LOMA Glossary

The LOMA Glossary of Insurance and Financial Services Terms

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RAA option. See retained asset account option.

ratchet method. See annual reset method.

rate of return. Investment earnings (or losses) over a specified period of time expressed as a percentage relative to the principal.

rated policy. An insurance policy that is classified as having a greater-than-average likelihood of loss, usually issued with a premium rate that is higher than the rate for a standard policy.

rating. The general process used to establish a premium rate for an insurance policy. In common underwriting usage, "rating a policy" refers to charging a higher-than-standard premium rate for an insurance policy.

rating agency. An organization, owned independently of any insurer or government body, that evaluates the financial condition of insurers and provides that information to potential customers and investors of insurance companies.

rating agency capital. The minimum standard of capital that an insurer must maintain in order to receive a favorable quality rating from a specific rating agency. Contrast with regulatory capital and economic capital.

rating experience. The proportional assignment of new business cases to the company’s available rate classes.

ratio. A comparison of two numeric values that results in a measurement expressed as a percentage or a fraction.

RBC requirements. See risk-based capital requirements.

readability requirements. A regulatory standard that limits sentence length, word length, and the amount of technical and legal language allowed in an insurance contract so that people who are not legal experts can understand the contract.

real estate. See real property.

real property. Land or anything attached to the land. Also known as real estate. Contrast with personal property.

realized gain (or loss). The difference between an asset’s net sales proceeds and its purchase price. Contrast with unrealized gain (loss).

real-time underwriting. A process used to underwrite applications for term life insurance that results in a certain percentage of applications being approved within minutes or hours after the application is received. The process relies on automated underwriting systems and information from the insurance application as well as online pharmaceutical databases. Also known as instant-issue underwriting.

rebating. A sales practice in which an insurance producer offers a prospect an inducement, such as a cash payment, to purchase a life insurance policy or an annuity contract, and the inducement is not offered to all applicants in similar situations and is not stated in the policy itself. Rebating is prohibited in most states in the United States.

recapture. In reinsurance, the process by which a direct writer takes back some or all ceded business from a reinsurer.

receiver. In the United States, the insurance commissioner, or someone acting on the commissioner’s behalf, who is responsible for formulating a plan to distribute an impaired insurer’s assets and for making sure that the insurer’s obligations to customers are fulfilled to the greatest extent possible. Also known as a conservator.

receivership. In the United States, a legal condition under which a state insurance commissioner, acting for a state court, takes control of and administers a financially impaired insurer’s assets and liabilities. A receivership can have two possible outcomes: rehabilitation or liquidation. Also known as conservatorship. See also rehabilitation and liquidation.

reciprocal arrangement. A two-way reinsurance arrangement wherein two insurance companies cede business to each other and assume risk from each other. Also known as reciprocity. See also premium-based reciprocity and results-based reciprocity.

reciprocity. See reciprocal arrangement.

recording method of beneficiary change. A method of changing the beneficiary of a life insurance policy under which the policyowner must provide the insurer with a written and signed notification of the beneficiary change. Contrast with endorsement method of beneficiary change.

records inspection provision. A reinsurance treaty provision that states the rights of each party to audit the other party’s records and documents relating to the reinsurance provided under the treaty.

recurrent disability. A disability that results from the same cause as an original disability and that reappears after the original disability ends and after the insured returns to work.

reduced paid-up insurance nonforfeiture option. One of several nonforfeiture options included in cash value life insurance policies that allows the owner of a policy with a cash value to discontinue premium payments and to use the policy’s net cash surrender value to purchase paid-up insurance of the same plan as the original policy.

reduction. An insurance policy provision that reduces the amount of the benefit payable for a specified loss when specified conditions are met. See also exclusion and limitation.

reexamination. In the United States, a regulatory examination of an insurance company that is conducted as a follow-up to a comprehensive or target market conduct examination and that is designed to determine whether the insurer has complied with recommendations or directives contained in a previous examination report.

referral. See referred lead.

referred lead. In sales, the name of a well-qualified prospect that a client has given to a producer. Also known as a referral.

refund annuity. See life annuity with refund.

registered investment advisor (RIA). See independent financial advisor.

registered pension plan (RPP). In Canada, a private retirement plan that meets the legal requirements to receive favorable federal income tax treatment. See also qualified retirement plan.

registered principal. An officer, manager, and/or director of a Financial Industry Regulatory Authority (FINRA) member company who is involved in the day-to-day operation of a securities business, supervises registered representatives, and has satisfied FINRA registration requirements regarding the sale of securities.

registered representative. A person who is a business associate of a Financial Industry Regulatory Authority (FINRA) member, engages in the securities business on behalf of the member by soliciting the sale of securities or training securities salespeople, and has passed a specified examination administered by FINRA.

registered retirement savings plan (RRSP). In Canada, a retirement savings plan that is similar to an individual retirement arrangement in the United States and that allows individuals or their spouses (not employers) with earned income to deposit a specified portion of their pre-tax income into a tax-deferred savings arrangement for the purpose of accumulating money for retirement.

registration statement. In the United States, a document filed in conjunction with Securities and Exchange Commission registration of a security that contains detailed information about the security and the issuer of that security, including specified financial statements. Insurers are required to file a registration statement for their variable insurance and annuity products.

regular IRA. See traditional IRA.

Regulation 60. In the United States, a New York state insurance regulation designed to protect customers against replacements of an insurance or annuity contract when it is not in a customer's best interests. Insurers and producers are required to disclose specific relevant information to the customer prior to replacing any existing insurance or annuity contract.

regulatory capital. The legal minimum standard of capital that an insurer must maintain in order to be considered solvent by the regulatory authorities. Contrast with rating agency capital and economic capital.

Regulatory Information Retrieval System (RIRS).. In the United States, a database maintained by the National Association of Insurance Commissioners that contains information on insurance companies and individuals who have been the subjects of regulatory or disciplinary actions.

rehabilitation. (1) In disability income insurance, the process of helping a disabled person return to work, either at her own occupation or at another occupation if she is unable to perform the duties of her own occupation. (2) In the United States in an insurance receivership, a condition wherein the insurer regains financial stability and thus continues to exist after the receivership. See also receivership. Contrast with liquidation.

reimbursement benefits. See indemnity benefits.

reinstatement. The process by which an insurer puts back into force an insurance policy that has either been terminated for nonpayment of premiums or has been continued under the extended term or reduced paid-up insurance nonforfeiture option.

reinsurance. Insurance that one insurance company—the direct writer—obtains from another insurance company—the reinsurer—on risks associated with insurance policies issued by the direct writer.

reinsurance account executive. See reinsurance marketing officer.

reinsurance administration. All the day-to-day activities conducted by the direct writer and the reinsurer to process and manage each risk that the direct writer cedes automatically or submits for facultative or facultative-obligatory consideration.

reinsurance agreement. See reinsurance treaty.

reinsurance allowance. See allowance.

reinsurance commission. See allowance.

reinsurance company. See reinsurer.

reinsurance effective date. The date on which the reinsurance coverage for a specific risk takes effect.

reinsurance intermediary. A third party who is not employed by a licensed insurer or reinsurer, but who acts on behalf of a direct writer or reinsurer to place reinsurance. In the United States, laws and regulations recognize two types of intermediaries, the reinsurance intermediary—broker and the reinsurance intermediary—manager.

reinsurance intermediary—broker. Any person, firm, or corporation that solicits, negotiates, or places reinsurance cessions or retrocessions on behalf of a direct writer but that is not authorized to enter into a binding reinsurance contract on behalf of the direct writer. Contrast with reinsurance intermediary--manager.

reinsurance intermediary—manager. Any party that acts as an agent of a reinsurer and either has authority to bind the reinsurer to a reinsurance contract or manages all or part of the reinsurer’s assumed business. Contrast with reinsurance intermediary--broker.

reinsurance marketing officer. A reinsurer’s employee who sells reinsurance and coordinates the marketing process for the reinsurer. Also known as a reinsurance account executive.

reinsurance pool. An arrangement in which two or more reinsurers agree to accept a share of reinsurance on a product or a group of products.

reinsurance premium. In indemnity reinsurance, the periodic payment made by a direct writer to a reinsurer as compensation for indemnity reinsurance coverage.

reinsurance recoverable. Reinsurance benefit amount due to the direct writer or owed by the reinsurer.

reinsurance slip. See letter of intent.

reinsurance treaty. A document that contains the terms of the reinsurance business to be conducted, including the nature of the risk transfer, reinsurance information procedures, information exchanges, and the rights and duties of each party under the arrangement. Reinsurance treaties typically document a type of reinsurance cession known as automatic reinsurance. Also known as a reinsurance agreement.

reinsurer. An insurer that provides reinsurance coverage by accepting, or assuming, insurance risk from a direct writer. Also known as a reinsurance company or an assuming company. Contrast with direct writer.

release. A written document that a claimant to life insurance policy proceeds must sign in exchange for the policy proceeds; the document states that the claimant has received full payment of the claim and that he gives up any and all claims against the insurer as a result of the policy.

renewable term insurance policy. A term life insurance policy that gives the policyowner the option to continue the coverage at the end of the specified term without presenting evidence of insurability, although typically at a higher premium because the premium amount is based on the insured's attained age.

renewal commission. A sales commission paid to an insurance producer on a policy the producer sold that remains in force. The renewal commission rate is equal to a stated percentage of each premium paid for a specified number of years after the first policy year. The renewal commission rate is generally lower than the first-year commission rate. See also commission. Contrast with first-year commission.

renewal expenses. See maintenance expenses.

renewal premium. An insurance policy premium payable after the initial premium. Contrast with initial premium.

renewal underwriting. For group insurance plans, a type of underwriting in which the underwriter reviews all the risk assessment factors considered when the group was originally underwritten and determines whether the characteristics of the group have changed in ways that affect the degree of risk the group presents. Renewal underwriting sets the premium rate for the next policy term.

replacement. Any transaction in which an individual life insurance policy or annuity contract is to be purchased and the producer or insurer knows or should know that, as a result of the transaction, an existing life insurance policy or annuity contract will be terminated or reduced in value. See also external replacement and internal replacement.

replacement cost insurance. A type of homeowners’ insurance that pays the policyowner the full cost of replacing the lost or damaged property, subject to a maximum amount.

Replacement of Life Insurance and Annuities Model Regulation. In the United States, a National Association of Insurance Commissioners model regulation that applies to certain life insurance policies and annuity contracts that are being replaced and that is designed to ensure that insurers and producers follow certain procedures and provide consumers with fair and accurate information about policies and contracts so consumers can make replacement decisions that are in their own best interests.

representation. A statement made by a contracting party that will invalidate the contract if the statement is not substantially true and the statement induced the other party to enter into the contract. Contrast with warranty.

request for coverage. Under facultative and fac-ob reinsurance treaties, the document that a direct writer uses to request reinsurance coverage on a particular insured or group of insureds. Also known as a facultative application.

request for proposal (RFP). In group insurance, a document that provides detailed information about the requested coverage and requests a bid from the insurer for providing that coverage.

required rate of return. For a given investment, the sum of the risk-free rate of return and the risk premium. See also risk-free rate of return and risk premium.

required reserve. See contractual reserve.

rescission. The equitable remedy available to an insurer that discovers that it has issued a policy based on material misrepresentation in which the insurer voids the contract from the beginning and the parties are returned to the positions they would have occupied had no contract been created.

reserve credit. In the United States, an accounting entry used by a direct writer to record a reduction of reserves, due to the use of reinsurance, in its Annual Statement.

reserve destrengthening. For an insurance company, the act of decreasing a reserve liability amount, which results in an increase in the insurer’s capital or surplus. Contrast with reserve strengthening.

reserve listing. A reinsurance report that shows all policies reinsured and the reserve held for each policy.

reserve strengthening. For an insurance company, the act of increasing a reserve liability amount, which results in a decrease in the insurer’s capital or surplus. Contrast with reserve destrengthening.

reserve valuation. A formal actuarial process of establishing a value for an insurer’s reserves.

reserved capacity. The portion of a reinsurer’s capacity that the reinsurer sets aside to provide coverage of the risk under the anticipated new business.

reserves. For an insurer, liabilities that represent the amounts of money that the insurer expects to need to meet future business obligations. Although many different types of reserves exist, insurers typically use the term to refer to contractual reserves.

resident producer. In the United States, an insurance producer who resides or maintains her principal place of business within a particular state and is issued a resident license by the state licensing authority.

residential mortgage. A loan secured by a single-family home and usually having a term to maturity of either 15 or 30 years.

resisted claim. See disputed claim.

respite care. In long-term care (LTC) insurance, temporary care provided for an insured who has been receiving home health care so that the primary caregiver in the home can have a break from the day-to-day care of the insured.

restoration of benefits provision. A provision in a long-term care (LTC) insurance policy that allows an insured person who has used a portion of benefits available under the LTC policy to regain a full benefit period after a stated period of time has passed following the delivery of the long-term care.

restructured mortgages. Mortgage agreements that were at one time overdue and in danger of foreclosure, but which have been renegotiated as to interest rate, term to maturity, and principal due.

results-based reciprocity. In reinsurance, a type of reciprocal arrangement involving the exchange of blocks of reinsurance business representing approximately the same projected monetary amount of claims experience on the reinsured risks. See also reciprocal arrangement. Contrast with premium-based reciprocity.

retained asset account (RAA) option. A life insurance policy settlement option that allows an insurer to pay a life insurance policy’s proceeds into an interest-bearing account in the payee’s name; the payee can then withdraw all or part of the proceeds at any time. See also settlement options.

retained earnings. The profits that a company holds to reinvest in the company instead of paying the money out in dividends to its stockholders. Compare to surplus.

retention. See persistency.

retention limit. A specified maximum amount of insurance per life that an insurer is willing to carry at its own risk without transferring some of the risk to a reinsurer.

retention limit corridor. A monetary amount greater than the company’s retention limit that a direct writer is willing to retain to avoid ceding small amounts of coverage.

retention schedule. A table that presents all of an insurer’s retention limits, organized by applicable categories such as product, product line, issue age, and underwriting rating. Also known as a table of retention limits.

retro pool. See retrocession pool.

retrocession. (1) A transaction by which a reinsurer transfers excess risk to another reinsurer, known as the retrocessionaire. (2) The unit of insurance that a reinsurance company cedes to a retrocessionaire. (3) The document used to record the transfer of risk from a reinsurer to a retrocessionaire.

retrocession claim file. A file that contains all the information relevant to a claim, plus information about the retrocession on the case, to use when the reinsurer notifies its retrocessionaires of the claim.

retrocession pool. A group of two or more professional retrocessionaires or reinsurers that jointly reinsure retroceded risks. Also known as a retro pool.

retrocessionaire. A reinsurer that accepts risks from—and provides reinsurance to—another reinsurer.

retrospective rating arrangement. In group health insurance, a premium payment arrangement under which the insurer agrees to charge the group policyholder a lower monthly premium than it would normally charge based on the group’s prior claim experience and the policyholder agrees to pay an additional amount if, at the end of the policy year, the group’s claim experience has been unfavorable.

retrospective reserve valuation method. For insurance companies, a method of computing a value for a reserve liability by looking at a contract’s past cash flows—its past premiums and benefits. Contrast with prospective reserve valuation method.

return. Any gain or loss that results from taking a risk.

return of premium (ROP) term insurance. A form of term life insurance that provides a death benefit if the insured dies during the policy term and promises a return of all or a portion of the premiums paid for the policy if the insured does not die during the policy term.

return on revenue ratio. See net profit margin.

revenue. An amount that a company earns from its business operations. Contrast with expense.

reverse mortgage. An arrangement in which a homeowner, usually aged 62 or older, who continues to live in and own the home, borrows against the equity in his home and receives the borrowed amount in cash via one or a combination of payment options offered by the lender.

revocable beneficiary. A life insurance policy beneficiary whose designation as beneficiary can be cancelled or reduced by the policyowner at any time before the insured’s death. Contrast with irrevocable beneficiary.

revolving credit. See open-end credit.

RFP. See request for proposal.

RIA. Registered investment advisor. See independent financial advisor.

rider. See policy rider.

right of recommendation. In a reinsurance arrangement, the right of the reinsurer to review a claim and offer its opinion to the direct writer on whether to pay the claim.

right of revocation. The life insurance policyowner’s right to change the beneficiary designation.

RIRS. See Regulatory Information Retrieval System.

risk. The chance or possibility of an unexpected result, either a gain or a loss.

risk assessment. The process of ascertaining the degree of risk represented by each proposed insured person or group according to a range of criteria that the insurer established when it designed the insurance product.

risk class. In life insurance underwriting, a grouping of insureds that represent a similar level of risk to an insurance company. See also declined risk class, preferred risk class, standard risk class, and substandard risk class.

risk factor. For underwriting purposes, any medical, personal, or financial characteristic pertaining to the proposed insured that increases the likelihood that the person will suffer a covered loss. See also medical risk factor, personal risk factor, and financial risk factor.

risk management. The process by which individuals and businesses identify and assess the risks they face and take measures to eliminate or reduce their exposure to those risks.

risk premium. The compensation that investors require for taking on the risk associated with a specific investment. See also risk-free rate of return and required rate of return.

risk tolerance. The degree to which a person is willing to accept risk.

risk-based capital (RBC) requirements. In the United States, a set of capital requirements developed by the National Association of Insurance Commissioners to determine the minimum capital level of an insurer, based on the insurer’s size and risk profile, as identified by a specific risk-weighted formula for four classifications of risks, called C risks (contingency risks). See also C-1 risk (asset risk), C-2 risk (pricing risk), C-3 risk (interest-rate risk), and C-4 risk (general management risk).

risk-free rate of return. The return on a risk-free investment—that is the least risky investment opportunity available. See also required rate of return and risk premium.

risk-return tradeoff. The interplay between risk and return, according to which—in general—the greater the risk associated with an investment, the greater the expected return on the investment; and conversely—and in general, the lower the risk associated with an investment, the lower the expected return.

risk-taking capability. See underwriting capacity.

rolling budget. A type of budget that allows a company to continually maintain projections for a specified time period into the future. A company that uses a six-month rolling budget would update the budget at the end of each month so that budget projections always apply to the coming six-month period. Also known as a continuous budget. Contrast with period budget.

rollover. A tax-free movement of cash or other assets disbursed from one retirement plan into another retirement plan. These funds do not pass through the hands of the owner and thus do not incur any tax liability for the owner.

ROP term insurance. See return of premium term insurance.

Roth IRA. In the United States, a type of individual retirement arrangement that permits people within certain income limits to make nondeductible annual contributions and to withdraw money on a tax-free basis at retirement age. A Roth IRA can be either an individual retirement account or an individual retirement annuity. Contrast with traditional IRA.

routine checkup. In insurance underwriting, a visit to a physician that was not motivated by a symptom or health problem.

RPP. See registered pension plan.

RRSP. See registered retirement savings plan.

rules-based approach. An approach to reserve valuation in which a valuation actuary applies deterministic analysis and a required set of rules to determine the reserves. Contrast with principles-based approach.

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