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Actuarial Audit Trail
A structured, immutable log of every input, assumption, parameter, and output used in an actuarial calculation - premium rating, loss reserving, or capital modelling. The audit trail allows regulators, auditors, and senior actuaries to reproduce any calculation. Builders implement the actuarial audit trail as an append-only table storing the calculation type, all input parameters as a JSON blob, all output values, the model version, the actuary user ID, and the timestamp.
Admitted Carrier
An insurance company licensed and authorised to operate in a specific US state, subject to that state's rate and form filing requirements, financial examinations, and guaranty fund participation. Admitted carriers must file their rates and policy forms with the state insurance commissioner before use (prior approval states) or use them and notify the regulator afterwards (file-and-use states). Builders handling admitted carrier products must implement a rate-and-form filing workflow with state-specific approval status tracking.
ALAE (Allocated Loss Adjustment Expenses)
The portion of loss adjustment expenses directly attributable to a specific claim - including legal fees, expert witnesses, and investigation costs associated with that claim. Distinguished from ULAE (Unallocated Loss Adjustment Expenses), which cannot be assigned to a specific claim. Builders must include ALAE as a separate field on each claim record, not folded into the reserve or payment amounts.
BSCR (Bermuda Solvency Capital Requirement)
The risk-based capital requirement framework for Bermuda Class E and Class D insurers, maintained by the BMA (Bermuda Monetary Authority). Structurally similar to Solvency II SCR but uses Bermuda-specific risk modules. Relevant for builders developing group-level capital reporting systems for internationally operating insurers.
Cession Statement
A financial summary document produced by the ceding insurer and sent to the reinsurer that details the premiums ceded, losses ceded, and commissions received under a reinsurance treaty for a specific reporting period. Builders implementing reinsurance accounting systems must generate accurate cession statements by treaty, by period, by line of business, reconciling against the ceding company's underlying policy and claims data.
Claim Reserve
The estimated amount an insurer expects to pay on a claim that has been reported but not yet fully settled. Also called the Outstanding Claims Provision. Claim reserves are set individually per claim (case reserve) or actuarially as a bulk (IBNR). Builders must implement a reserve history table tracking every reserve change with the amount, the changer, the reason code, and the timestamp - supporting both individual case reserve management and actuarial override workflows.
Coinsurance
An arrangement in which two or more insurers share coverage of a single risk, each assuming a defined percentage of the total liability. Often used for large commercial risks. In software, coinsurance requires splitting premium, loss, and claims data by share percentage across multiple insurer records and providing consolidated reporting that sums shares back to the total risk.
Combined Ratio
The sum of the loss ratio and the expense ratio: (Incurred Losses + LAE) / Earned Premium + Underwriting Expenses / Written Premium. A combined ratio below 100% indicates underwriting profitability; above 100% indicates underwriting losses. Builders implement the combined ratio as a derived metric in the management reporting data model, computed from the underlying premium, loss, and expense tables.
Consumer Complaint Tracking
An operational process - required by NAIC model regulation and most state insurance codes - for logging, classifying, investigating, and resolving consumer complaints about an insurance company. Software systems must record the complaint date, source (direct, DOI, BBB), the policy and claim reference, the complaint reason code, the assigned handler, the investigation narrative, the resolution, and the closure date. Regulators require periodic complaint ratio reporting: complaints per 1,000 policies.
Coverage Gap
The difference between an insured's total loss exposure and the amount actually covered by their insurance policies. Coverage gaps arise from exclusions, sub-limits, deductibles, coinsurance clauses, or missing endorsements. Insurance software performs coverage analysis by comparing insured values against policy limits and exclusions at the quote or endorsement stage.
CSR (Combined Solvency Ratio)
The ratio of an insurer's total eligible own funds to its Solvency Capital Requirement (SCR), expressed as a percentage. Under Solvency II, insurers must maintain a CSR ≥ 100% at all times. A CSR below 100% triggers supervisory intervention; a CSR below the MCR triggers the ultimate sanction (licence withdrawal). Builders implement CSR monitoring as a real-time capital dashboard.
DCAT (Dynamic Capital Adequacy Testing)
A Canadian actuarial standard requiring P&C insurers to project their financial condition under multiple adverse scenarios over a 5-year horizon, assessing whether capital remains adequate under stress. DCAT reports are filed with provincial regulators. Builders implementing DCAT must support scenario-based stress testing in the financial model.
Deductible
The amount an insured must pay out-of-pocket before the insurance policy pays a claim. Deductibles reduce moral hazard and lower premium cost. Builders must implement deductible calculations at the claim payment level: net_payment = max(0, gross_loss - deductible) with support for per-occurrence, per-risk, annual aggregate, and straight vs. franchise deductible types.
Earned Premium
The portion of written premium that applies to coverage that has already been provided during the accounting period. For a one-year policy incepting 1 July, by 31 December the earned premium is 50% of the annual premium. Builders compute earned premium using pro-rata earning: earned = written_premium × (days_in_period / policy_term_days). Earned premium is the denominator in the loss ratio calculation.
Endorsement
A written amendment to an insurance policy that modifies the original terms, conditions, exclusions, or coverage limits. Endorsements may add coverage (e.g., floater for high-value items), reduce coverage (e.g., exclusion for named perils), or change insured details. Builders implement endorsements as a separate policy_endorsements table linked to the parent policy, with effective dates, changed fields, premium adjustment, and a version counter.
ERM (Enterprise Risk Management)
The framework for identifying, assessing, and managing all risks affecting an insurance enterprise - underwriting, market, credit, operational, liquidity. Solvency II requires insurers to maintain an Own Risk and Solvency Assessment (ORSA) documenting their ERM framework. Builders supporting ORSA must aggregate risk data from underwriting, investments, and operations into a unified risk register with exposure, likelihood, impact, and mitigation fields.
Excess of Loss (XL) Reinsurance
A reinsurance structure in which the reinsurer pays losses above a defined per-occurrence or per-event retention (attachment point) up to a maximum limit. For example, XL $5M xs $1M means the reinsurer pays losses between $1M and $6M per occurrence. Builders model XL reinsurance with an attachment_point and limit per treaty; claim recoveries are computed as min(gross_loss - attachment_point, limit) for losses exceeding the attachment.
Facultative Reinsurance
A type of reinsurance in which the ceding insurer and the reinsurer negotiate coverage for a single risk or policy, as distinguished from treaty reinsurance (which covers a portfolio of risks automatically). Each facultative certificate is a separate agreement. Builders must support a facultative_placements table storing the certificate, the ceded proportion or limit, and the risk identifier.
Guaranty Fund
A state-level insurance insolvency fund that pays covered claims of insolvent licensed (admitted) insurers up to statutory limits (typically $100,000 to $500,000 per covered claim). Guaranty fund assessments are levied on admitted carriers as a percentage of their in-state premium. Builders must track whether each policy is issued by an admitted carrier, as this determines guaranty fund eligibility.
IBNR (Incurred But Not Reported)
Losses that have occurred but have not yet been reported to the insurer or reinsurer. IBNR reserves are estimated actuarially using development patterns from historical claims data (loss triangles). Builders must provide the data infrastructure for actuarial IBNR estimation: claims data by accident year, development year, and line of business in a loss triangle format, with all field-level audit logs intact.
IFRS 17 (International Financial Reporting Standard 17)
The IASB accounting standard for insurance contracts, effective for periods beginning on or after 1 January 2023, replacing IFRS 4. IFRS 17 introduces the General Measurement Model (GMM), the Premium Allocation Approach (PAA), and the Variable Fee Approach (VFA). For software builders, IFRS 17 requires new data structures: the Contractual Service Margin (CSM) per group of contracts, risk adjustment for non-financial risk, and retrospective cohort groupings.
Incurred Loss Ratio
The ratio of Incurred Losses / Earned Premium, expressed as a percentage. The incurred loss ratio measures how much of earned premium is consumed by claims (reported losses + reserve changes). A 65% loss ratio means 65 cents of every earned premium dollar is paid out in losses. Builders implement the loss ratio as a standard BI metric aggregated by line of business, state, and underwriting year.
Insurance Holding Company Act (IHCA)
US state law, based on the NAIC Insurance Holding Company System Regulatory Act (Model Act #440), governing insurance groups and affiliated transactions. IHCA requires disclosure of material transactions between affiliates, prior approval of certain transactions, and annual enterprise risk reporting. Builders supporting group-level regulatory reporting must track inter-company balances and related-party transactions against the thresholds defined in the IHCA.
LAE (Loss Adjustment Expenses)
The costs incurred by an insurer to investigate, adjust, and settle claims, separate from the loss payments themselves. LAE is divided into ALAE (directly attributable to a specific claim) and ULAE (shared overhead costs that cannot be attributed to individual claims). Builders represent LAE as separate fields on the claims record and in the financial reporting model, not aggregated with loss payments.
LDF (Loss Development Factor)
A factor used by actuaries to project immature losses to their ultimate value, derived from historical claims data in a loss triangle. LDF analysis is the foundation of chain-ladder IBNR estimation. Builders must provide the claims data in the exact structure required for LDF computation: cumulative paid (or incurred) losses by accident year and development age, queryable by line of business and segment.
Loss Ratio
See Incurred Loss Ratio.
Loss Reserve
The total estimated liability recorded by an insurer for future claim payments and loss adjustment expenses on policies that have already been written. Loss reserves appear as a liability on the balance sheet. They include: (a) reported but not yet settled claims (individual case reserves), (b) IBNR estimates, and (c) LAE reserves. Builders implement loss reserves as separate records from actual loss payments, with a reserve history table capturing every revision.
MCR (Minimum Capital Requirement)
The minimum level of capital below which a Solvency II insurer must be placed in run-off or have its licence revoked. The MCR is calculated quarterly and equals a percentage of the SCR, floored and capped within absolute monetary limits. Builders supporting Solvency II reporting must compute the MCR separately from the SCR and report both to the supervisory authority via QRT (Quantitative Reporting Templates).
NAIC (National Association of Insurance Commissioners)
The standard-setting organisation for US insurance regulation, composed of chief insurance regulatory officials from all 50 US states, DC, and US territories. NAIC model laws and regulations are adopted (often with modifications) by individual state legislatures and insurance departments. Builders must reference the relevant NAIC model act number when implementing state insurance compliance features.
Occurrence Policy
An insurance policy that covers claims arising from incidents that occur during the policy period, regardless of when the claim is filed. Distinguished from a claims-made policy (which covers claims filed during the policy period). In software, the policy type (occurrence vs. claims-made) determines the coverage trigger logic for claim attachment to policy years.
OFC (Own Funds Classification)
Under Solvency II, eligible own funds are classified into Tier 1 (fully loss-absorbing, highest quality), Tier 2 (partly loss-absorbing), and Tier 3 (lower quality supplementary capital). The SCR must be covered by at least 50% Tier 1; the MCR must be covered entirely by Tier 1 Basic Own Funds. Builders implement OFC as a lookup table linked to each capital instrument.
ORSA (Own Risk and Solvency Assessment)
A forward-looking risk and solvency assessment required by Solvency II (and adopted by many US states via NAIC Model 505) in which an insurer evaluates its own risk profile, risk tolerance, and capital needs over a business planning horizon. The ORSA report is submitted annually to the supervisor. Builders must support stress testing and scenario modelling capabilities that feed into the ORSA report.
Policy Lifecycle
The sequential stages of an insurance policy from initial quote to expiry or cancellation: Quote → Bind → Issue → In-Force → Renewal / Non-Renewal → Cancellation / Expiry. Each stage has distinct data requirements, business rules, and regulatory obligations. Builders implement the policy lifecycle as a state machine with allowed transitions, effective dates, and a policy_events audit log.
Premium
The amount charged by an insurer for a defined period of insurance coverage. Premium is influenced by exposure (the thing being insured), rate (the price per unit of exposure), underwriting adjustments (debits and credits based on risk characteristics), and any endorsements. Builders compute premium in a rating engine: premium = exposure × base_rate × factor_adjustments × taxes. All factors applied must be auditable.
Property Catastrophe (Cat) Modelling
The use of probabilistic models to estimate the potential insured losses from natural catastrophes (hurricanes, earthquakes, floods). Insurers use cat models from RMS, AIR, or CoreLogic to estimate probable maximum losses (PML) and average annual losses (AAL). Builders integrating cat model output must store the model name, version, event set, and per-location EP curve as structured data.
Proportional Reinsurance
A reinsurance type in which premiums and losses are shared between the ceding company and the reinsurer in a defined proportion. Includes quota share (fixed percentage across all risks) and surplus share (proportion varies based on sum insured). Builders model proportional reinsurance as a factor applied to each risk: ceded_premium = premium × cession_rate and ceded_loss = loss × cession_rate.
QRT (Quantitative Reporting Template)
Standardised Solvency II reporting forms submitted to the national supervisory authority as part of the Regular Supervisory Reporting (RSR) and the Solvency and Financial Condition Report (SFCR). QRTs cover balance sheet, own funds, SCR/MCR, technical provisions, and premium/claims data. Builders implementing Solvency II regulatory reporting must map their internal data model to the exact XBRL taxonomy and cell references required by EIOPA.
Reinsurance
An arrangement in which a primary insurer (ceding company) transfers part of its risk to another insurer (reinsurer) in exchange for a portion of the premium. Reinsurance limits the ceding company's net retained loss exposure. Key forms: proportional (quota share, surplus share) and non-proportional (excess of loss, stop loss). Builders must model the full reinsurance programme structure in the claims processing system to accurately compute net retained vs. ceded amounts.
Retention
The amount of risk that an insurer keeps on its own account before reinsurance reduces its net exposure. In XL reinsurance, the retention is the per-occurrence amount below the attachment point. In quota share, the retention is the proportion not ceded. Builders configure retention as a per-treaty parameter in the reinsurance data model.
Run-Off
The managed wind-down of an insurance or reinsurance company (or portfolio) that has ceased writing new business, continuing to handle all existing claims until the last claim is settled. Software systems for run-off must support decades-long claim administration, reinsurance recovery management, and regulatory capital reporting until the entity is de-licensed.
SCR (Solvency Capital Requirement)
The risk-based capital requirement under Solvency II (Directive 2009/138/EC) representing the amount of own funds an insurance undertaking must hold to limit the probability of ruin to 0.5% over a 12-month horizon (1-in-200 year Value at Risk). The SCR is calculated using the Solvency II Standard Formula or an approved internal model and is submitted quarterly to the supervisory authority via QRTs.
Solvency II
The EU insurance regulatory framework established by Directive 2009/138/EC (as amended), with detailed implementing measures in the Omnibus II Directive (2014/51/EU) and Delegated Regulation (EU) 2015/35. Solvency II introduces risk-based capital requirements (SCR, MCR), governance and risk management requirements (ORSA, system of governance), and harmonised public disclosure (SFCR) across EU insurers. Builders developing insurance systems for EU entities must support Solvency II data collection, capital calculations, and regulatory reporting.
Stop Loss Reinsurance
A non-proportional reinsurance type that limits the ceding insurer's aggregate losses to a defined percentage of earned premium for the period. For example, a stop loss at 80% of earned premium means the reinsurer pays all aggregate losses above 80% up to a stated limit. Builders compute stop loss recoveries against the aggregate incurred loss figure for the treaty period.
Surplus Lines
Non-admitted insurance placed through a surplus lines broker when coverage is unavailable in the admitted market. Surplus lines policies are not subject to rate and form filing but are subject to surplus lines taxes (typically 3%–6% of premium) and stamping office filing requirements. Builders must implement surplus lines tax calculation and filing logic as a distinct workflow from admitted business processing.
Treaty Reinsurance
A standing agreement between a ceding insurer and a reinsurer covering all risks that meet defined criteria within a class of business automatically, without individual risk-by-risk negotiation. Contrasted with facultative reinsurance. Builders implement treaty reinsurance as a configuration record linked to policies meeting the treaty criteria, with automatic cession calculations on each policy transaction.
Unearned Premium Reserve (UPR)
The liability recorded by an insurer representing the portion of written premium that applies to coverage not yet provided as of the balance sheet date. For a one-year policy incepting mid-year, the UPR at year-end is 50% of the annual premium. The UPR is a balance sheet liability required by both GAAP and Solvency II accounting. Builders compute UPR as UPR = written_premium × (remaining_days / policy_term_days).
Written Premium
The total premium on all policies underwritten during an accounting period, regardless of when coverage is provided. Written premium is a flow measure (unlike earned premium, which is a period measure). Builders aggregate written premium by policy inception date, line of business, state/territory, and distribution channel. Written premium is the denominator in the expense ratio calculation.