Insurance Glossary

Certificate of Authority

Industry

Definition

A license issued by a state insurance department that authorizes an insurance company to transact insurance business in that state. Also called a license to do business, the certificate of authority is granted after the insurer demonstrates it meets the state's financial, organizational, and regulatory requirements. The certificate specifies which lines of insurance the company is authorized to write. Insurers must maintain compliance with ongoing requirements including financial reporting, examinations, and solvency standards to keep their certificate of authority in force. Companies holding a certificate of authority in a state are considered 'admitted' carriers in that state and are subject to full state regulatory oversight.

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Related Terms

Admitted Company

An insurance company licensed to do business in a state, even if domiciled in an alternative state or country. Admitted companies hold a Certificate of Authority from the state insurance department, allowing them to write policies for risks located in that state. They must comply with all state regulations including rate and form filings, financial reporting, market conduct standards, and participation in the state guaranty fund. Admitted companies are subject to the state's regulatory oversight and examination authority. The term 'admitted' distinguishes these licensed carriers from 'non-admitted' or surplus lines insurers that are not licensed in the state but may write business under surplus lines laws.

Domiciliary State

The state in which an insurance company is incorporated or organized. The domiciliary state has primary regulatory authority over the insurer, including conducting financial examinations, approving corporate changes, and overseeing solvency. The domiciliary state insurance department serves as the lead regulator even when the company is licensed to do business in multiple states. If an insurer becomes insolvent, the domiciliary state's insurance commissioner typically serves as the receiver or liquidator. Insurers must comply with the insurance laws and regulations of their domiciliary state as well as any other states where they are licensed to write business (called 'foreign' states from the insurer's perspective).

Foreign Insurer

An insurance company that is licensed to do business in a state other than its domiciliary state. From the perspective of any given state, a 'foreign' insurer is one incorporated or organized in a different U.S. state. For example, a company domiciled in Connecticut writing business in New York would be considered a foreign insurer in New York. Foreign insurers must obtain a Certificate of Authority from each state where they wish to write business and comply with that state's regulatory requirements. This term is distinct from 'alien insurer,' which refers to companies formed in countries outside the United States. Most insurance companies operate as foreign insurers in multiple states beyond their domiciliary state.

Actuary

A business professional who analyzes probabilities of risk and risk management, including calculation of premiums, dividends, and other applicable insurance industry standards.

Underwriting

The process by which an insurer evaluates the risk of insuring a person or property and determines coverage terms and premium rates.

Loss Ratio

The ratio of losses paid plus loss reserves to premiums earned, used by insurers to measure underwriting profitability and pricing adequacy.

Combined Ratio

The sum of the loss ratio and expense ratio, measuring an insurer's overall underwriting profitability. A ratio below 100% indicates underwriting profit.

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