Bar Date

The date set under a scheme of arrangement by which all claims, whether current or contingent (reserved or IBNR), must be filed against an insurer. Any claim that arises after the bar date or which is first submitted after the bar date will not be accepted. Often no further information supporting claims or amending the amounts of claims submitted before the bar date will be accepted.

 Captive

A captive insurer is a limited purpose insurance company established by its parent with the primary objective of insuring accidental operating risk and liabilities of its parent company or group. The types of risk that a captive can underwrite for the parent include property damage, public and products liability, professional indemnity, employee benefits, employers liability, motor and medical aid expenses. The captive's exposure to such risks may be limited by the use of reinsurance and larger captives may also underwrite non-related business.

 Commutation

A commutation is a settlement of a claim, a group of claims or all claims current or contingent. The term is used more in a reinsurance context and often applies to all claims that two insurers have against each other.

 Cut-off scheme

used to finalize a run-off scheme or for closure of solvent insurers this allows the insurer to impose a bar date by which all creditor claims, current or contingent, must be filed. Failure to file a claim before the bar date means loss of any possibility of recovery under the contracts affected. There will be mechanisms set out in the scheme for estimating contingent or IBNR claims and for "adjudication" of claims if the creditor and insurer cannot agree on value.

 IBNR

The Incurred But Not Reported (IBNR) reserve represents the amount that must be provided for future payments on insured losses that have occurred but that have not been reported to the insurer. In classes of business with long-tail liabilities (e.g. asbestos, environmental), this often includes claims of which the insured is also unaware.

 London Market

The London insurance market is a collective term for the insurance companies, including Lloyd's of London, which issue policies out of London. It is a subscription market whereby a number of insurers may well participate in smaller individual shares on each policy. Each insurer's participation on that policy is a separate contract of insurance.

 Long-tail Liabilities

Asbestos, pollution and heath hazard claims are prime examples of liabilities incurred by policyholders that become known long after the alleged exposure or damage happened. Fortunately, most pre 1986 "occurrence" form liability insurance policies continue to provide coverage for "long tail" claims despite their long latency.

 Policy buy-back

This term refers to a settlement of all claims a policyholder has against their insurer, whether current or contingent. It tends to refer to direct insureds, rather than reinsurance claims. It originates from a concept that the insurer "buys back" the policy to ensure that there is no possibility of any further claims under the policy.

 Run-Off

When an insurer ceases writing new business it is considered to be in run-off. It may be solvent or insolvent and depending on the type of business written by the insurer it may be in run-off for 20 or more years to deal with long-tail liabilities. It will continue in run-off until all liabilities have been crystallized; this is either by the passing of time or by the imposition of a scheme of arrangement to accelerate closure.

 Run-off scheme

principally used for insolvent insurance companies it allows the insurer to pay "cents on the dollar" on all claims agreed. As greater certainty occurs over the life of the run-off scheme on ultimate liabilities, increases are made in the payment to creditors by way of an increase in the payment percentage.

 Scheme of Arrangement

A scheme of arrangement is a procedure enabling a compromise or Arrangement between a company and its creditors or any class of them, subject to ratification by the Court. Subject to at least 50% by number and 75% by value of the creditors voting in favor of the scheme, it allows a company (insurance or otherwise) to bind all creditors. There are various types of scheme of arrangement, the main ones being:

 Solvent Scheme of Arrangement

A solvent scheme of arrangement will be a cut-off scheme as described above. There is no difference in procedure whether the insurer is solvent or insolvent; the only difference is that claims agreed by a solvent insurer under the scheme will be paid in full.

 Structured Settlement

A structured settlement is one where the policyholder agrees to receive the consideration for a court judgment or mediated or negotiated insurance settlement in installments over a pre-defined period of time rather than all at once.