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Insurance Glossary

Year of Account

Industry

Definition

The calendar year in which an insurance policy is written at Lloyd's of London. All premiums and claims from policies incepting in a specific year are allocated to that year of account, regardless of when claims are paid. Years of account run for a minimum of 36 months before being closed through a process called Reinsurance to Close (RITC), which transfers all remaining liabilities to a subsequent year of account. This accounting method allows Lloyd's syndicates to assess the profitability of each underwriting year separately and provides a mechanism for managing long-tail liabilities. The year of account system is unique to Lloyd's and differs from standard annual accounting used by traditional insurance companies.

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Related Terms

Syndicate
A Lloyd's syndicate is formed by one or more members joining together to accept insurance risks at Lloyd's of London. Each syndicate sets its own appetite for risk, develops a business plan, arranges reinsurance protection, and manages exposures and claims. A syndicate is not a legal entity and is formed for a single calendar year called a year of account. At the end of the year, it may reform with identical or similar membership. Syndicates are managed by Managing Agents who employ underwriters and oversee day-to-day operations. Each syndicate is identified by a unique number and operates independently within the Lloyd's marketplace.
Lloyd's of London
The world's specialist insurance and reinsurance marketplace, established in London in the 17th century. Lloyd's is not itself an insurance company but rather a marketplace where members join together in syndicates to underwrite insurance risks. The market separates capital provision (members) from underwriting expertise (managing agents). Lloyd's operates through a unique three-tier capital structure called the Chain of Security, which backs all policies written through the market. The Corporation of Lloyd's provides infrastructure and regulatory oversight, while syndicates conduct the actual underwriting. Lloyd's is known for insuring unique, complex, and high-value risks that may be difficult to place in standard markets.
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.