Glossary

Insurance Terms & Acronyms

Capital Gains

	*Realized Capital Gains (losses)* result from changes in the value of capital assets, such as stocks and bonds, between the date they are purchased and the date they are sold. If an asset in not sold in a particular year, the owner does not realize a gain or loss on that asset in that year.
	Unrealized Capital Gaines (losses) are the appreciation (depreciation) in the value of unsold assets plus an offset for the capital gains (losses) realized on assets sold in the period.

Car Year - an automobile insured for a period of twelve months. A single policy providing coverage on three automobiles for a six-month term would be 1.5 car years.

Combined Ratio - a commonly used measure of underwriting profitability. It is the sum of three ratios:

	loss ratio - the ratio of incurred losses and loss adjustment expenses to earned premiums
	expense ratio - the ratio of underwriting expenses to written premiums
	dividend ratio - the ratio of policyholder dividends to earned premiums (*not applicable to MAIPF*)

The combined ratio measures the amount an insurer must pay to cover claims and expenses per dollar of premium income. Thus, a high combined ratio indicates poorer underwriting results than a low one. A combined ratio exceeding 100% indicates that claim costs and other expenses exceed premiums.

Exposure - the unit by which a company measures its hazard or the basic rating unit underlying an insurance premium. Example

	Written Exposure - those units of exposures on policies written during the period in question.
	Earned Exposures - the exposure units actually exposed to loss during the period.
	In-force Exposures - the exposure units exposed to loss at a given point in time.

Indemnify - compensation for loss. Restores an insured to the same financial position after the loss that he or she was in prior to the loss. But the insured should not be able to profit by damage or destruction of property, nor should the insured be in a worse financial position after a loss.

Losses

	Incurred losses - the total costs of indemnifying policyholders for insured claims, including both sums already paid and estimates of those yet to be paid.
	IBNR (Incurred But Not Reported) - insured loses that have occurred but have not been reported to the insurance company.
	Loss Adjustment Expenses (LAE) - additional expenses related to the claim settlement process, including the fees paid for defending insureds against third-party claims.

Premiums

	Written premiums are the amounts charged to policyholders for insurance coverage.
	Earned premiums are the portion of written premiums attributable to the coverage provided in a period.
	Ceded premiums are the amount of premiums that are transferred to a reinsurer; i.e., MCCA.

Underwriting Expenses - salaries, commissions, office rent, taxes (excluding federal and foreign income taxes and real estate taxes), guaranty fund assessments, fees paid to bureaus and associations, and other overhead expenses.

Underwriting Income

	the gain or loss from the basic business of insurance - indemnifying and servicing policyholders.
	the difference between earned premiums and the sum of incurred loss and loss adjustment expenses, other incurred underwriting expenses, and policyholder dividends.

To illustrate written, earned and in-force exposures, consider the four twelve-month, single-car automobile policies that follow. Note that the in-force exposure counts a full car year for each twelve-month policy in force as of 1/1/01, regardless of the length of the remaining term.

Effective	Written Exposure		Earned Exposure		In-Force Exposure
Date	2000	2001	2000	2001	1/1/01
1/1/00	1.00	0.00	1.00	0.00	0.00
4/1/00	1.00	0.00	0.75	0.25	1.00
7/1/00	1.00	0.00	0.50	0.50	1.00
10/1/00	1.00	0.00	0.25	0.75	1.00
Total	4.00	0.00	2.50	1.50	3.00

Acronyms

ACORD - Association for Cooperative Operations Research and Development, the insurance industry's nonprofit standards developer.

ACT - Anti-Car Theft Committee

AIPSO - Automobile Insurance Plans Services Office - our statistical agent - AIPSO is a not-for-profit organization that provides services necessary to administer automobile insurance plans (the involuntary market or residual market).

ASE - American Society of Employers

ATPA - Automobile Theft Prevention Authority

CATS - Commercial Auto Theft Section

CPCU (Chartered Property & Casualty Underwriter) - professional designation earned after the successful completion of 10 national examinations; e.g., insurance, risk management, economics, finance, management, accounting, and law.

E & O - Errors and Omissions Liability Insurance - coverage for negligent acts and/or omissions resulting in bodily injury, personal injury, and/or property damage liability to a client. For example, insurance agents are constantly exposed to the claim that inadequate or improper coverage was recommended, resulting in the client suffering a loss of indemnification. If sustained, the agent (or the carrier) would have to make good the claim of the client without the adequate insurance coverage.

HEAT - Help Eliminate Auto Thefts

IBNR - Incurred But Not Reported

IIAM - Insurance Information Association of Michigan

ISO - Insurance Services Office - provides voluntary market policy forms and services.

JUA - Joint Underwriting Association; e.g., MAIPF

LAE - Loss Adjustment Expenses

MAIA - Michigan Association of Insurance Agents

MACF - Michigan Assigned Claims Facility

MAIPF - Michigan Automobile Insurance Placement Facility

MAVTI - Michigan Association of Vehicle Theft Investigators

MCCA - Michigan Catastrophic Claims Association

MIC - Michigan Insurance Coalition (Industry/lobbying organization similar to MIF)

MIF - Michigan Insurance Federation

MP - Member Participation Report - distributed quarterly by AIPSO

NAIC - National Association of Insurance Commissioners

NICB - National Insurance Crime Bureau

OFIS - Office of Financial & Insurance Services - Insurance regulator for the state of Michigan. Prior to Facility use, OFIS must approve MAIPF rules and rates.

PIA aka MIPIA - Michigan Professional Insurance Agents ("competitor" to MAIA)

SIU - Special Investigative Unit