LAYER – A horizontal segment of the liability insured, e.g., the second $100,000 of a $500,000 liability is the first layer if the cedant retains $100,000 but a higher layer if it retains a lesser amount.
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LEAD REINSURER – The reinsurer who negotiates the terms, conditions, and premium rates and first signs on to the slip; reinsurers who subsequently sign on to the slip under those terms and conditions are considered following reinsurers.
LETTER OF CREDIT (LOC) – A financial promise issued by a bank that ensures funds will be available if requested. For captives, LOC’s (a) can be used in place of or in addition to cash or other capital, and (b) to securitize the fronting insurer’s reinsurance created by the captive.
LIMITED LOSSES – Losses with claim sizes of specific occurrences limited to a particular value or dollar amount.
LOSS ADJUSTMENT EXPENSE (LAE) – Means all expenditures of an insurer associated with the adjustment, recording and settlement of claims other than the indemnity itself. There are two types of LAE. Allocated Loss Adjustment Expense (ALAE) is identified by the claim file in the insurers record, such as attorney’s fees. Unallocated Loss Adjustment Expense (ULAE) is the fixed cost an insurer bears to be able to process claims regardless of the individual claims.
LOSS DEVELOPMENT – The difference between the original loss as originally reported to the reinsurer and its subsequent evaluation at a later date or at the time of its final disposal. A serious problem to reinsurers who, being involved in the more serious cases, must frequently wait many years for the final disposition of a loss.
LOSS EVENT – The total losses to the ceding company or to the reinsurer resulting from a single cause.
LOSS PORTFOLIO TRANSFER – The transfer of incurred losses to a third party. The assuming party hopes to profit by investing the sale price it has received over the length of time it requires to settle the claims it has assumed.
LOSS RATIO – Proportionate relationship of incurred losses to earned premiums expressed as a percentage.
