What is Reinsurance?Reinsurance is insurance for insurance companies. Many insurers around the world purchase reinsurance to reduce their exposure to the risks they have underwritten in order to provide better protection to their clients. While the concept may be simple, like most industries, reinsurance has a terminology that can be difficult to interpret for those who do not use it on a daily basis.At PartnerRe, we thought a glossary of reinsurance terms might help de-mystify the business and its language.Acquisition CostsExpenses incurred by the insurer or the reinsurer in assessing business, including producer commissions and brokerage. Adjustable RateA percentage rate applied to a cedents sums insured or premium income which is used to determine the final premium payable.Aggregate DeductibleA loss limit which is retained by the cedent and is gradually eroded by frequency of loss activity.Aggregate LimitThe maximum sum of recoveries payable under a reinsurance agreement.Alternative Risk Transfer (ART)Non-traditional methods of insurance or reinsurance, for example, securitization.AssumeThe term used for accepting a risk; the opposite of cede.Attachment BasisA provision that determines whether, and in what manner, a reinsurance agreement covers a specific loss.Attachment PointIn excess of loss reinsurance, the loss level at which reinsurers begin to pay.BalanceA reference point used to measure premium volume against the maximum exposure for a reinsurance agreement.BankThe sum of the total premiums paid to reinsurers over a multi-year period, less any losses paid by reinsurers on a layer. For example, payments of $10,000 premiums over five loss-free years would be called a $50,000 bank.Broker MarketWhen business is written through reinsurance intermediaries (brokers), it is referred to as business obtained in the Broker Market.Broker of RecordThe appointed broker for a contractual reinsurance agreement.Burning Cost RatioA tool used in determining rates for excess of loss reinsurance. Also called the pure loss cost, it is the ratio of historical incurred losses (usually excluding IBNR and indexed to portfolio growth) of a reinsurance agreement to the subject premium.CapacityThe maximum dollar amount of exposure that an insurer or reinsurer can underwrite. Capacity may be used when referring to a single risk, a program, a line of business or an entire book of business.CaptiveAn insurance or reinsurance company, formed by a large, often multi-national corporation, which insures or reinsures the risks of its parent corporation. Most captives are located in tax-advantaged locations. Bermuda is the leading domicile for captives followed by Cayman, Vermont and Guernsey.Casualty ReinsuranceLiability or third party business.CatastropheHigh severity events such as hurricanes, earthquakes and other disasters, involving multiple insureds and/or locations. Catastrophe reinsurance indemnifies the insurer for portions of such losses.CedentAn insurance company which contractually transfers (cedes) a portion of risk to a reinsurer. The term can also refer to a reinsurer which transfers (cedes) a portion of its portfolio to a retrocessionnaire.Ceding CommissionThe costs incurred by the cedent in negotiating a reinsurance contract including overhead expenses, taxes, licenses and fees, plus a fee representing a share of expected profits, sometimes expressed as a percentage of the gross reinsurance premium.Clash CoverA form of reinsurance protecting a cedents exposure to multiple retentions and a larger single loss than intended due to losses incurred by two or more insureds for the same event, or clash.CoinsuranceThe part of the reinsurance cover that the insurance company retains and does not reinsure.Combined RatioThe sum of the loss ratio and the expense ratio. The combined ratio is used in both reinsurance and insurance to indicate whether the company is making a profit on its underwriting operations. A combined ratio below 100% is representative of a profitable underwriting portfolio.CommutationThe conclusion of all obligations between the parties to a reinsurance agreement, often completed with a lump sum cash settlement.Cover NoteThe document or receipt issued by the intermediary to the cedent confirming terms and conditions and the percentage share placed with each reinsurer.Direct MarketWhen reinsurance business is written directly by a reinsurer, rather than through a third party or broker, it is referred to as business obtained in the Direct Market.Direct Written PremiumAn insurers premium income before taking outward reinsurance into account.Earned PremiumThe portion of a reinsurers premium income which has been allocated to the current accounting period.Estimated Maximum Loss (EML)An underwriters or insurers assessment of the worst possible loss scenario that might be experienced by an indi