GLOSSARY

R

RATING EXPERIENCE – A quantitative measure used to determine how much a given policy should cost, calculated using historical data to determine the risk of future claims.

RECIPROCAL INSURANCE – Protects against loss in which individuals or entities agree to indemnify each other against specified kinds of losses via a mutual exchange or insurance contracts.

RECIPROCAL OR RECIPROCAL RISK RETENTION GROUP – An unincorporated association; reciprocal insurance is that which results from an interchange among subscribers of reciprocal agreements of indemnity, the interchange being effectuated through an attorney-in-fact common to all subscribers.

RECIPROCAL INSURER – An unincorporated group facilitating an exchange of insurance contracts, managed by an attorney-in-fact.  Equivalent to the insurance company in a stock or mutual format.

REINSTATEMENT CLAUSE – When the amount of reinsurance coverage provided under a treaty is reduced by the payment of a reinsurance loss as the result of one catastrophe, the reinsurance cover is automatically reinstated usually by the payment of a reinstatement premium.

REINSTATEMENT PREMIUM – An additional premium paid to replenish the limit consumed in the event of a loss.

REINSTATEMENT PREMIUM – A pro rata reinsurance premium is charged for the reinstatement of the amount of reinsurance coverage that was reduced as the result of a reinsurance loss payment under a catastrophe cover.

REINSURANCE – An insurance company’s ability to protect itself against the risk of losses with other insurance companies.  Individuals and corporations obtain insurance policies to provide protection for various risks.  The company transferring the risk is the ceding company, and the company receiving the risk is the reinsurer.  There exists a primary insurer and then a secondary insurer to guarantee that a business can cover its claims in case of a crisis.

REINSURER – An insurance company that accepts the risk transferred from another insurance company in a reinsurance transaction.

REINSURER TREATY – An agreement between a reinsurer and a ceding insurer setting forth details of the reinsurance agreement.

RENT-A-CAPTIVE – Rent-a-Captives offer the benefits of a captive insurance company without the capitalization requirements, administrative costs and legal ramifications associated with establishing and operating an insurance subsidiary, and can return underwriting profits and investment income to a participant.

RESERVE – An insurers actuarially determined estimate of its liability for all unpaid claims.  This estimate includes reported losses that have not yet been paid, as well as incurred but not reported losses. (IBNR)

RETENTION – The net amount of risk which the ceding company or the reinsurer keeps for its own account or that of specified others.

RETROCESSION–  A reinsurance of reinsurance. Example: company “B” has accepted reinsurance from company “A”, and then obtains for itself, on such business assumed, reinsurance from company “C”.  This secondary reinsurance is called a Retrocession.  The transaction whereby a reinsurer cedes to another reinsurer all or part of the reinsurance it has previously assumed.

RETROSPECTIVE RATING PLAN – A method of establishing a premium on large commercial accounts.  One in which the final premium is based on the insured’s actual loss experience during the policy term, subject to a minimum and maximum premium, with the final premium determined by a formula.

RISKS – A term used to denote the physical units of property at risk or the object of insurance protection and not perils or hazard.  Reinsurance by tradition permits each insurance company to frame its own rules for defining units of risks.  The word is also defined as chance of loss or uncertainty of loss.

RISK DISTRIBUTION – Used in tax deductibility discussions, the term mandates that enough independent risks of unrelated parties be pooled to invoke the actuarial law of large numbers.  In tax disputes, the Internal Revenue Service (IRS) and numerous courts have required the presence of both risk shifting and risk distribution to find a financial arrangement to be “insurance.”

RISK MANAGEMENT – The recognition of risk, risk assessment, developing strategies to manage it and mitigation of risk using managerial resources.  Strategies include transferring risk to another party, avoiding the risk, reducing the negative effect of the risk and accepting some or all of the consequences of a particular risk.

RISK PURCHASING GROUP (RPG) – Distinctive insured’s concurrently purchasing liability insurance pursuant to the terms of the federal Risk Retention Act of 1986.

RISK RETENTION – Planned acceptance of losses by deductibles, deliberate non insurance and loss-sensitive plans where some, but not all, risk is consciously retained rather than transferred.

RISK RETENTION GROUP (RRG) – An owner controlled insurance company authorized by the Federal Liability Risk Retention Act of 1986.  A group self-insured program or group captive insurance company formed under provisions of the Liability Risk Retention Act of 1986, by or on behalf of businesses joined to insure their liability exposures.  Such a group is exempt from most state laws, rules or regulations, except for the state in which it is domiciled.

RISK TRANSFER – Risk transfer is a risk management and control strategy that involves the contractual shifting of a pure risk from one party to another.  One example is the purchase of an insurance policy, by which a specified risk of loss is passed from the policyholder to the insurer.  Other examples include hold-harmless clauses, contractual requirements to provide insurance coverage for another party’s benefit and reinsurance.

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After experiencing tremendous losses due to a natural disaster uncovered by my commercial carrier, I knew it was time to form a captive and shopped around for a captive manager...we couldn’t be happier that we chose Elevate.

Joe M.

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I have worked with Jerry Messick and the Elevate Captive team since 2012. They have been instrumental in guiding us properly on how to implement and run a captive successfully. The due diligence and proactive service on the part of the Elevate team is unrivaled. Their product knowledge and how to use the instrument to our benefit, while providing sound risk management and compliance principles is another huge differentiating factor for their firm. In addition, the team of experts that Elevate has referred us to in the legal and financial advisory areas has turned out to be top notch. The Captive is only as good as the entire team. Finally, it has to be mentioned that we “just plain like” Jerry and Co.. Friendly, smart and easy to work with. A real pleasure.

John H.