A301 P4 Flashcards
Accrued benefits
The benefits for service up to a given point in time,
… whether vested rights or not.
They may be calculated in relation to current earnings or projected earnings.
Accumulation of risk
Occurs when a portfolio of business contains
… a CONCENTRATION OF RISKS
that might give rise to EXCEPTIONALLY LARGE LOSSES
… from a single event.
Such an accumulation might occur by
- location or
- occupation.
Acquisition costs
Costs arising from the writing of insurance contracts including:
DIRECT COSTS, such as
- – acquisition commission or
- – the cost of drawing up the insurance document or
- – including the insurance contract in the portfolio.
INDIRECT COSTS, such as
- – advertising costs or
- – the actuary’s/underwriter’s expenses connected with the establishment of the premium rating table.
All risks
A term used where the cover is not restricted to specific perils such as fire, storm, flood etc.
The cover is for - loss, - destruction or - damage by ANY PERIL not specifically excluded.
The exclusions will often be inevitabilities such as wear and tear.
The term is sometimes loosely used to describe a policy that covers a number of specified risks, though not all.
Anti-selection
People will be more likely to take out contracts when they believe their risk is higher than the insurance company has allowed for in its premiums. This is known as anti-selection.
Anti-selection can also arise where existing policyholders have the opportunity of exercising a guarantee or an option. Those who have most to gain from the guarantee or option will be the most likely to exercise it.
Arbitrage
The simultaneous buying and selling
… of 2 ECONOMICALLY EQUIVALENT
… but DIFFERENTLY PRICED portfolios
so as to make a RISK-FREE PROFIT.
Bear market
A period of time during which investors are generally not confident and stock market prices decline.
Benchmark
A standard or model portfolio against which a fund’s structure and performance will be assessed.
Best estimate
An actuarial assumption which the actuary believes has
an equal probability
of under- or overstating future experience.
bid price
The price at which a market maker offers to BUY a security.
The price at which the manager of a unitised financial product is prepared to buy back units from an investor.
Break-up basis
A valuation basis that assumes that
- the writing of new business ceases and
- cover on current policies is terminated.
In relation to general insurance policies, current policyholders would normally be entitled to a proportionate return of the original gross premium.
Deferred acquisition costs would probably have to be written off.
Also known as a wind-up basis.
Bond
A bond is a form of loan.
The holder of a bond will receive
- a lump sum of specified amount at some specified future time together with
- a series of regular level interest payments until the repayments (or redemption) of the lump sum.
Book reserve
A provision in a company’s accounts for a future benefit liabilities for which NO FUNDS have been SET ASIDE.
Bull market
A period of time during which investors are generally confident and stock market prices increase.
Call option
the right, but not the obligation, to buy a specified asset on a set date in the future for a specified price.
