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F

Face Amount

See Sum Insured

Facultative

  1. Facultative reinsurance means reinsurance of individual risks by offer and acceptance wherein the reinsurer retains the “faculty” to accept or reject each risk offered.
  2. Reinsurance of individual risks at the option of the reinsurer and the Ceding Company, whether under a treaty of reinsurance or by negotiation in respect of an individual risk. The reinsurer is free to accept or reject the offerings of the Ceding Company. The reinsurer may specify its own ratings or terms for the reinsurance.

Facultative Certificate of Reinsurance

A contract formalizing a reinsurance cession on a specific risk.

Facultative Obligatory (Also Semi-obligatory Treaty)

A form of life reinsurance which is a hybrid between facultative and automatic. The risk to be ceded is submitted to the reinsurer, which has limited rights to decline individual risks.

Facultative Reinsurance

A reinsurance policy that provides an insurer with coverage for specific individual risks that are unusual or so large that they aren’t covered in the insurance company's reinsurance treaties. This can include policies for jumbo jets or oil rigs. Reinsurers have no obligation to take on facultative reinsurance, but can assess each risk individually. By contrast, under treaty reinsurance, the reinsurer agrees to assume a certain percentage of entire classes of business, such as various kinds of auto, up to preset limits.

Facultative Treaty

A reinsurance contract under which the Ceding Company has the option to cede and the reinsurer has the option to accept or decline classified risks of a specific business line. The contract merely reflects how individual facultative reinsurance shall be handled.

Fair Access to Insurance Requirements Plans (Fair Plans)

Insurance Pools that sell property insurance to people who can’t buy it in the voluntary market because of high risk over which they may have no control. FAIR Plans, which exist in 28 states and the District of Columbia, insure fire, vandalism, riot, and windstorm losses, and some sell homeowners insurance which includes liability. Plans vary by state, but all require property insurers licensed in a state to participate in the Pool and share in the profits and losses. (See Residual Market)

Farmowners-Ranchowners Insurance

Package policy that protects the policyholder against named Perils and liabilities and usually covers homes and their contents, along with barns, stables, and other structures.

Federal Funds

Reserve balances that depository institutions lend each other, usually on an overnight basis. In addition, Federal funds include certain other kinds of borrowings by depository institutions from each other and from federal agencies.

Federal Insurance Administration / FIA

Federal agency in charge of administering the National Flood Insurance Program. It does not regulate the insurance industry.

Federal Reserve Board

Seven-member board that supervises the banking system by issuing regulations controlling bank holding companies and federal laws over the banking industry. It also controls and oversees the U.S. monetary system and Credit supply.

FEGLI

A reinsurance Pool established for the Federal Employees Group Life Insurance program.

Fidelity Bond

A form of protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.

Fiduciary

Any person in a position of trust with regard to property of another, property held for the benefit of another or the personal custody of another. Administrators, executors, guardians and trustees are all fiduciaries.

Fiduciary Bond

A type of surety bond, sometimes called a probate bond, which is required of certain fiduciaries, such as executors and trustees, that guarantees the performance of their responsibilities.

Fiduciary Liability

Legal responsibility of a fiduciary to safeguard assets of beneficiaries. A fiduciary, for example a pension fund manager, is required to manage investments held in trust in the best interest of beneficiaries. Fiduciary liability insurance covers breaches of fiduciary duty such as misstatements or misleading statements, errors and omissions.

File-And-Use States

States where insurers must file rate changes with their regulators, but don’t have to wait for approval to put them into effect.

Financial Guarantee Insurance

Covers losses from specific financial transactions and guarantees that investors in debt instruments, such as municipal bonds, receive timely payment of principal and interest if there is a default. Raises the Credit rating of debt to which the guarantee is attached. Investment bankers who sell asset-backed securities, securities backed by loan portfolios, use this insurance to enhance marketability. (See Municipal bond insurance)

Financial Reinsurance

  1. A form of reinsurance which considers the time value of money and has loss containment provisions. One of its objectives is the enhancement of the cedant’s financial statements or operating ratios, e.g., the Combined Ratio; loss portfolio transfers; and financial Quota Shares are examples.
  2. Reinsurance transacted primarily to achieve financial goals, such as capital management, tax planning, or the financing of acquisitions.
  3. Reinsurance used for something other than to change the risk profile, usually to enhance the Capital / Surplus position of a legal entity.

Financial Responsibility Law

A state law requiring that all automobile drivers show proof that they can pay damages up to a minimum amount if involved in an auto accident. Varies from state to state but can be met by carrying a minimum amount of auto liability insurance. (See Compulsory auto insurance)

Finite Reinsurance (Nontraditional Reinsurance, Limited Risk Reinsurance, and Financial Reinsurance)

A term used to describe a broad spectrum of treaty reinsurance arrangements which provide reinsurance coverage at lower margins than traditional reinsurance, in return for a lower probability of loss to the reinsurer. This reinsurance is often multi-Year and financially oriented, and can provide a means of financial management beyond that usually provided by traditional reinsurance.

Finite Risk Reinsurance

Contract under which the ultimate liability of the reinsurer is capped and on which anticipated investment income is expressly acknowledged as an underwriting component. Also known as Financial Reinsurance because this type of coverage is often bought to improve the balance sheet effects of statutory accounting principles.

Fire Insurance

Coverage protecting property against losses caused by a fire or lightning that is usually included in homeowners or commercial multiple peril policies.

First Excess

In layering, the specified amount in excess of the Ceding Company's retention that is ceded to a particular reinsurer or group of reinsurers. For example, the first $300,000 in excess of the Ceding Company's retention of $100,000. See Layer, Layering, and Second Excess.

First-Party Coverage

Coverage for the policyholder’s own property or person. In no-fault auto insurance it pays for the cost of injuries. In no-fault states with the broadest coverage, the personal injury protection (PIP) part of the policy pays for medical care, lost income, funeral expenses and, where the injured person is not able to provide services such as child care, for substitute services. (See No-fault; Third-party coverage)

Fixed Annuity

An Annuity that guarantees a specific rate of return. In the case of a deferred Annuity, a minimum rate of interest is guaranteed during the savings phase. During the payment phase, a fixed amount of income, paid on a regular schedule, is guaranteed.

Flat Rate

In reinsurance, a percentage rate applied to a Ceding Company’s premium writings for the classes of business reinsured to determine the reinsurance premiums to be paid the reinsurer.

Floater

Attached to a homeowners policy, a floater insures movable property, covering losses wherever they may occur. Among the items often insured with a floater are expensive jewelry, musical instruments, and furs. It provides broader coverage than a regular homeowners policy for these items.

Flood Insurance

Coverage for flood damage is available from the federal government under the National Flood Insurance Program but is sold by licensed insurance agents. Flood coverage is excluded under homeowners policies and many commercial property policies. However, flood damage is covered under the comprehensive portion of an auto insurance policy. (See Adverse selection)

Following Reinsurer

A reinsurer which accepts the business ceded based on the terms of a contract primarily negotiated by another reinsurer, known as the lead reinsurer. (See Lead Reinsurer).

Following the Fortunes

The Clause stipulating that once a risk has been ceded by the reinsured, the reinsurer is bound by the same fate thereon as experienced by the Ceding Company.

Forced Place Insurance

Insurance purchased by a bank or Creditor on an uninsured debtor’s behalf so if the property is damaged, funding is available to repair it.

Foreign Insurance Company

Name given to an insurance company based in one state by the other states in which it does business.

Foreign Reinsurer

A reinsurer writing business in a state in which it is not domiciled (chartered).

Fraud

Intentional lying or concealment by policyholders to obtain payment of an insurance claim that would otherwise not be paid, or lying or misrepresentation by the insurance company managers, employees, agents, and brokers for financial gain.

Free-Look Period

A period of up to one month during which the purchaser of an Annuity can cancel the contract with no penalty. Rules vary by state.

Frequency

Number of times a loss occurs. One of the criteria used in calculating premium rates.

Fronting

  1. A procedure in which a primary insurer acts as the insurer of record by issuing a policy, but then passes the entire risk to a reinsurer in exchange for a commission. Often, the fronting insurer is licensed to do business in a state or country where the risk is located, but the reinsurer is not. The reinsurer in this scenario is often a captive or an independent insurance company that cannot sell insurance directly in a particular country.
  2. A situation where one insurer issues policies and reinsures all or substantially all of the risk to another insurer. Fronting typically is used in jurisdictions where the reinsurer is not licensed to do business.

Fronting Company

In a fronting arrangement, the licensed insurer (Ceding Company) that obtains regulatory approval for an insurance product, sells the product, and cedes all or most of the risk to a company that is not licensed to do business in the jurisdiction.

Funding Cover

Refers to the insured or reinsured paying premiums into an account at a commercial bank that will be used to pay for future or past losses. Portions of the premiums not required to pay for these losses are refunded to the policyowner or ceding company.

Funds Withheld

Assets that would normally be paid over to a reinsurer but are withheld by the Ceding Company to permit statutory Credit for non-admitted reinsurance, to reduce the potential Credit risk, or to retain control over investments. Under certain circumstances, the reinsurer may withhold funds from the Ceding Company. See Modified Coinsurance.

Futures

Agreement to buy a security for a set price at a certain date. Futures contracts usually involve commodities, indexes or financial futures.