T_Glossary 9

Question 1

investment guarantee

Answer 1

in the context of life insurance, this refers to a promise that the company will pay a specified sum of money - or sums of money- at specified times if a specified condition is fulfilled. the condition can be an event such as the surrender or maturity of a contract.

the term can also refer tot he situation where the company guarantees the rate it will use, at some future date, to convert a lump sum into an annuity or vice versa.

Question 2

Income protection insurance (IP)

Answer 2

Income protection provides cover against incapacity . The benefit is paid as an income (usually monthly) for as long as the disability exists, up to a predefined age (60/65) or retirement if earlier

Question 3

Internal unit linked fund

Answer 3

an internal unit linked fund consists of a set of clearly identifiable assets. The fund is divided into a number of equal units consisting of identical sub-sets of the funds assets and liabilities. Responsibility for unit pricing rests with the company, subject to any relevant policy conditions.

Question 4

Key person cover

Answer 4

key person products are taken out by an employer to cover key employees. They fall into 2 categories:

• those designed to provide compensation for loss of profits
• those designed to cover the key employees salary (to facilitate the temporary recruitment of a replacement).

The insurance should cover sickness, incapacity or death of the key person.

Question 5

market value reduction (mvr)

Answer 5

insurance companies normally retain the right to apply a market value reduction on surrenders or withdrawals from an accumulating with profits contract, if the value of the underlying assets is less than the fund value including all bonuses. The mvr is designed to protect policyholders who remain in the with profits fund, as its application means that the withdrawing policyholder gets a fair share of the assets. There are normally points at which no mvr will be applied (eg maturity or death after a specified time or on partial withdrawals below a certain limit)

Question 6

mathematical reserves

Answer 6

in the context of supervisory reporting, the mathematical reserves consists of the value of a company’s liabilities. The terminology may also include any explicit additional contingency reserves, e.g. a mismatching reserve. however, in some jurisdictions contingency reserves are termed “capital requirements” rather than “mathematical reserves”.

Question 7

mismatching reserve

Answer 7

if the assets of a life insurance company are not matched to its liabilities, it may be unable to meet claims as they fall due in the event of adverse future investment conditions. A mismatching reserve is a reserve that has been set up as a contingency reserve that may be called upon in the even of such adverse conditions.