and Weiss Ratings, Inc. Factors considered include company earnings, capital adequacy, operating leverage, liquidity, investment performance, reinsurance programs, and management ability, integrity and experience. A high financial rating is not the same as a high consumer satisfaction rating.

REINSURANCE - Insurance bought by insurers. A reinsurer assumes part of the risk and part of the premium originally taken by the insurer, known as the primary company. Reinsurance effectively increases an insurer's capital and therefore its capacity to sell more coverage. The business is global and some of the largest reinsurers are based abroad. Reinsurers have their own reinsurers, called retrocessionaires. Reinsurers don't pay policyholder claims. Instead, they reimburse insurers for claims paid.

REPLACEMENT COST - Insurance that pays the dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.

RESERVES - A company's best estimate of what it will pay for claims.

RESIDUAL MARKET - Facilities that exist to provide coverage for those who cannot get it in the regular market. Insurers generally must participate in these pools. For this reason it is also known as the shared market.

RETENTION - The amount of risk retained by an insurance company that is not reinsured.

RIDER - An attachment to an insurance policy that alters the policy's coverage or terms.

RISK - The chance of loss or the person or entity that is insured.

RISK MANAGEMENT - Management of the varied risks to which a business firm or association might be subject. It includes analyzing all exposures to gauge the likelihood of loss and choosing options to minimize loss. These options typically include reducing and eliminating the risk with safety measures, buying insurance, and self-insurance.

SALVAGE - Damaged property an insurer takes over after paying a claim to reduce its loss. Insurers receive salvage rights over property on which they have paid claims, such as badly-damaged cars. Insurers that paid claims on cargoes lost at sea now have the right to recover sunken treasures. Salvage charges are the costs associated with recovering that property.

SCHEDULE - A list of individual items or groups of items that are covered under one policy.

SECURITIES AND EXCHANGE COMMISSION / SEC - The organization that oversees publicly-held insurance companies. Those companies make periodic financial disclosures to the SEC, including an annual financial statement (or 10K), and a quarterly financial statement (or 10-Q). Companies must also disclose any material events and other information about their stock.

SELF-INSURANCE - The concept of assuming a financial risk oneself, instead of paying an insurance company to take it. Every policyholder is a self-insurer in terms of paying a deductible and co-payments. Large firms often self-insure frequent, small losses such as damage to their fleet of vehicles or minor workplace injuries. Self-insurance also refers to employers who assume all or part of the responsibility for paying health insurance claims of their employees. Firms that self insured for health claims are exempt from state insurance laws mandating the illnesses that group health insurers must cover.

SEVERITY - Size of a loss. One of the criteria used in calculating premiums rates.

SOLVENCY - Insurance companies' ability to pay the claims of policyholders. Regulations to promote solvency include minimum capital and surplus requirements, statutory accounting conventions, limits to insurance company investment and corporate activities, financial ratio tests, and financial data disclosure.

STOCK INSURANCE COMPANY - An insurance company owned by its stockholders who share in profits through earnings distributions and increases in stock value.

STRUCTURED SETTLEMENT - Legal agreement to pay a designated person, usually someone who has been injured, a specified sum of money in periodic payments, usually for his or her lifetime, instead of in a single lump sum payment.

SUBROGATION - The legal process by which an insurance company, after paying a loss, seeks to recover the amount of the loss from another party who is legally liable for it.

TERM INSURANCE - Protection against premature death that comes in a form of life insurance. It pays a benefit only when an insured dies within a specified period, and a designated beneficiary receives the death benefit. If the insured lives beyond the specified period, the beneficiary receives nothing.

THIRD-PARTY ADMINISTRATOR - Outside group that performs clerical functions for an insurance company.

THIRD-PARTY COVERAGE - Liability coverage purchased by the policyholder as a protection against possible lawsuits filed by a third party. The insured and the insurer are the first and second parties to the insurance contract.

TITLE INSURANCE - Insurance that indemnifies the owner of real estate in the event that his or her clear ownership of property is challenged by the discovery of faults in the title.

TORT - A wrongful act, resulting in injury or damage on which a civil action may be based.

TORT LAW - The body of law governing negligence, intentional interference, and other wrongful acts for which civil action can be brought, except for breach of contract, which is covered by contract law.

TORT REFORM - Refers to legislation designed to reduce liability costs through limits on various kinds of damages and through modification of liability rules.

TOTAL LOSS - The condition of an automobile or other property when damage is so extensive that repair costs would exceed the value of the vehicle or property.

UMBRELLA POLICY - Coverage for losses above the limit of an underlying policy. It applies to losses over a large dollar amount, but terms of coverage are sometimes broader than those of underlying policies.

UNDERWRITING - Examining, accepting, or rejecting insurance risks and classifying the ones that are accepted, in order to charge appropriate premiums for them.

UNDERWRITING INCOME - The insurer's profit on the insurance sale after all expenses and losses have been paid. When premiums aren't sufficient to cover claims and expenses, the result is an underwriting loss. Underwriting losses are typically offset by investment income.

UNINSURED MOTORISTS COVERAGE - Portion of an auto insurance policy that protects a policyholder from uninsured and hit-and-run drivers.

UNIVERSAL LIFE INSURANCE - A flexible premium policy that combines protection against premature death with a savings account that typically earns a money market rate of interest. Premiums can be changed during the life of the policy within limits and the policy will lapse if there isn't enough money to cover mortality and administrative costs.

VANDALISM - The malicious and often random destruction or spoilage of another person's property.

VARIABLE LIFE INSURANCE - A policy that combines protection against premature death with a savings account that can be invested in stocks, bonds, and money market mutual funds at the policyholder's discretion.

VOID - A policy contract that for some reason specified in the policy becomes free of all legal effect. One example under which a policy could be voided is when information a policyholder provided is proven untrue.

WAIVER - The surrender of a right or privilege which is known to exist.

WHOLE LIFE INSURANCE - The oldest kind of cash value life insurance that combines protection against premature death with a savings account. Premiums are fixed and guaranteed and remain level throughout the policy's lifetime.

WORKERS COMPENSATION - Insurance that pays for medical care and physical rehabilitation of injured workers and helps to replace lost wages while they are unable to work.

WRITE - To insure, underwrite, or accept an application for insurance.