Insurance Handbook - Alaska Department of Community and ...

agencies as Standard & Poor’s and Moody’s
Investors Service.
BOOK OF BUSINESS
Total amount of insurance on an insurer’s
books at a particular point in time.
BROKER
An intermediary between a customer and
an insurance company. Brokers typically
search the market for coverage appropriate
to their clients. They work on commission
and usually sell commercial, not personal,
insurance. In life insurance, agents must
be licensed as securities brokers/dealers to
sell variable annuities, which are similar to
stock market-based investments.
BURGLARY AND THEFT INSURANCE
Insurance for the loss of property due to
burglary, robbery or larceny. It is provided
in a standard homeowners policy and in a
business multiple peril policy.
BUSINESS INCOME INSURANCE
Commercial coverage that reimburses a
business owner for lost profits and continuing
fixed expenses during the time that a
business must stay closed while the premises
are being restored because of physical
damage from a covered peril, such as a
fire. Business income insurance also may
cover financial losses that may occur if civil
authorities limit access to an area after a
disaster and their actions prevent customers
from reaching the business premises.
Depending on the policy, civil authorities
coverage may start after a waiting period
and last for two or more weeks. Also known
as business interruption insurance.
BUSINESSOWNERS POLICY/BOP
A policy that combines property, liability
and business interruption coverages for
small- to medium-sized businesses. Coverage
is generally cheaper than if purchased
through separate insurance policies.
C
Glossary
C-SHARE VARIABLE ANNUITIES
A form of variable annuity contract where
the contract holder pays no sales fee up
front or surrender charges. Owners can
claim full liquidity at any time.
CAPACITY
The supply of insurance available to meet
demand. Capacity depends on the industry’s
financial ability to accept risk. For an
individual insurer, the maximum amount
of risk it can underwrite based on its financial
condition. The adequacy of an insurer’s
capital relative to its exposure to loss is an
important measure of solvency. A property/
casualty insurer must maintain a certain
level of capital and policyholder surplus to
underwrite risks. This capital is known as
capacity. When the industry is hit by high
losses, such as after the World Trade Center
terrorist attack, capacity is diminished. It
can be restored by increases in net income,
favorable investment returns, reinsuring
more risk and or raising additional capital.
When there is excess capacity, usually
because of a high return on investments,
premiums tend to decline as insurers compete
for market share. As premiums decline,
underwriting losses are likely to grow,
reducing capacity and causing insurers
to raise rates and tighten conditions and
limits in an effort to increase profitability.
Policyholder surplus is sometimes used as a
measure of capacity.
CAPITAL
Shareholder’s equity (for publicly traded insurance
companies) and retained earnings
(for mutual insurance companies). There
is no general measure of capital adequacy
for property/casualty insurers. Capital
adequacy is linked to the riskiness of an
insurer’s business. A company underwriting
medical device manufacturers needs a
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