Definition of "Financial insurance"

Victoria Ginty real estate agent

Written by

Victoria Gintyelite badge icon

RE/MAX Realty Unlimited

Structured product designed to meet specific needs of the insured that may involve any of the following funding arrangements:

  1. loss portfolio transfers in which the self-insurer transfers the reserves that it had established for its known losses to the insurance company; by concluding such a transfer, the self-insurer can use the capital it had previously set aside for loss reserves;
  2. retrospective transfers in which a self-insurer has losses for which inadequate insurance coverage exists and now these companies require additional insurance coverages so that the limits can be raised to an adequate amount;
  3. prospective loss transfers in which a self-insurer has a requirement to fund in advance its future losses, thereby removing its liability for loss reserves from its balance sheet. The premium paid by the self-insurer to the insurance company reflects the self-insurer's expectation of loss.
Under the three funding approaches, the self-insurer must have adequate loss experience so that the LAW OF LARGE NUMBERS will be able to operate; that is, so that the credibility of the prediction will approach one and the standard deviation of the actual losses (X) from the expected losses (X) will approach zero. This statistical base is important because the self-insurer's loss experience is not combined with another self-insurer's loss experience to form an overall statistical bank from which to develop premiums for a specific category of self-insurers.
This specifically designed structured product enables the self-insurer to eliminate its liability for maintaining loss reserves. Also, this product enables the self-insurer to protect itself against adverse future loss experience resulting in earnings per share not being affected by unexpected losses.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Insurance Terms

Circumstance under which the insured maintains that, if an insurance policy covers at least two scheduled items of real or personal property, in the event of a loss applicable coverage ...

Option clause in a disability buy-out insurance policy that permits the owner of the policy to increase the limits of coverage for the expenses associated with the buy-out process. Usually, ...

Enacted on April 1, 1997; provides protection against creditors for irrevocable trusts provided that the trust has a grantor who is a discretionary beneficiary. In order for the statute of ...

Membership organization of individuals especially trained in the application of actuarial mathematics, including compound interest, annuities, life contingencies, measurement of mortality ...

Addition to reflect exposures with a greater probability of loss than standard exposures. For example, insuring a munitions factory obviously requires a premium greater than that required ...

Year in which an annually renewable insurance policy was first issued. ...

Organization of brokers and securities dealers in the over-the-counter market operating under the auspices of the Securities and Exchange Commission (SEC). Its purpose is to enforce, on a ...

Policy that pays a specified sum not related in any way to the extent of the loss. The term applies to a life insurance policy rather than to a contract of indemnity because the former does ...

Agreement named after the city of Boston under which insurance companies insure real property in lower socioeconomic neighborhoods if property owners correct any hazards found upon ...

Popular Insurance Questions