A detailed glossary of insurance and risk management terms from Lockton—built to help leaders interpret market trends and strengthen strategic decision‑making.

Attachment point: The point at which excess coverage or reinsurance will begin to respond. Once losses exceed the attachment point, excess insurance or reinsurance policies pay claims up to their stated limits.

Bifurcated trial: A type of trial that is split into two phases in order to address two distinct matters stemming from the same case. In a civil context, bifurcated trials are often used to determine responsibility in the first phase and damages in the second.

Capacity: In P&C insurance, capacity refers to the maximum amount of risk an insurer, reinsurer, or the overall market is willing or able to underwrite. Capacity is determined by capital levels, risk appetite, pricing adequacy, and regulatory constraints. It can apply to policy limits, total exposure, or the number of policies written within an individual line or geographic location.

Catastrophe aggregation: The process by which insurers evaluate how losses from a single catastrophic event, such as a hurricane or earthquake, could accumulate across multiple policies, lines of business, or regions. Aggregation analysis is essential for capital management and reinsurance purchasing.

Cedant: A primary insurer that transfers, or cedes, a portion of the risks it has underwritten to a reinsurer in exchange for premium. The reinsurer assumes responsibility for covered losses above the cedant’s retention, according to the reinsurance contract.

Ceding commission: A fee that a reinsurer pays to a primary insurer (cedant) to cover certain expenses associated with underwriting policy acquisition and administration.

Combined ratio: A key measure of underwriting profitability for P&C insurers and reinsurers. It is calculated by dividing the sum of incurred losses and expenses by earned premiums. Any number below 100 (or 100% when expressed as a percentage) indicates an underwriting profit; any number above 100 indicates an insurer or the market is paying out more in claims and expenses than it makes in premiums. Combined ratios can be calculated on an accident year or calendar year basis.

Correlated loss accumulation: The concentration of losses across multiple lines or policies resulting from a single event or closely related events — for example, natural catastrophes or systemic liability trends. Correlation increases the risk of large aggregate losses.

Layered program: An insurance structure in which coverage is built in layers above a primary policy. Each layer may be provided by a different insurer and attaches at progressively higher loss levels, creating a comprehensive tower of coverage.

Managing general agent (MGA): An insurance intermediary granted authority by an insurer to perform specific functions, such as underwriting, binding of coverage, policy issuance, and sometimes claims handling. MGAs typically specialize in particular lines, industries, or geographic markets and operate under delegated authority.

Managing general underwriter (MGU): An insurance intermediary granted authority by an insurer to perform specific functions such as risk selection, underwriting, and binding, MGUs typically do not handle claims or broader administrative functions.

Per-risk excess of loss treaty: An agreement where an insurer covers losses arising from a single insured risk that exceeds the insured’s retention, up to a specified limit. Coverage applies separately to each loss versus aggregate losses.

Retrocesion: A reinsurance transaction in which a reinsurer transfers a portion of its own assumed risk to another reinsurer (a retrocessionaire). Retrocession is used to manage capital, reduce volatility, and limit accumulation risk.

Severe convective storms: Strong, local thunderstorms that can cause casualties and property damage from heavy rain, lightning, hail, straight-line winds, and tornadoes. Convective storms occur when warm, moist air rises higher into the atmosphere and then cools rapidly to generate powerful storms.

Sidecar: A special purpose reinsurance vehicle that allows third‑party investors — often hedge funds or private equity firms — to participate in a defined portfolio of insurance or reinsurance risk. Sidecars provide insurers and reinsurers with additional capacity, typically on a fully collateralized basis.

Side A difference-in-conditions (DIC) coverage: A gap-filling policy that provides protection for individual directors and officers. Side A DIC policies are designed to respond when a traditional D&O tower does not cover a loss or is unavailable, providing broader terms than underlying D&O programs and dropping down to pay when underlying insurers do not respond due to exclusions, rescission, insolvency, or failure to pay.

Social inflation: The increase in insurance claim costs beyond general economic inflation, driven by changes in societal attitudes, legal environments, and litigation behavior. Contributing factors include expanded theories of liability, higher jury awards, broader interpretations of coverage, and increased plaintiff attorney activity. Social inflation is most prominent in U.S. casualty lines, including auto liability and general liability, and some management liability coverages.

Tower: A layered insurance program composed of a primary policy and multiple excess layers stacked vertically. Each layer provides coverage above the previous one, up to the total combined limit purchased by the insured.

Treaty renewals: The periodic renegotiation and renewal of treaty reinsurance contracts between insurers and reinsurers. Renewals commonly occur on set dates — most notably, January 1 and midyear on July 1 — and involve adjustments to pricing, terms, capacity, and structure based on loss experience and market conditions.