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

Aggregate covers. Insurance or reinsurance coverage subject to a total limit for all covered losses during a policy period, whether arising from one claim or multiple claims.

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.

Business email compromise. A form of social engineering fraud in which cybercriminals use compromised, spoofed, or deceptive emails that appear to come from a trusted executive, employee, vendor, or business partner to induce an improper funds transfer or disclosure of sensitive information.

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.

Delegated authority. Authority granted by an insurer to a third party to perform specified insurance functions, such as underwriting, binding coverage, issuing policies, collecting premiums, or handling claims, subject to defined limits and oversight.

Delegated platforms. Insurance platforms in which an insurer gives a third party, such as an MGA, MGU, program administrator, or coverholder, authority to underwrite, bind, issue, or administer policies within agreed guidelines.

Fronting arrangements. An arrangement in which a licensed insurer issues a policy on behalf of a captive, reinsurer, or self-insured program, often retaining little or no ultimate risk. Captives, which are insurance companies owned and controlled by insureds for their own risks, may use a fronting carrier to satisfy licensing, admitted paper, regulatory, or contractual requirements.

Guaranteed cost workers’ compensation. A type of workers’ compensation program in which insureds pay a fixed premium and the insurer assumes responsibility for covered claims, subject to policy terms.

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.

Lead umbrella. A lead umbrella policy is the first umbrella policy in a multilayer excess program that sits directly over the primary policies.

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.

Medical inflation. The rate at which healthcare costs increase over time, including medical services, hospital care, prescriptions, and medical devices, among other things. Higher medical inflation can affect loss reserves, loss trends and pricing.

Net written premium. Gross written premium less premiums ceded to reinsurers and returns and cancellations. It represents the premium retained by an insurer.

Per- and polyfluoroalkyl substances (PFAS). A group of synthetic chemicals developed for use in several household items, such as nonstick pans and food packaging. Often referred to as “forever chemicals” because of their difficulty breaking down at the molecular level, PFAS are thought to contribute to a range of harmful health effects when they accumulate in the body over time.

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.

Quota share structures. An arrangement where insurers and reinsurers share premiums and losses at a fixed percentage for a particular policy, portfolio or book of business.

Reserve. Money set aside to pay future obligations. In P&C insurance, reserves most commonly refers to amounts established for reported claims, claims that have been incurred but not yet reported, and related claim expenses.

Reserve redundancy. When carriers hold more reserves than are ultimately necessary to pay claims and related expenses.

Return on capital employed (ROCE). Measures how efficiently a company generates operating profit from the capital it uses. RCOE is expressed as a ratio and is typically calculated by dividing operating income by capital employed.

Retrocession. 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.

Side A D&O. A form of directors and officers (D&O) insurance designed to cover claims against individual directors and officers when the company cannot or will not indemnify them.

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.

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.

Social engineering fraud. When cybercriminals exploit human vulnerabilities, like trust and familiarity with routine activities, to trick employees into transferring funds, surrendering credentials, or disclosing sensitive information. SEF is a significant vector in cybersecurity incidents and related losses.

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.

Stand-alone placements. Insurance policies placed separately from a broader program or package, often to address a specific coverage need, exposure, or market requirement.

Sublimits. A coverage limit for a specific type of loss under a broader insurance policy. Sublimits are typically part of, not in addition to, the overall policy limit and provide a lower available limit for the specified exposure.

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.