APN401: Glossary

Question 1

additional unexpired risk reserve

Answer 1

The amount set aside in addition to unearned premiums with respect to risks to be borne by the insurer after the end of the reporting period.

Question 2

cash-back bonus

Answer 2

A benefit provided for in a policy document that entitles a policyholder to a predetermined benefit on the expiry of a specified period and under specified circumstances.

Question 3

central estimate

Answer 3

When considering an estimate, the central estimate is taken to be an estimate that neither overstates nor understates the expected outcome. In other words, the results should be as likely to exceed the best estimate as it is to below the best estimate. As a result, it can be considered in a statistical sense as the median of the distribution.

Question 4

claims administration expenses

Answer 4

The expected expenses relating to claims and policy maintenance in future.

Question 5

claims handling expenses

Answer 5

Expenses associated with the recording and settlement of claims.

Question 6

closed portfolio

Answer 6

When no new business may be added to a portfolio.

Question 7

credible data

Answer 7

When data is worthy of confidence due to its applicability, validity or volume.

Question 8

discounted mean term of liabilities

Answer 8

The weighted average term of liabilities, where the weights used are the present values of cashflows associated with each term.

Question 9

diversification benefit

Answer 9

When combining classes of business, diversification benefits arise since it is unlikely that worst-case outcomes for each risk will occur at precisely the same time.

Question 10

independent variation

Answer 10

Independent variation operates at the individual claim level. By definition, independent variation is uncorrelated and always gives rise to a diversification benefit.

Question 11

long tailed business

Answer 11

Insurance business whose uncertainty about the amount and timing of claims payments typically takes more than one year to resolve.

Question 12

materiality criteria

Answer 12

The methods, procedures or rules used to assess materiality.

Question 13

member of the Actuarial Society of South Africa

Answer 13

Includes student, associate and fellow members of the Actuarial Society of South Africa.

Question 14

Prescribed method

Answer 14

The rules, regulations, methods, procedures and calculations applicable to insurers when demonstrating solvency to the Financial Services Board.

Question 15

probability distribution of liability

Answer 15

The distribution or spread of calculated liability amounts, together with their associated likelihood of occurrence.

Question 16

recoveries

Answer 16

The expected amounts to be recovered by an insurer in respect of particular claims. A distinction can be made between reinsurance recoveries and non-reinsurance recoveries (salvage, subrogation, sharing agreements, etc).

Question 17

reporting date

Answer 17

A point in time at which the insurer reports on its financial position.

Question 18

risk

Answer 18

The uncertainty of future outcomes in relation to that expected. In particular, an increased uncertainty is interpreted to imply more risk.

Question 19

run-off

Answer 19

When an insurer will write no new business, but continue to operate with underwritten insurance contracts until the end of the existing policies’ term.

Question 20

run-off expenses

Answer 20

All expected expenses likely to be incurred in running off the portfolio.

Question 21

sensitivity analyses

Answer 21

Assessing the change in result when varying the inputs to a model or calculation.

Question 22

standard inflation

Answer 22

Standard inflation is inflation measured by a published index, where a link between such inflation and claim payments is believed to be present.

Question 23

superimposed inflation

Answer 23

Superimposed inflation is the difference between total claim escalation and standard inflation.

Question 24

systemic uncertainty

Answer 24

A correlated uncertainty where the degree of correlation varies between business classes. Some sources of systemic uncertainty are only relevant to a single class, but most affect more than one class.

Question 25

technical provisions

Answer 25

The amount set aside to meet all liabilities arising out of insurance contracts, including claims provision (whether reported or not), provision for unearned premiums and provision for unexpired risks.

Question 26

underlying probability distribution

Answer 26

The distribution or spread of outcomes for a random variable.

Question 27

unexpired risks

Answer 27

Risks underwritten by the insurer for which coverage extends beyond the valuation date.

Question 28

valuation date

Answer 28

A point in time at which an actuarial valuation is performed. The valuation date is usually the same as the reporting date.

Question 29

valuation model

Answer 29

All the methods, procedures and calculations used in an actuarial valuation.

Question 30

valuation unit

Answer 30

A valuation unit is a line of business, a part of a line of business, a group of lines of business or a group of parts of lines of business, which is treated as a single entity for the purposes of the actuarial valuation.

Question 31

wind-up

Answer 31

When insurer intends ceasing all business activities and eventually returning its licence.