- Call (E)
-
The right to buy a specified stock at a specified price at specified
times. Call options are securities giving the holder the option of buying
the specified stock. lie expression may be used in other circumstances. For
example, a 'call' facility on a bond gives the issuer the right to repay (ie
call in) the loan.
- Cancellation (A/D)
-
Termination of a general insurance policy by the policyholder (usually
during the period of cover).
- Cancellation (G)
-
A mid-term cessation of a policy, usually involving a partial return of
premium.
- Cap (H)
-
See Earnings Cap.
- Capacity (G)
-
The amount of premium income that may be written. It could refer to a
company, Lloyd's Name, syndicate or a whole market.
- Capital Content (F)
-
A term used in the context of general annuity business. The capital
content of the annuity is paid to the policyholder tax free, being treated
as a "return" of the initial capital invested in the annuity. The
rest of the annuity, the income portion, is taxed at the policyholder's
marginal income tax rate.
- Capital Cover (E)
-
A calculation made for loans issued by companies. The capital cover is
the number of times that the assets of the company (excluding intangibles
and after notionally paying current liabilities)cover the amount of the loan
(including prior ranking loans).
- Capital Gains Tax (A)
-
Tax payable on the increase in the capital value of an asset between the
time of purchase and the time of sale.
- Capital Market (E)
-
The capital market is the market for long term securities (see also Money
Market).
- Capital Redemption Policy (A)
-
A regular premium policy that provides a lump sum benefit on maturity.
Such policies are often used in conjunction with interest-only loans.
- Capital Requirements (F)
-
See Requirement for Capital.
- Capital Units (F)
-
A type of unit allocated to a policy. Capital units generally have a
higher level of regular management charge than accumulation units. Capital
units are often used in conjunction with actuarial funding. The phrase is
also sometimes used to refer to units with a high rate of cancellation
(which are otherwise known as initial units).
- Capital (A)
-
The funds invested in a project. See also: Interest.
- Capital, Asset Pricing Model (E)
-
Unity against the riskiness of the security, and A model which relates
expected return from a second portfolio and the risk- concludes that all
investors should hold combinations of the same market free asset.
- Captive (G)
-
A subsidiary company established to provide insurance cover for the
parent company. A form of self insurance.
- Career Pay Benefit (A/D)
-
A pension scheme benefit that is based on the member's salary throughout
service (eg 1/60th of total salary earned). Such benefits are rare, except
for SERPS, which provides benefits on a revalued career pay basis. See also:
Final Salary Benefit.
- Case by Case Estimation (G)
-
A method of determining the reserve for the outstanding reported claims.
Each outstanding claim is individually assessed by taking into account all
the known facts of the case to arrive at an estimate of the total payments
to be made.
- Case VI Profits (F)
-
A term used in life office tax. Case VI profits are a fairly conventional
"trading" assessment of profit. They are used to assess the tax
payable on some life office funds notably the pensions business fund and
overseas life assurance business fund.
- Cash Equivalent (H)
-
Another term for an individual transfer value. The amount which a member
may require to be paid to another pension scheme or buy out policy. It
should be calculated in accordance with GN11.
- Cash (A)
-
Investment in a short term deposit account.
- Cash (E)
-
The collective term for very short term investments which earn short term
interest, eg Treasury bills, bank deposits. In investment work, the term is
not restricted to bundles of 5 notes and loose change!
- Cashflow (F)
-
The term cashflow is used in the context of a life office to refer to
cash flowing into or out of the "useful" cash of the office.
"Useful" cash is cash that the office could do literally anything
with (bum, distribute to policyholders).
An example of a flow into the useful cash of the office is a premium
receipt. An example of a cashflow out of the office is a claim payment.
"Cashflow" is also used to refer to movements into and out of
reserves. A flow into a reserve (or an increase in a reserve) is a reduction
in the "useful" cash of the office and is treated as a negative
cashflow. A flow out of a reserve (a reduction in a reserve) is a positive
office cashflow.
- Casualty (G)
-
American for liability insurance (although the expression is often used
for all non-life insurance).
- Catastrophe Reinsurance (F)
-
A type of reinsurance. Under catastrophe reinsurance, the reinsurer pays
money to the direct writer in the event of a catastrophe. A catastrophe is
normally defined as a single event which causes at least a specified number
of deaths within a specified period. Examples include a single train crash
or high winds over a 72 hour period. If an event is defined as a
catastrophe, the reinsurer might meet the full cost of claims caused by the
event, or might meet the cost above and/or up to a certain limit.
- Catastrophe Reinsurance (G)
-
Reinsurance cover which protects the ceding company against accumulated
losses from a single, defined event. The cover may be for an agreed
percentage of total claims between a lower limit (excess point) and an upper
limit.
- Catastrophe Reserve (G)
-
An additional technical reserve that may be held to provide protection
against unusually poor claims experience (eg a catastrophe!). UK companies
are not required to hold such reserves. Transfers to the catastrophe reserve
are not allowable against tax in the UK.
- Catastrophe (A)
-
An event in general insurance that occurs over a short period of time and
leads to heavy claims eg the October 1987 and January 1990 storms.
- Catastrophe (G)
-
An event which gives rise to substantial losses, usually involving a
large number of claims over a short time period.
- Ceding Company (G)
-
A company which passes (or cedes) risk to a reinsurer.
- Census Method (A/D)
-
A formula used to approximate the total exposed-to-risk in a changing
population. The method calculates a weighted average of snapshot headcounts
at periodic intervals.
- Census (A/D)
-
A complete enumeration of a population. Population censuses are
undertaken every 10 years in England and Wales.
- Central Fund (Lloyd's) (G)
-
A contingency reserve built up from contributions by Lloyd's Names and
held by Lloyds as a lower of protection for policyholders.
- Central Limit Theorem (A)
-
The Central Limit Theorem in statistics basically states that the average
value of a large number of observations approximates to the true value and
deviations approximately follow a normal distribution with variance
inversely proportional to the sample size. One consequence of this result is
that statistical observations can often be approximated using a normal
distribution.
- Certificate A (H)
-
Certificate given by an actuary that a scheme is likely to be able to
meet its GMP liabilities should it wind up in the next few years.
- Certificate of Deposit (E)
-
A certificate issued by a bank showing that a stated sum of money has
been deposited for a specified time at a specified rate of interest.
Certificates of deposit can be traded (ie sold) by the original depositor.
- Chain Ladder Method (A/D)
-
A method used in general insurance for projecting outstanding claims. It
involves calculating ratios of adjacent "ladders" (columns of
figures) in a table. See also: Separation Technique.
- Chain Ladder (G)
-
A method of estimating outstanding claims, whereby the past pattern of
claim development is projected into the future.
- Chartism (E)
-
A collection of methods for estimating future share prices based on
charts of past share prices and/or trading volumes. A form of
"technical analysis". (See "witchcraft"!)
- Chi Square Distribution (A/D)
-
A special case of the gamma distribution in which the Scale Parameter is
1/2. The chi square distribution is used in test of goodness of fit.
- Claim Amount Distribution (G)
-
A statistical frequency distribution for the amounts of claims.
- Claim Cost Inflation (G)
-
The rate of increase of claim payments, usually referring to changes in
the average cost per claim. It is likely to be influenced by many different
types of inflationary force, eg general or specific salary inflation,
general or specific price inflation, court award inflation.
- Claim Event (A/D)
-
An event that gives rise to a claim (eg a car accident or a fire).
- Claim Frequency (A/D)
-
The average number of claims submitted per policy during a given period
of time.
- Claim Frequency (G)
-
The number of claims in a period per unit of exposure, or alternatively
the number of claims per policy over a period.
- Claim Run-off Analysis (G)
-
A tabulation showing the speed of settlement of cohorts of claims. The
analysis may be in terms of claim members or claim amounts.
- Claim (A/D)
-
A request for payment submitted by a policyholder under the terms of an
insurance contract.
- Claim (F)
-
In the context of a life insurance company, a claim is the happening of
any insured event. Typically, it refers either to death a death claim or to
maturity a maturity claim.
The term claim is also sometimes used to include payment of surrender
values.
- Claim (G)
-
A request by the insured for payment under an insurance policy. Claims
can be split firstly into valid, non-zero claims (a payment is due from the
insurer) and secondly invalid and zero claims. Invalid claims occur where
the event was not covered or specifically excluded by the policy conditions.
Claims may also be zero where the loss is less than the excess.
- Claim (N)
-
Notification to an insurance company that payment of an amount is due
under the terms of a policy.
- Claims Cohort (G)
-
A group of claims with a common period of origin. The period is usually a
calendar year, but may be shorter. The origin may be defined by the date of
the occurrence of claim or alternatively by the date of reporting.
- Claims Experience (A/D)
-
The number and amount of claims experienced by an insurance company over
a defined period.
- Claims Frequency Distribution
(G)
-
A statistical frequency distribution for the number of claims per policy.
- Claims Handling Expense
Provision (G)
-
A reserve to cover the estimated expenses and those which can be directly
attributed to the settlement of claims (such as legal expenses and claims
assessors' fees). Providing it is not being used for tax account, it may
also include expenses that are not directly attributed to specific claims.
This would certainly be the case on a break-up basis.
- Claims Incurred (G)
-
Claims the have occurred, irrespective of whether or not they have been
reported. In accounting terms, it related to the sum of the claims paid
during the period and the increase in the total claims reserve over the same
period.
- Claims Made Cover (G)
-
A policy which covers all claims reported to an insurer within the policy
period irrespective of when they occurred.
- Claims Notified/Reported (G)
-
Claims that have been incurred and about which the insurer has been
informed. In accounting term, it relates to those claims reported during the
accounting period.
- Claims Ratio (G)
-
Claim amount/premium (usually on incurred claims and earned premiums).
- Claims-made Policy (G)
-
Insurance cover relating to claims that are made in the defined period.
See also Losses-occurring Policy.
- Class (of Business) (A/D)
-
A type of insurance cover eg term assurance, whole life annuity, private
motor insurance etc.
- Clawback (F)
-
Initial commission is paid to sales people as a reward for selling a
policy. In the UK this commission is usually paid on indemnity terms (ie a
discounted value of initial commission is paid at the outset of the policy
before it has all been "earned"). If the policy discontinues early
in its life (eg after two years), the insurance company will reclaim the
"unearned" part of the initial commission paid to the agent. This
is known as clawback of commission.
- Clean Price (E)
-
The quoted price for a bond (eg a conventional gilt). It is the price
payable less the accrued interest.
- Closed End Investment (E)
-
An investment with a fixed number of units. Most investments have a fixed
number of units in issue (see also Open Ended Investment).
- Closed Scheme (H)
-
A pension scheme which does not admit new members.
Contributions may or may not continue and benefits may or may not be
provided for future service.
- Closed Year (G)
-
The year when the ultimate profit (or loss) for a given underwriting year
is determined under three year accounting.
- CMI (Continuous Mortality Investigation) Committee (A)
-
A committee overseen by the Institute and Faculty whose main task is to
monitor and analyse the mortality experience of UK life offices and prepare
standard mortality tables for use by actuaries. The committee also monitors
sickness rates and causes of death.
- Co-reinsurance (G)
-
A method of sharing a risk between a number of reinsurer, each of whom
have a separate direct contractual relationship with the ceding insurer and
are, therefore, liable only for their own contractual share of the total
risk. In the case of excess of loss reinsurance, the proportion sharing of
the reinsured risk may be between the insurer and the reinsurer (ie the
ceding insurer retains a proportion of the risk within the excess of the
loss layer).
- Coinsurance (F)
-
A way of referring to original terms reinsurance (mainly used overseas).
- Coinsurance (G)
-
An arrangement where two or more insurers share a defined risk, and each
insurer has a direct contractual arrangement with the insured.
- Combined Ratio (G)
-
The sum of the claim ratio and the expense ratio. Also called the
operation ratio or underwriting ratio.
- Commercial Lines (A)
-
Classes of insurance providing cover for businesses, as opposed to
Personal Lines.
- Commercial Lines (G)
-
Classes of insurance for business, as opposed to individuals.
- Commercial Paper (E)
-
A generic term for short term debt issued by companies. (The terms
"paper" or "notes" are often used when referring to
short term debt.)
- Commercial Property Insurance
(A)
-
Commercial property insurance provides protection to businesses against
damage to buildings (eg fire, vandalism).
- Commission (A/D)
-
A payment made to a broker or sales agent in return for acquiring new
business. See also: Expenses.
- Commission (F)
-
Commission is the method that a life insurance company will usually use
to reward those who sell or service its products, whether they be
independent financial intermediaries, tied agents or a direct sales force.
Typically the amount of the commission depends on the type and size of
contract sold.
Initial commission is paid over an initial period (or at outset if the
initial commission is paid on indemnity terms) of a policy. Renewal
commission is paid later in the term of a policy.
- Committee of Lloyd's (G)
-
The committee has responsibility for administrative matters within
Lloyd's under delegation from the Council of Lloyd's.
Prior to the establishment of the Council of Lloyd's by the Lloyd's Act
1982, the committee had sole responsibility for the overall direction of
Lloyd's.
- Commodity Futures (E)
-
Futures contracts in commodities such as pork bellies, coffee etc. Not
studied in Subject Although financial futures are.
- Commutation Function (A/D)
-
One of a set of actuarial functions which allow life contingency
functions to be evaluated using functions/tables based on a single argument
ie age (and duration for select mortality tables).
- Commutation (H)
-
The giving up of a part or all of the pension payable from retirement for
an immediate cash sum.
- Complementary Events (A)
-
Two events are complementary if exactly one of them must occur. The
probabilities of complementary events sum to 1.
- Composite Insurer (A/D)
-
An insurer that writes both life assurance and general insurance
business.
- Composite Insurer (G)
-
An insurance company writing both life and non-life business.
- Compound Interest (A)
-
A method of crediting interest where the interest is added to the
accumulated fund, so that the interest itself earns interest.
- Comprehensive Motor Insurance
(D)
-
Motor insurance that includes cover for damage to the insured person's
own vehicle.
- Consequential Loss (G)
-
See Business Interruption.
- Constructive Total Loss (G)
-
An expression define by the Marine Insurance Act. Constructive total loss
is where the insured abandons the insured item because an "actual total
loss" is unavoidable or because the costs of preventing a total loss
exceed the value saved.
- Contingency Margin (A/D)
-
An additional component included in an insurance premium to cover the
risk of unexpected outgo.
- Contingent Benefit (A/D)
-
A benefit payment which is made only if a specified event happens, ie the
benefit is contingent on the specified event.
- Contract Out (H)
-
To use a statutory arrangement under which members of a pension scheme
which meets certain conditions obtain rights under it in place of part of
their earnings related state scheme benefits. Contributions to the state
scheme are reduced in respect of such employees or, in the case of a
personal pension scheme or free standing AVC scheme, partly repaid to the
scheme.
- Contract (E)
-
Like a forward contract, this is a contract to buy (or sell) an asset on
an agreed basis in the future. However, futures contracts can be traded.
Note that Subject E is interested in financial futures but not in commodity
futures.
- Contract (F)
-
This is a synonym for policy. The contract or policy will give details of
the benefits to be provided by the life insurance company and the premiums
to be paid by the policyholder. It may also contain various policy
conditions. It is a legally binding agreement.
- Contribution Holiday (H)
-
A period during which employers' and/or members' contributions are
temporarily suspended, normally when the fund is in surplus. The term is
sometimes used loosely when contributions continue to be paid but at a
reduced rate.
- Contribution Method (F)
-
This is the most common method of distributing surplus in North America.
The method attempts to quantify regularly (eg each year) the effect of
variations from experience on the asset share of the policy and involves the
payment of a "dividend" to with-profit policyholders.
- Contributory Pension Scheme (A/D)
-
A pension scheme in which members make contributions.
- Control Period (H)
-
see GN26
The text of GN26 is copied below for case of reference.
The period over which the Standard Contribution Rate has been calculated
to remain constant,assuming that the Funding Ratio at the beginning and end
of the period is 100 per cent. The Control Period, which is normally one
year or more but which could be less than one year, should be specified.
- Controlling Director (H)
-
A director who owns (or controls) at least 20% of the voting power of a
company. Such a person who is also a member of the company's pension scheme
has extra restrictions applied to the benefits that can be taken.
- Conventional Contract (F)
-
A contract which does not have benefits linked to the value of units.
In other words, non-profit plus with-profit business.
In other words, neither unit-linked nor UWP.
- Conventional Gilt (A)
-
A fixed interest government security, as opposed to an Index Linked Gilt.
- Conventional Gilt (E)
-
A bond issued by the British government (ie a gilt) which has fixed
interest payments each year.]be alternative type of gilt is an index-linked
gilt.
- Conventional Policy (A/D)
-
A traditional non-profit or with-profit policy, as opposed to a Unit
Linked Policy.
- Conversion Price (E)
-
Best illustrated with an example: suppose that a convertible loan stock
has a conversion price of 1.30. Ibis means that one share "costs"
1.30 nominal of the bond. So 1 nominal converts into 111.3 (ie 0.769)
shares.
- Convertible Loan Stock (E)
-
A bond which may be converted into something else (usually into shares in
the same company) on specified terms.
- Convertible Term Insurance (N)
-
Term insurance which can be exchanged, at the option of the policyholder
and without evidence of insurability, for another plan of insurance.
- Corporation Tax (A)
-
A tax payable by companies, based on their profits. Currently it is 33%
of trading profits in the UK. Paid in two components: advance corporation
tax (ACT) and mainstream corporation tax.
- Council of Lloyd's (G)
-
The Council of Lloyd's is the governing body responsible for the overall
direction of the Society. It was established as a result of the Lloyd's Act
1982 and consists of 6 working members, 6 external member and 6 nominated
members whose appointment must be confirmed by the Governor of the Bank of
England; one of the nominated members is the Chief Executive.
- Counter Life (A/D)
-
The recipient of a death benefit under a joint life assurance policy
where the payment is made only if another life dies first eg a lump sum
death benefit payable to a spouse.
- Coupon (A)
-
An interest payment from a GILT (or other fixed interest investment).
Coupons are paid twice a year for most stocks.
- Coupon (E)
-
The (usually six-monthly) interest payments on a bond.
- Covenant (E)
-
An agreement with a legal binding on the parties involved. The expression
is often used in association with corporate debt, because the borrower is
bound to the terms of the agreement. The expression is also used in property
investment because the tenant or lessee is bound to the terms of the lease
agreement. In fact the meaning of covenant has been extended in the context
of property investment so that it usually refers to the quality of the
tenant, eg a tenant with a good covenant is a good quality tenant who is
unlikely to break the terms of the agreement.
- Cover Note (G)
-
A note issued by an insurance company to confirm the existence of
insurance cover pending the issue of formal policy documentation.
A cover note is particularly useful where the policyholder is under a
statutory obligation to be covered by insurance and may be required to show
evidence of cover, for example third party motor insurance.
- Credibility (G)
-
A measure of the weight to be given to the claims experience of a
particular risk (or class) as compared with that derived from the overall
experience of a corresponding parent population. The measure is used for
determining a premium when using experience rating.
- Credit Rating (E)
-
A rating given to a company's debt by a credit-rating company as an
indication of the likelihood of default. Top rating is usually AAA. Credit
ratings are much used, and are generally highly reliable.
- Critical Illness Cover (F)
-
A contract which gives a lump sum benefit on diagnosis of one of a list
of illnesses (eg cancer).
You may see this referred to as dread disease cover. Cover can be
arranged in various ways:
- a lump sum is paid on the first to occur of death, maturity or
diagnosis of critical illness
- a lump sum is paid on diagnosis of a critical illness with another due
on death or maturity
- a lump sum is paid only on diagnosis of a critical illness (not common
in the UK)
- Cum Dividend (A)
-
A share or bond is bought/sold cum dividend (ie with attaching dividend)
if the buyer is entitled to receive the next dividend or coupon. Opposite Of
Ex Dividend.
- Cum-Dividend (E)
-
Where the purchaser of a bond or share is entitled to the next coupon or
dividend. Opposite of Ex-Dividend.
- Currency (A)
-
The denomination (,$, etc) in which payments are expressed.
- Current Unit Funding Method (H)
-
see GN26
The text of GN26 is copied below for ease of reference.
The Actuarial Liability for active members is calculated taking into
account all types of decrement. In calculating the Actuarial Liability as at
the valuation date pensionable pay is not projected. In calculating it as at
the end of the Control Period pensionable pay is projected to that date and
no allowance made for any further increases. UK legislation requires
preserved pensions to be increased at prescribed rates up to pension age.
This implies that the Current Unit Method is not appropriate in relation to
UK liabilities.
- Cyclical Companies (E)
-
A company that makes large profits when the economy does well, and is
likely to make much lower profits when the economy is doing less well.
