Chapter 1 terms Flashcards
Accrual rate
The rate at which rights build up for each year of service in a defined benefit scheme.
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.
Acquisition costs
Costs arising from the writing of insurance contracts including: direct costs, indirect costs, such as advertising costs.
Active member
A member of a benefit scheme who is at present accruing benefits under that scheme in respect of current service.
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.
Arbitrage
In investment markets, the simultaneous buying and selling of two economically equivalent but differentially priced portfolios so as to make a risk-free profit.
Average earnings scheme
A pension scheme where the benefit for each year of membership is related to the pensionable earnings for that year.
Balance of cost scheme
A defined benefits scheme to which beneficiaries make a defined contribution and the main sponsor pays the remainder of the unknown cost of providing the benefits.
Bancassurance
An arrangement between a bank and an insurance company to allow the insurance company to sell its products to the bank’s clients.
Bear market
A period of time during which investors are generally unconfident and stock market prices decline. (Compare with bull market.)
Benchmark
A standard or model portfolio (e.g. investment index) 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 over- stating the future experience - median of the ditribution fo future experience
Bid (also selling) price
The price at which a market maker offers to buy a security.
Book reserve
A provision in a company’s accounts for a future benefit liability for which no funds have been set
aside.
Bulk rate
A premium rate applied uniformly per head on large benefit schemes across a membership type (independent of actual members’ ages). Also called ‘Unit rate’.
Bulk transfer
The transfer of liabilities (and usually assets), relating to a group of members, from one benefit scheme to another.
Bull market
A period of time during which investors are generally confident and stock market prices increase. (Compare with Bear market.)
Catastrophe reserve
A reserve built up over periods between catastrophes to provide some contingency against the risk of catastrophe.
Ceding company (cedant)
An insurance or reinsurance company that passes (or cedes) a risk to a reinsurer. The term ‘cedant’ may also be applied to a Lloyd’s syndicate.
Chinese walls
Regulations or practices intended to prevent conflicts of interest in integrated security or consultancy firms
Claim frequency
The number of claims in a period per unit of exposure
Coinsurance
An arrangement whereby two or more insurers enter into a single contract with the insured to cover a risk in agreed proportions at a specified premium. Each insurer is liable only for its own proportion of the total risk.
Commutation
The giving up of a part or all of a stream of future income for an immediate lump sum.
Composite insurer
An insurance company writing both life and non-life business.