Insurance Glossary

RATE

The cost of a unit of insurance, typically expressed per $1,000 of coverage. Rates are based on historical loss experience for similar risks and may be regulated by state insurance departments.

RATE REGULATION

The process by which states oversee insurance rate changes, using systems such as prior approval or open competition to ensure rates are fair and adequate.

RATING AGENCIES

Organizations that evaluate insurers’ financial strength and ability to meet claim obligations. Major agencies include A.M. Best, Fitch, Moody’s Investors Service, Standard & Poor’s, Duff & Phelps, and Weiss Ratings.

RATING BUREAU

An organization that collects pooled industry data and provides statistical information to help insurers develop rates, particularly for companies lacking sufficient loss experience of their own.

REAL ESTATE INVESTMENTS

Investments commonly held by life insurers, including commercial mortgage loans and owned real property.

RECEIVABLES

Amounts owed to a business for goods delivered or services rendered.

REDLINING

The illegal practice of refusing to issue insurance based solely on geographic location rather than actual risk characteristics.

REINSURANCE

Insurance purchased by insurers to transfer a portion of their risk to another company. Reinsurance increases an insurer’s capacity to write policies and stabilizes financial results.

RENTERS INSURANCE

Insurance that covers a renter’s personal property against perils such as fire, theft, and vandalism, and provides liability protection and loss-of-use coverage for temporary living expenses.

REPLACEMENT COST

A valuation method that pays the cost to replace damaged property without deducting for depreciation, subject to policy limits.

REPURCHASE AGREEMENT (REPO)

A short-term financial agreement in which securities are sold with a commitment to repurchase them later at a predetermined price. Used by the Federal Reserve to manage the money supply.

RESERVES

Funds set aside by an insurer as its best estimate of future claim payments.

RESIDUAL MARKET

State-sponsored insurance facilities that provide coverage to individuals or businesses unable to obtain insurance in the voluntary market.

RETENTION

The portion of risk an insurer keeps for its own account rather than transferring to a reinsurer.

RETROCESSION

Reinsurance purchased by reinsurers to spread risk and protect their financial stability.

RETROSPECTIVE RATING

A premium adjustment method for large commercial accounts in which final premiums are based on actual loss experience within agreed minimum and maximum limits.

RETURN ON EQUITY

A profitability measure calculated by dividing net income by total equity, indicating how efficiently an insurer uses its capital.

RIDER

An attachment to an insurance policy that modifies coverage, terms, or conditions.

RISK

The possibility of loss or the person, property, or entity exposed to loss.

RISK MANAGEMENT

The process of identifying, evaluating, and controlling risks through safety measures, insurance, and self-insurance strategies.

RISK RETENTION GROUPS

Liability insurance companies formed by businesses with similar exposures to self-insure under a structure licensed in at least one state.

RISK-BASED CAPITAL

A regulatory framework requiring insurers to maintain capital levels proportionate to the riskiness of the insurance they underwrite.