- Back-To-Back (F)
-
A way of referring to some combinations of two or more life assurance
policies effected simultaneously.
An example is a temporary annuity "feeding" a regular premium
endowment assurance ie you pay a single premium for the annuity which then
pays the regular premiums for the endowment assurance.
- Balance of Cost Scheme (H)
-
An occupational pension scheme where employees pay a fixed contribution
(possibly zero) and where the employer meets the unknown balance of the cost
of the scheme.
Virtually all UK final salary occupational pension schemes are balance of
cost schemes.The (now) rare alternative is for members' contributions to be
variable too.
- Balance (G)
-
The ratio of the total premium receivable by a reinsurer under a surplus
treaty to the reinsurer's maximum liability for any one claim, based on EML.
- Base Period (G)
-
The period from which data is used, eg claims data used as the basis for
future premium rates.
- Base Values (G)
-
Values derived from an investigation over a base period.
- Basis Point (E)
-
One hundredth of 1%. The term basis point is used in reference to
interest rates and yields. For example, 20 basis points above a yield of
10.25% is a yield of 10.45%%.
- Basis (A/D)
-
The set of assumptions (eg mortality rates, interest rates, price
inflation) used in an actuarial calculation. A Strong basis is one that
leads to conservative (ie high) estimates of liabilities. Conversely for a
Weak basis.
- Basis (F)
-
The set of assumptions the office has to make to assess the effect of
writing life assurance business. It includes assumptions about expected
mortality, investment returns and inflation. The assumptions required depend
upon the product being considered, the method used and the purpose of the
investigation.
At times it is helpful to have a broad description of the basis being
used:
- a strong basis is pessimistic (ie high liability value, low asset
value)
- a weak basis is optimistic (ie low liability value ... )
- the premium basis is the basis which was used to assess premiums when
the contract was sold, not the current premium basis
- a realistic basis is the office's current best estimate of future
expected experience
- Bear Market (E)
-
A period of time during which investors are generally unconfident and
stock market prices decline. Opposite of a bull market. A person who thinks
that prices will fall is known as a "bear" and is said to have a
"bearish" outlook. A bear is happy to go away and hide (preferably
with some honey and condensed milk).
- Bearer Security (E)
-
A security where possession of a certificate proves ownership and where
the interest and the redemption proceeds must be claimed by the bearer or
holder (eg Eurobonds). The "opposite" of bearer bonds is where a
register of bond holders is kept (eg conventional gilts).
- Beneficiary (N)
-
The person named in the policy to receive the insurance proceeds at the
death of the insured.
- Benefit Payments (F)
-
Amounts paid to the policyholder by the life office.
These are what it is all about as far as the policyholder is concerned.
- Benefit (A/D)
-
A payment or series of payments made under specified circumstances from
an insurance policy or pension scheme.
- Best Advice (F)
-
A term used in connection with the Financial Services Act (FSA). Best
advice covers a wide range of requirements to ensure that financial
recommendations are appropriate for the client (eg "knowing the
customer", informing the customer of the types of contract you can
advise on). A slightly weaker set of requirements developed later are
described as good advice.
- Beta (E)
-
A measure of a stock's volatility relative to movements in the whole
market.
- Bid Basis (F)
-
A method of calculating unit prices appropriate for a contracting fund.
- Bid Price (E)
-
The price at which a market maker offers to buy a security (ie the lower
of the two prices quoted).
- Bid Price (F)
-
This is the price a life insurance company uses to repurchase or
"redeem" units from a unit-linked policyholder.
See Offer Price.
- Bid-Offer Spread (F)
-
The difference between the offer price and the bid price in the context
of a unit-linked policy. The bid price is lower often 5 % lower. The purpose
of the spread is to make a charge to the policyholder to meet certain
expenses (eg renewal commission) and to prevent frequent purchase and sale
of units.
- Big Bang (E)
-
Reform of Stock Market trading activity which occurred in October 1986.
- Bill (E)
-
A very short term investment (eg Treasury bill). The investor buys the
right to receive a specified amount of money on a specified date. The amount
paid is at a discount to the amount received.
- Binomial Distribution (A/D)
-
A standard discrete distribution that arises as the number of successful
outcomes in a series of independent trials with a constant success
probability. See also: Geometric Distribution, Negative Binomial
Distribution, Poisson Distribution.
- Binomial Model (D)
-
A mortality model based on the binomial distribution, which models the
number of deaths recorded in a specified group of lives during a specified
time period.
- Black Monday (E)
-
19 October 1987. The day when the world's major stock markets crashed. As
share prices fell, about one-third of the value of stock markets was wiped
out in just two to three days, most of it happening on Black Monday.
- Black Wednesday (E)
-
See "Golden Wednesday".
- Black-Scholes Formula (E)
-
A widely used basis for valuing options. It takes into account most of
the important factors (ie exercise price, underlying share price, time to
expiry, interest rates and share price volatility), but fails to allow for
dividends payable on the underlying security.
- BLAGAB (F)
-
Basic life assurance and general annuity business (fund). One of the
subdivisions of life office business used for the purpose of tax.
- Blue Chip Stock (E)
-
A high quality equity, well known, and with stable, good earnings.
- Bond (A)
-
A fixed interest security.
- Bond (E)
-
A binding agreement for a borrower to pay a lender specified amounts of
money at specified times. The term 'bonds' is often used to mean fixed
interest securities such as conventional gilts, Eurobonds and debentures.
- Bonus Earning Capacity (F)
-
A term used in the context of with-profit business. The term can be
applied to an individual policy, a group of policies or even the whole life
office.
At the beginning of the term of an individual policy, the bonus earning
capacity is the future bonus rate(s) at which the present value of premiums
equals the present value of benefits and expenses (and profit. if a profit
is intended on the contract).
In the middle of the term of an individual policy, the bonus earning
capacity is the future bonus rate(s) at which the present value of future
premiums plus the current asset share equals the present value of future
benefits and expenses (and profit, if a profit is intended on the contract).
The figures for individual policies can be aggregated to apply to
cohorts.
The bonus earning capacity of an office is the future bonus rate(s) at
which the value of assets equals the value of liabilities. This may be
higher than the bonus earning capacity for the whole of the with-profit
policies if an estate has been built up in respect of policies now off the
books, or if profits are expected from non-profit or unit-linked business.
The shorter definition in the Core Reading is:
The bonus earning capacity of a block of contracts is the rate or rates
of bonus that those contracts can sustain over their future lifetime, on the
basis of a set of assumptions with regard to future experience.
- Bonus Earning Power (BEP) (F)
-
A more common way of referring to bonus earning capacity.
- Bonus Hunger (G)
-
The reluctance of policyholder under an NCD system to claim amounts of
lower value than the potential increase in premiums.
- Bonus Reserve Valuation (F)
-
This is a type of gross premium valuation that allows explicitly for
future bonuses under with-profit contracts.
The phrases bonus reserve valuation and gross premium valuation are often
used interchangeably. The phrase gross premium valuation is more general
(and safer). For some purposes (some solvency investigations), a gross
premium valuation technique will be used with no allowance, for future
bonus.
- Bonus (A/D)
-
An additional benefit in excess of the basic benefit, paid from a With
Profit Policy.
- Bonus (F)
-
A bonus is usually an addition to the contractual benefits under a
with-profit life assurance contract. It arises either because of explicit
loadings in the premiums or because a company's actual experience has been
better than what it had assumed in pricing the contract. A company will
usually have complete discretion over the level of bonuses it allocates to
contracts. Sometimes companies allocate bonuses as cash amounts. However,
enhancement of benefits is the most common method in the UK.
- Bonus-Malus (G)
-
Effectively an NCD system which extends to negative bonuses. The system
awards discounts for claim-free driving, but imposes surcharges when there
are claims.
- Bonuses (N)
-
Additions to benefits allotted by life offices to the with-profits
policyholders from surplus (i.e. profit) in various ways and at various
intervals.
- Book Value (of Assets) (F)
-
The book value of a life insurance company's assets is the value at which
it purchased them. In practice, companies modify the value so as to take
into account part but usually not all of subsequent changes in capital
values. In this case, it is better called adjusted book value. Cash may be
included at face value.
Book value is also known as "historic cost".
- Book Value (E)
-
The value shown in the accounts. It may be used to refer to any item (eg
"book value of assets"), or specifically the net asset value (ie
the residual accounting value of the company which belongs to shareholders).
- Bordereau (G)
-
A list of premiums and claims maintained by a direct writer, so that
payments due under a reinsurance treaty can be calculated.
- Bornhuetter-Ferguson (G)
-
A method of estimating outstanding claims.
- Break-up basis (G)
-
A valuation basis which assumes that trading is to cease immediately.
- Bridging Pension (H)
-
A pension paid by an occupational scheme from the time of retirement
until the member reaches SPA.Usually aimed at equalising the member's total
pension income immediately before and after SPA.
- Bulk Transfer (H)
-
The transfer of a group of members, not necessarily with their consent,
from one pension scheme to another, usually with an enhanced transfer
payment in comparison with an individual's cash equivalent.
- Bull Market (E)
-
A period of time during which investors are generally confident and stock
market prices increase.Opposite of a bear market. A person who thinks that
prices will rise is known as a "bull" and is said to have a
"bullish" outlook. A bull is happy to charge ahead.
- Bulldog (E)
-
A sterling denominated bond issued by an overseas borrower in the
traditional UK bond market, ie a foreign bond in the UK bond market.
- Burning Cost Method (G)
-
A method of calculating premiums for non-proportional reinsurance. The
future premium rate (per unit of gross premium written) is based on the
total past claims under the reinsurance treaty over a given period divided
by the total gross premiums in the period.
- Business Interruption (G)
-
Insurance cover for material losses arising following damage to business
premises. Also called loss of profits or consequential loss insurance.
- Buy Out Policy (H)
-
An insurance policy or bond purchased by pension scheme trustees in the
name of the beneficiary in lieu of entitlement to benefit from the scheme.
