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Glossary of Alternative Markets Terms Scroll down the page to find the term you need. All defined terms are displayed in bold for easy location. You might prefer to use the "find" feature of your browser. Use the "Edit" pulldown menu, or hit "ctrl-f", then enter the term you want in the box. Association Captive Insurance Company - Any company that insures risks of the member organizations of the association, and their affiliated companies. Captive Insurance Company – Any pure captive insurance company, association captive insurance company, or industrial insured captive insurance company formed or licensed under the provisions of this chapter. A company which is wholly-owned by another organization (generally non-insurance), the main purpose of which is to insure the risks of the parent organization. Commutation – In the event of the termination of this contract, the Reinsurer shall be released from all further liability to the company for all loss and allocated loss expense not finally settled by the company as of the date of termination. In consideration of that release, the Reinsurer shall pay to the Company all amounts of loss and allocated loss expense due for losses finally settled. Federal Risk Retention Act – Preempts some state functions. For example, the act does not allow a state insurance regulator to prohibit risk retention groups domiciled in other states from operating within the regulator's state, thus eliminating the need for a fronting company. Fronting – Most commonly refers to the practice of a non-admitted insurer (or an insured with a captive insurance company) contracting with a licensed insurer to issue an insurance policy for regulatory or certification purposes. Industrial Insured – An insured which procures the insurance of any risk or risks by use of the services of a full-time employee acting as an insurance manager or buyer and whose aggregate annual premiums for insurance on all risks total at least $25,000 and who has at least 25 full-time employees. Industrial Insured Captive Insurance Company – Any company that insures risks of the industrial insureds that comprise the industrial insured group, and their affiliated companies. Loss Portfolio Transfer – Is retrospective in nature, as they involve the transfer of incurred losses. Such programs can utilize reserve discounting – on either a structured or an unstructured basis, and/or they can have adjustment provisions to take into account any future reserve deterioration. Non-Admitted Insurers – Insurance companies not licensed in a state may engage in business in the state if an admitted, properly filed company issues the policy and reinsures losses to the non-admitted reinsurer. Non-Subscriber Workers' Compensation Plan – A non-subscriber is an employee who elects, by filing appropriate notices required by state insurance authorities, to pay work-related injury loss through some method other than statutory workers' compensation. Three states – Texas, South Carolina, and New Jersey – allow such an election. Pool – Any joint underwriting operation of insurance or reinsurance in which the participants assume a predetermined and fixed interest in all business written. Pure Premium – That portion of the premium which covers losses and related expenses, i.e. includes no loading for commissions, taxes, or other expenses. Pure Captive Insurance Company – Any company that insures risks of its parent and affiliated companies. Single parent Captive. Rent-a-Captive – Under these programs, the policyholder is insured by the Captive without owning, or at least, without voting control of the Captive. The Captive facility "rents" its capital, surplus, and license to the policyholder and usually provides administrative services, reinsurance, and/or an admitted fronting company. A Rent-a-Captive can be structured as a protected cell, which is the legal segregation of the accounts of each program from the liabilities of every other program and those of the Rent-a-Captive itself. Retrospective Rating Plan – 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. Risk Retention Group – Any corporation or other limited liability association whose activities do not include the provision of insurance other than reinsurance with respect to the similar or related liability exposure of any other risk retention group which is engaged in business or activities. Self-Insurance – The planned assumption of risk. Sponsored Captive -- A sponsored captive is created by a legal entity that is not an insured of the sponsored captive. A sponsored captive is not created by its insureds. The insureds of a sponsored captive have no ownership interest in or control of the sponsored captive. The insureds whose risks are underwritten by the captive are called the participants. Sponsored captives are referred to as "rent-a-captives" in some domiciles. Sponsored captives may be required to pay an access fee but do not require insureds to pay in capital in return for ownership of the captive. A sponsored captive may be structured to have legally separate underwriting accounts. These are called segregated cells. In a segregated cell captive the participant is usually only exposed to the risk of its own undrewriting performance. In Vermont, the sponsor has to be a licensed insurance company, reinsurance company or captive insurance company, and RRG's cannot be sponsors or participants in a sponsored captive. Sponsor - the legal entity that contributes capital to form a sponsored or association captive. Participant - the insured whose risks are underwritten by a sponsored captive. Tax Reform Act of 1984 – Included two sections that increased the tax bill of an offshore captive insurer defined as a controlled foreign corporation. One section redefined income related to the insurance of US-based risks as US-source income instead of foreign-source income. Another section made income from the insurance of related risks in foreign countries taxable in the current year. The net effect of these two changes was to eliminate most tax advantages for an offshore single parent captive. Tax Reform Act of 1988 – The major change imposed by this act affected offshore group captives in that the definition of a U.S. shareholder was changed from an ownership interest of 10 percent or more to any shareholding interest.
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