S

Sales Tax Surety Bond. A surety bond that guarantees that sales taxes collected by the principal will be paid to a state or local government.

Salvage. The process by which an insurer, after payment of a claim, takes over property to reduce its losses. For example, a surety may take over the property of a principal to reduce its exposure on a surety bond claim.

Savings Bank Life Insurance (SBLI). Life insurance sold over-the-counter by mutual savings banks in certain states.

Second Injury Funds. A program supported by assessments from workers' compensation insurers to provide benefits for employee injury and death.

Section 1115 Medicaid Waiver. Refers to a section of the Social Security Act that gives states wide latitude to test new approaches to serving their needy populations. Section 1115 or "research and demonstration" waivers enable states to set up trial programs that use managed care savings to expand program eligibility beyond the usual federally authorized groups.

Section 1915(b) Medicaid Waiver. Refers to a section of the Social Security Act that provides for the waiver of certain program requirements. These so-called 1915(b) or "programmatic" waivers have a number of provisions that promote the enrollment of Medicaid beneficiaries in managed care plans.

Securities Valuation Office (SVO). A unit of the National Association of Insurance Commissioners that accepts ratings of financial instruments from the public rating agencies, assigns ratings to financial instruments not rated by the public rating agencies and publishes the results to insurers.

Self-Insurance. The retention of risk by a person or business. This usually includes setting up a fund against which claim payments are drawn. Claims processing often is handled through an administrative services contract with an independent organization. Another method of self-insurance is the organization of a captive insurer. See Captive Insurer.

Self-Insured Retention (SIR). See Deductible.

Semiautomatic Treaty. A reinsurance treaty that allows for individual risk selection by the reinsurer, based on certain underwriting criteria.

Separate Account. An investment account maintained by an insurer to which funds have been allocated. A separate account is maintained independently from an insurer's general account and other separate accounts.

Separate Account GIC. A GIC in which the assets are owned by the insurer, but are segregated from the General Account.

SEPP. See Simplified Employee Pension Plan.

Settlement Options. The term refers to the alternatives available to a policyholder or beneficiary concerning the payment of benefits.

Severity. The magnitude of losses occurring within a given time period. Thus, an insurer is said to have a "severity problem" if its operating results are adversely affected by a small number of relatively severe losses. This in contrast to a "frequency problem."

SFAS 115. Statement of Financial Accounting Standard requiring that, under Generally Accepted Accounting Principles (GAAP), about 80% of insurer bond holdings be valued at current rates instead of amortized cost.

"Short-Tail" Business. A class of business in which claims are reported and settled in a relatively short period of time.

Simplified Employee Pension Plan (SEPP). An employer-sponsored individual retirement account pursuant to which an employer may make a maximum annual tax-deductible contribution equal to 15% of the employee's compensation or $30,000, whichever is lower.

Single-Premium Deferred Annuity (SPDA). An annuity that requires a one-time lump sum premium payment upon issuance of the contract. SPDAs generally are back-end loaded with surrender charges beginning at 7% to 10% and scaling down over seven to ten years. The long surrender periods for SPDAs typically produce longer durations than the primary noninsurance competition, CDs and money market accounts. Because of this, insurance companies can offer yields based on investments farther out on the yield curve. Consequently, steep yield curve environments are favorable to annuity sales. The flatter the yield curve, the greater the competition from banks and money markets. Due to the heavy competition in the SPDA market, margins tend to be fairly narrow - depending on the company, margins can range from 50 to 150 basis points. In an attempt to increase margins, some annuity writers will intentionally mismatch assets and liabilities in a steep yield curve environment by investing long. The danger of this strategy manifests itself if the yield curve shifts up and flattens. Competition from noninsurance products increases and surrenders rise. If forced to liquidate assets to meet surrender demands, an insurer might generate large capital losses.

Skilled Nursing Facility (SNF). A licensed institution, as defined by Medicare, that is engaged primarily in the provision of skilled nursing care.

Sliding Scale. A method of calculating commission based upon the loss ratio or experience of the business being placed. The lower the loss ratio, the higher the commission payable.

Slip. A document in which a broker sets forth the details of a risk proposed for insurance.

Small Business Administration (SBA) Surety Bond. A contract performance bond for which the Small Business Administration has issued a guaranty to the insurer covering up to 90% of the insurer's losses in exchange for a portion of the premium. See Contract Performance Bond.

Social Security Act. Federal legislation enacted in 1935 that created a variety of publicly funded insurance and health benefits.

Society of Lloyd's. An informal term commonly used in Lloyd's of London to encompass all Names.

Soft Insurance Market. The period of the property-casualty insurance market cycle that is characterized by excessive capital and competition, causing decreased prices and increased availability of coverage. 1997 was the tenth year of a soft insurance market within the United States.

South-Eastern Underwriters. United States v. South-Eastern Underwriters Association, 322 U.S. 533 (1944). A case decided by the United States Supreme Court that held that (1) insurance is commerce and subject to federal regulation of interstate commerce and (2) the conduct of insurers is subject to federal antitrust laws.

Sovereign Immunity. A legal doctrine that precludes a person from making a claim against the government (based on the principle that "the king can do no wrong.")

SPDA. See Single-Premium Deferred Annuity.

Special Acceptance. The agreement by a reinsurer to assume certain risks not automatically covered by an existing treaty.

Special Damages. Damages that do not arise directly from a loss, but are incurred as an indirect consequence.

Special Multi-Peril (SMP) Insurance. A package policy for businesses that combines various coverages within a single policy.

Special Risk. An unusual or large risk not covered by a regular insurance policy.

Spiral. See LMX Spiral.

Spread. The difference between what the company earns on assets and what it credits to policyholders.

Split Dollar Life Insurance. A form of whole life insurance in which two persons, usually an employer and employee, share in the payment of premiums.

SSI. See Supplemental Security Income.

Stable Value Fund. Also known as guaranteed funds, interest income funds and fixed yield funds, the stable value fund is an investment option offered to defined contribution plan participants that offers protection of principal, a guarantee that the participant's full account will not decline in value and liquidity without a penalty.

Stacking. The accumulation of limits of liability under one or more insurance policies with one insurer, all relating to a single matter.

Staff Model HMO. A health care model that employs physicians to provide health care to its members. All premiums and other revenues accrue to the HMO, which compensates physicians by salary and incentive programs. Generally, all ambulatory health services are provided under one roof.

Stamp. A document that sets forth the share of a particular risk taken by each underwriting syndicate at Lloyd's. Underwriting capacity of a syndicate may be referred to as "stamp size."

Statutory Accounting Practices (STAT or SAP). The recording of transactions and preparation of financial statements in accordance with the rules and regulations prescribed or permitted by state regulatory authorities. Statutory accounting practices generally reflect the underlying accounting assumption of liquidating rather than remaining a going concern. For a discussion of the differences between statutory and GAAP accounting, see Chapter 11.

Statutory Admitted Assets. See Admitted Assets.

Statutory Surplus. The excess of an insurer's admitted assets over admitted liabilities as shown on an insurer's financial statements prepared in accordance with statutory accounting practices.

Stop-Loss Reinsurance. A form of reinsurance that protects the ceding insurer against an aggregate amount of claims over a period, in excess of either a stated amount or a specified percentage of estimated benefit costs.

"Stress and Strain" Claims. Workers' compensation claims relating to injuries or illnesses arising out of psychological pressures in the workplace. Stress and strain claims recently have emerged as a particularly troubling category of claims in California.

Straight Life Insurance. Ordinary life insurance.

Strict Liability. The imposition of liability without a proof of fault.

Structured Settlement. A method of settling claims in which periodic payments are made to a claimant in lieu of a lump sum payment. Usually, an annuity contract is the device used to fund the periodic payments.

Subrogation. The process by which an insurer, after payment of a claim, is able to substitute itself for the insured and assert the rights of an insured against a third party. For example, a surety may be subrogated to the rights of an obligee of a surety bond or an automobile insurer may be subrogated to the rights of the insured against a negligent third party.

Substandard Automobile Insurer. See Nonstandard Automobile Insurer.

Suicide Clause. A provision in a life insurance policy stating that an insurer will not pay a claim under a policy if the insured commits suicide within two years after the policy is issued. In such circumstances, the premium is returned.

Superfund. See Comprehensive Environmental Response, Compensation, and Liability Act of 1980.

Supersedeas Bond. A form of appeal bond. See Appeal Bond.

Supplemental Security Income (SSI). A federal cash assistance entitlement program for certain aged and disabled individuals; states are required to cover its beneficiaries under Medicaid.

Surety. An insurer or other party that issues a surety bond.

Surety Bond. An instrument that guarantees the performance of certain obligations, as well as payments to third parties.

Surplus Debenture. A debt instrument issued by an insurer for which the obligation to repay principal is conditioned upon the maintenance of the insurer's statutory surplus above a stated level. Generally, such an instrument qualifies as regulatory capital.

Surplus Lines. See Excess and Surplus Lines Insurance.

Surplus Relief Reinsurance. A form of reinsurance that increases the ceding insurer's statutory surplus.

Surplus Strain. The amount of free surplus used when premiums are insufficient to cover expenses and the policyholder liability that must be set up at policy issuance.

Surrender. The withdrawal of the cash value of a life insurance policy.

Surrender Charge. The fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value.

SVO. See Securities Valuation Office.

Syndicate. An underwriting pool. At Lloyd's, the group of underwriters - headed by an "active underwriter" and backed by the capital of Names signed onto the syndicate - that enters into insurance contracts under authority delegated by the individuals providing the capital.

Synthetic GIC. A fund constructed to perform similarly to GICs, consisting of bonds that are owned by the plan sponsor/participants, who bear the credit/default risk. A third-party guarantor, usually an insurer, provides a guarantee for the plan sponsor and participants against interest rate (market) risk.