross investment income net of foreign exchange gains andlosses and investment expenses.

Net written premium(NWP)

The total premium on insurance underwritten by an insurerduring a specified period after the deduction of premiumapplicable to reinsurance.

Outstanding claimsprovision

The amount of provision established for claims and relatedclaims expenses that have occurred but have not been paid.

Personal lines Insurance for individuals and families, such as private motorvehicle and homeowners insurance.

Policyholders funds Those financial assets held to fund the insurance provisions ofthe Group.

Premium Amount payable by the insured or reinsured in order to obtaininsurance or reinsurance protection.

Prescribed capitalamount (PCA)

This comprises the sum of the capital charges for asset risk,asset concentration risk, insurance concentration risk andoperational risk as required by APRA. The PCA must be disclosedat least annually.

Probability ofadequacy

A statistical measure of the level of confidence that theoutstanding claims provision will be sufficient to pay claims asand when they fall due.

Proportionalreinsurance

A type of reinsurance in which the original insurer and thereinsurer share claims in the same proportion as they sharepremiums.

Prudential capitalrequirement (PCR)

The sum of the Prescribed Capital Account (PCA) plus anysupervisory adjustment determined by APRA. The PCR may notbe disclosed.

Recoveries The amount of claims recovered from reinsurance, third partiesor salvage.

Reinsurance An agreement to indemnify a primary insurer by a reinsurer inconsideration of a premium with respect to agreed risks insuredby the primary insurer. The enterprise accepting the risk is thereinsurer and is said to accept inward reinsurance. Theenterprise ceding the risks is the cedant or ceding companyand is said to place outward reinsurance.

Reinsurance to close A reinsurance agreement under which members of a syndicate,for a year of account to be closed, are reinsured by memberswho comprise that or another syndicate for a later year ofaccount against all liabilities arising out of insurance businesswritten by the reinsured syndicate.

Reinsurer The insurer that assumes all or part of the insurance orreinsurance liability written by another insurer. The term includesretrocessionaires, being insurers that assume reinsurance from areinsurer.

Retention That amount of liability for which an insurance company willremain responsible after it has completed its reinsurancearrangements.

Retrocession Reinsurance of a reinsurer by another reinsurance carrier.

Short-tail Classes of insurance business involving coverage for risks whereclaims are usually known and settled within 12 months.

Solvency Ratio Ratio of net tangible assets to net earned premium. This is animportant industry indicator in assessing the ability of generalinsurers to settle their existing liabilities.

Stop loss reinsurance A form of excess of loss reinsurance which provides that thereinsurer will pay some or all of the reassureds losses in excessof a stated percentage of the reassureds premium income,subject (usually) to an overall limit of liability.

Surplus (or excess)lines insurers

In contrast to "admitted insurers", every (US) state also allowsnon-admitted (or "surplus" or "excess lines") carriers to transactbusiness where there is a special need that cannot or will not bemet by admitted carriers. The rates and forms of non-admittedcarriers generally are not regulated in that state, nor are thepolicies back-stopped by the state insolvency fund coveringadmitted insurance. Brokers must inform insurers if theirinsurance has been placed with a non-admitted insurer.

Survival ratio A measure of how many years it would take for dust diseaseclaims to exhaust the current level of claims provision. It iscalculated on the average level of claims payments in the lastthree years.

Syndicate A member or group of members, underwriting insurancebusiness at Lloyds through the agency of a managing agent.

Treaty reinsurance Reinsurance of risks in which the reinsurer is obliged byagreement with the cedant to accept, within agreed limits, allrisks to be underwritten by the cedant within specified classes ofbusiness in a given period of time.

Underwriting The process of reviewing applications submitted for insurance orreinsurance coverage, deciding whether to provide all or part ofthe coverage requested and determining the applicablepremium.

Underwriting expenses The aggregate of policy acquisition costs, excludingcommissions, and the portion of administrative, general andother expenses attributable to underwriting operations.

Underwriting result The amount of profit or loss from insurance activities exclusive ofnet investment income and capital gains or losses.

Underwriting year The year in which the contract of insurance commenced or wasunderwritten.

Unearned premium The portion of a premium representing the unexpired portion ofthe contract term as of a certain date.

Written premium Premiums written, whether or not earned, during a given period.

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