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L

L-Share Variable Annuities

A form of variable Annuity contract usually with short surrender periods and higher mortality and expense Risk Charges.

Laddering

A technique that consists of staggering the maturity dates and the mix of different types of bonds.

Law of Large Numbers

The theory of probability on which the business of insurance is based. Simply put, this mathematical premise says that the larger the group of units insured, such as sport-utility vehicles, the more accurate the predictions of loss will be.

Layer

A horizontal segment of the liability insured, e.g., the second $100,000 of a $500,000 liability is the first layer if the cedant retains $100,000 but a higher layer if it retains a lesser amount.

Layering

A method of allocating automatic reinsurance among several reinsurers. Using this method, reinsurance is ceded in layers. The layers are defined in terms of amounts of insurance. One reinsurer will receive all reinsurance up to the limit of the first layer. A second reinsurer will receive all reinsurance in excess of the first layer up to the limit of the second layer, and so forth, depending on the number of layers. See First Excess, Layer, and Second Excess.

Lead Reinsurer

The reinsurer who negotiates the terms, conditions, and premium rates and first signs on to the Slip; reinsurers who subsequently sign on to the Slip under those terms and conditions are considered following reinsurers.

Letter of Credit

A financial guaranty issued by a bank that permits the party to which it is issued to draw funds from the bank in the event of a valid unpaid claim against the other party; in reinsurance, typically used to permit reserve Credit to be taken with respect to non-admitted reinsurance; and Alternative to funds withheld and modified coinsurance. Also referred to as an LOC.

Leverage

Portion of Total Equity that is debt versus shareholder equity. An example is if something is levered .4 to1 then it has approximately 30% (.4/1.4) Debt and 70% GAAP Equity.

Levered Return On Equity

US GAAP after-tax income after debt cost divided by GAAP Equity

Liability Insurance

Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person.

Life Insurance

See Ordinary life insurance; Term Insurance; Variable life insurance; Whole life insurance

Limits

Maximum amount of insurance that can be paid for a covered loss.

Line

Type or kind of insurance, such as personal lines.

Line of Business

The general classification of business as utilized in the insurance industry, i.e., fire, allied lines, homeowners, etc.

Line Sheet (Also Line Guide)

A schedule showing the limits of liability to be written by a Ceding Company for different classes of risk and (usually) also showing the lines which can be ceded to proportional reinsurance treaties.

Liquidation

Enables the state insurance department as liquidator or its appointed deputy to wind up the insurance company’s affairs by selling its assets and settling claims upon those assets. After receiving the liquidation order, the liquidator notifies insurance departments in other states and state guaranty funds of the liquidation proceedings. Such insurance company liquidations are not subject to the Federal Bankruptcy Code but to each state’s liquidation statutes.

Liquidity

The ability and speed with which a security can be converted into cash.

Liquor Liability

Coverage for bodily injury or property damage caused by an intoxicated person who was served liquor by the policyholder.

Lloyd's Of London

A marketplace where underwriting syndicates, or mini-insurers, gather to sell insurance policies and reinsurance. Each syndicate is managed by an underwriter who decides whether or not to accept the risk. The Lloyd’s market is a major player in the international reinsurance market as well as a primary market for marine insurance and large risks. Originally, Lloyd’s was a London coffee house in the 1600s patronized by shipowners who insured each other’s hulls and cargoes. As Lloyd’s developed, wealthy individuals, called “Names,” placed their personal assets behind insurance risks as a business venture. Increasingly since the 1990s, most of the capital comes from corporations.

Lloyds

Corporation formed to market services of a group of underwriters. Does not issue insurance policies or provide insurance protection. Insurance is written by individual underwriters, with each assuming a part of every risk. Has no connection to Lloyd’s of London, and is found primarily in Texas.

LOC

See Letter of Credit

Long Tail

A term used to describe a Risk that may have Claims notified or settled long after the Risk has expired. So that he can close the underwriting account for the year, it is often necessary for an Underwriter to arrange Reinsurance protection to cover Claims which may arise after the account has been closed. A term used to describe Risk covered as those of liability rather than physical damage.

Long-Term Care Insurance

Coverage that, under specified conditions, provides skilled nursing, intermediate care, or custodial care for a patient (generally over age 65) in a nursing facility or his or her residence following an injury.

Loss

A reduction in the quality or value of a property, or a legal liability.

Loss Adjustment Expense

  1. All expenditures of an insurer associated with its adjustment, recording, and settlement of claims, other than the claim payment itself. The term encompasses both allocated loss adjustment expenses (ALAE) which are loss adjustment expenses identified by a claim file in the insurer’s records, such as attorney’s fees; and unallocated loss adjustment expenses (ULAE), which are operating expenses not identified by claim file, but functionally associated with settling losses, such as salaries of claims department.
  2. The sum insurers pay for investigating and settling insurance claims, including the cost of defending a lawsuit in court.

Loss Conversion Factor

See Loss Loading or "Multiplier"

Loss Costs

The portion of an insurance rate used to cover claims and the costs of adjusting claims. Insurance companies typically determine their rates by estimating their future loss costs and adding a provision for expenses, profit, and contingencies.

Loss Development

The difference between the original loss as originally reported to the reinsurer and its subsequent evaluation at a later date or at the time of its final disposal. A serious problem to reinsurers who, being involved in the more serious cases, must frequently wait many Years for the final disposition of a loss.

Loss Event

  1. The total losses to the Ceding Company or to the reinsurer resulting from a single cause such as a windstorm.
  2. Any trigger for a recovery under an insurance or reinsurance agreement. Examples include occurrence, claims made, death or disability.

Loss Loading or "Multiplier" (Also Loss Conversion Factor)

A factor is applied to the anticipated losses (or loss cost) for an Excess of Loss Reinsurance agreement in order to develop the reinsurance premium (or rate.) This factor provides for the reinsurer's loss adjustment expense, overhead expense, and profit margin.

Loss of Use

A provision in homeowners and renters insurance policies that reimburses policyholders for any extra living expenses due to having to live elsewhere while their home is being restored following a disaster.

Loss Rating

A method of rating, usually applying to Excess of Loss Reinsurance, under which the rate is determined based on the ceding insurer's historical loss experience, actual or reconstructed, rather than on the exposure inherent in the business. Both loss rating and exposure rating can be used as different rating approaches by the reinsurance underwriter to calculate the price which is quoted.

Loss Portfolio

The amount of the outstanding losses at a particular date. Occasionally a treaty might provide for the loss portfolio to be withdrawn at termination of the treaty. In such event the reinsurer will pay the reinsured a negotiated percentage (generally in the range from 90% to 110%) of the outstanding losses to the treaty at the termination date in return for a release from any and all future liability. Treaties can also be structured to require the reinsured to assume a loss portfolio. The reinsurer will be credited with the loss portfolio from the previous year and will thus assume liability for all losses paid in the current year but which may have occurred in previous years.

 

Loss Ratio

  1. Percentage of each premium dollar an insurer spends on claims.
  2. Proportionate relationship of incurred losses to earned premiums expressed as a percentage.
  3. Incurred losses (including applicable IBNR) divided by the earned premium for an accounting or treaty period. Loss ratios can be calculated on an accident Year, calendar Year, or underwriting Year basis.
  4. Target amount of ultimate claims to premiums received.  Used as the ultimate reserves for short-term products.  Loss Ratios should be set using historical experience from the business.  Loss Ratios are typically defined as incurred claims over earned premium.  They may include the change in the ALR in the numerator or occasionally removed from the denominator.

Loss Ratio Coverage

See Aggregate Coverage.

Loss Reserves

The company’s best estimate of what it will pay for claims, which is periodically readjusted. They represent a liability on the insurer’s balance sheet.

Losses in Excess of Policy Limits

A term that, when used in reinsurance agreements, refers to damages awarded by a court against an insurer in favor of the insured, due to the insurer's having failed to settle a third party claim against the insured within the policy limits by reason of bad faith, fraud, or gross negligence. See Extra Contractual Obligations and Punitive Damages.