T_Glossary 8

Question 1

original terms (coinsurance) reinsurance

Answer 1

this method of reinsurance involves a sharing of all aspects of the original contract.

Question 2

regular reversionary bonus

Answer 2

a regular RB is a bonus that is declared on a regular basis, usually each year, throughout the lifetime of a wp contract. once declared it becomes attached to the basic benefits and cannot generally be taken away.

Question 3

risk premium reinsurance

Answer 3

in this method of reinsurance, the cedent reinsures part of the sum at risk on the reinsurers premium basis. the sum at risk is the excess of the benefit payable over the valuation reserve.

Question 4

surplus

Answer 4

this is the excess of the value placed on a lic’s assets over the value placed on its liabilities. a negative surplus is a deficit or strain.

Question 5

surrender value

Answer 5

this is the amount that would be paid out to a policyholder who cancels their contract.

Question 6

underwriting

Answer 6

this is the process by which a lic decides whether an applicant can be accepted at the standard premium or on special terms.

Question 7

expropriation price

Answer 7

the expropriation price is the price at which a lic will cancel units in a unit linked fund. in other words, it is the amount of money that it should take out of the fund in respect of each unit it cancels in order to preserve the interests of the continuing unit holders.

Question 8

facultative reinsurance

Answer 8

FR is where individual risks are reinsured as and when the ceding company writes the policy, with terms agreed for that particular risk. this is in contrast to the reinsurance under a treaty where all policies within the scope are reinsured automatically at the terms set out in the treaty.

Question 9

financial strength refers to the ability of the lic to

Answer 9

this refers to the ability of the lic to :

• withstand adverse changes in experience, including those arising from investment in higher yielding but more volatile assets
• fulfill its new business plans
• meet the reasonable expectations of its policyholders

it is often measured by the level of its free assets or estate.

Question 10

extra premium

Answer 10

an extra premium is an addition to the standard premium payable under a contract in order to cover the extra risk.