Actuarial Glossary :: "The Mother of All Actuarial Glossaries"

I

IBNER (G)

Incurred but not enough reported. An expression not mentioned elsewhere in the course, but one used by some insurers to refer to inadequate reserving of past claims.

 

Incurred But Not Enough Reported (IBNER) Provision (G)

A reserve reflecting changes (increase and decrease) in initial estimates of claims outstanding.

For direct writers, the reverse will usually be an implicit part of the reserve for reported outstanding claims. However, reinsurer will often hold it explicitly to reflect the greater uncertainty in the original estimates provided by direct writers.

 

IBNR (A)

Incurred But Not Reported claims are claims where the claim event has occurred but the incident has not yet been reported to the insurer.

 

Ill Health Retirement (A/D)

Retirement before normal retirement age because of poor health.

 

Immediate Annuity (A/D)

An Annuity where the payments start in the year the policy is effected, as opposed to a Deferred Annuity.

 

Immunisation (E)

Ensuring that the discounted mean term of assets equals that of the liabilities and that the spread of the assets is greater than the spread of the liabilities. This means that a uniform change in interest rates will cause the reinvestment rate and capital value on assets to move in opposite directions so that a fund does not make a loss.

 

Implicit Items (F)

May be used in part to cover RSM. See Explicit Items.

 

In Force Business (A/D)

The portfolio of policies currently active at a given date.

 

Inception (A)

Another word for "commencement", often used in connection with sickness benefits.

 

Income Content (F)

A term used in the context of general annuity business. The excess of the annuity over the capital content (see Capital Content).

 

Income Cover (E)

A calculation made for loans issued by companies. The income cover is the number of times that the profit of the company (before interest payable and tax) covers the interest on the loan (including the interest on prior ranking loans).

 

Income Tax (A)

Tax payable on the income received from employment, investments or rent.

 

Increasing Benefit (A/D)

A benefit which increases in amount as time progresses. Increases may be simple, compound or specified by a more complicated formula.

 

Incurred But Not Reported (IBNR) (G)

Claims where the events have happened, but which have still to be reported to the insurer.

 

Incurred Claims (D)

The total payment in respect of claims relating to claim events that occurred during a given accounting period. In general insurance accounts, this is estimated by adding the increase during the accounting period in the reserve held for outstanding claims to the amount of claims paid during the period.

 

Incurred Claims (G)

Care required. This expression is not uniquely defined. For a given year, it is the amount of claims that have been and have yet to be paid from incidents that occurred in the year. However, in a revenue account for a company it will be claims paid plus the increase in reserves for outstanding claims. This second approach may incorporate claim payments from previous years to the extent that estimates for those years were not precisely correct.

 

Indebtedness (A)

The total actual amount outstanding under a loan or fixed interest security, taking into account the redemption rate. For example, if a loan has an outstanding nominal amount of 100,000 and it is repayable at 120%, the indebtedness would be 120,000.

 

Indemnity Terms (F)

A term used in the UK to describe up-front payment of initial commission on certain conditions. See Initial Period.

 

Indemnity (A/D)

The principle underlying general insurance where benefits are not set at a predetermined level, but are designed to restore policyholders to the position they were in before an insured loss etc was sustained.

 

Indemnity (G)

The process whereby the insured is restored to the same financial position after a loss as before the loss.

 

Independence (A)

Events are independent if the probability that they all occur can be calculated as the product of the individual probabilities.

 

Index Fund (E)

An investment fund with the specific objective of tracking a particular index.

 

Index Linked Gilt (A)

A government security where the coupon payments and redemption payment are increased in line with a price inflation index. See also: Conventional Gilt , Gilt.

 

Index Linked (E)

Literally, linked to an index. For example, the RPI index, the FT-Actuaries All Share Index (see also Index Tracking).

 

Index Tracking (E)

The attempt to perform in line with an index (eg Footsie).

 

Index (A)

A financial measurement, such as the Retail Price Index or the FTSE index, which is made on a regular basis in order to measure some aspect of economic performance. Plural: "indices".

 

Index (E)

A series of numbers which shows the movements in other numbers over time. For example, a price index shows the movements in prices over time. Similarly, a wage index shows the movements in wages and a stock market index shows the movements in share prices.

 

Index-Linked Gilts (E)

A bond issued by the British Government for which the interest payments and the final redemption proceeds are linked to movements in the RPI.

 

Indexation (A/D)

Where benefits or payments are increased in line with a specified index (eg RPI).

 

Individual Contract (F)

Life assurance contracts are split into two sorts, group and individual. Individual contracts are binding arrangements between a life office and a single individual, or two individuals (or very occasionally more than two individuals).

 

Individual Entry Age Funding Method (H)

A method similar to the Entry Age method but a separate contribution is determined for each member of the scheme.

 

Industrial Branch Business (IB Business) (F)

Life assurance business is classified as either industrial branch (IB) or ordinary branch (OB) business.

Industrial branch (IB) business is where premiums are collected more frequently than once every two months (typically monthly or weekly). IB business is largely sold to the less financially sophisticated section of the population, many of whom do not have bank accounts.

IB contracts are typically much simpler than OB contracts, and a smaller variety of contracts is offered. They have lower minimum premiums, less underwriting, and offer fewer options. IB is a declining class but is still significant.

The distinction between OB and IB for life office taxation purposes has now been abolished.

 

Industrial Life Insurance (N)

Life insurance issued in small amounts, usually not over $500, with premiums payable on a weekly or monthly basis. The premiums are generally collected at the home by an agent of the company (known, along with Funeral Business, as Home Service Business in S.A.).

 

Inflation (A/D)

Increases in the general level of costs. When unqualified, "inflation" usually refers to general price inflation. However, there are many other forms of inflation eg salary inflation, claims cost inflation, house price inflation.

 

Initial Expenses (A/D)

The expenses incurred by an insurer in obtaining and setting up a new policy, see also Commission.

 

Initial Period (F)

Initial commission is paid for a certain period at the start of a contract, say two years. This is known as the initial period.

Instead of paying the initial commission gradually over this period, it is common for initial commission to be paid in a single lump sum at the start of the contract on what are known as "indemnity term ". The amount of the commission is discounted to allow for the early payment.

If the contract lapses during the initial period, some of the initial commission must be repaid to the life office. This is known as "clawback ".

Paying the initial commission in this way exacerbates the problem of new business strain for life offices

 

Initial Units (F)

A type of unit allocated to a policy during the first few years. Generally the units are cancelled on a regular basis to recoup initial expenses. May be used in conjunction with actuarial funding.

 

Instalment Premium (A/D)

Instalment premiums are non-annual premiums which remain payable until the end of the year of death of the policyholder. In practice, the amount of any outstanding premiums is deducted from the benefit payment. See also: True Monthly Premiums.

 

Institute of London Underwriters (ILI) (G)

A body of insurance companies transacting mainly marine insurance, whose purpose is to further the interest of insurance by coordinating consistency in policy wordings and conditions between its members and with Lloyd's. The ILU also provides central accounting and administration service, including detailed solvency checks.

 

Institutional Investor (A)

A financial organisation such as an insurance company, pension fund, bank or large company that has funds to invest.

 

Institutional Investor (E)

Any investor other than private individuals. The main institutional investors of actuarial interest are pension funds, life offices and general insurers, although the actions of other institutions such as banks and building societies can also be very important.

 

Insurability (N)

Acceptability to the company of an applicant for insurance.

 

Insurable Interest (A/D)

A requirement of an insurance contract that the insured must have an interest in the insured event. This prevents insurance from being used for gambling. In particular, it prevents people from insuring other people's lives and then encouraging their premature death.

 

Insurable Interest (F)

Under UK legislation, someone can only take out a life assurance contract on another person if they have an insurable interest in that person, ie that they stand to lose financially on that person's death. Spouses are assumed to have an unlimited insurable interest in their partners. A person is also deemed to have an unlimited insurable interest in his or her own life.

If there is no insurable interest when the contract is effected, it would not be enforced by a UK court.

Note that there is no requirement for the insurable interest to continue after the contract is effected.

 

Insurance Certificate (G)

A certificate provided by an insurer to confirm that the policyholder has insurance cover. Although provided for many types of insurance, its main purpose relates to compulsory insurance where it is a legal requirement as evidence of statutory levels of cover may be required by a third party.

 

Insurance Cycle (G)

A cycle of profitability. The market tends to move from a period of good profits to a period of losses (or low profits) and then back to good profits. The cycle is described in Unit 14.

 

Insurance Profit (G)

The underwriting profit plus the investment income earned on the technical reserves.

 

Insurance Result (D)

The profit or loss in respect of a portfolio of general insurance policies after investment income has been taken into account. It is calculated as the Underwriting Result plus the portion of the investment income attributable to the portfolio.

 

Insurance Result (G)

The insurance result (profit/loss) is equal to the underwriting result plus that part of the investment income attributable to the technical reserves.

 

Insurance (F)

This tends to be synonymous with assurance. Strictly speaking, insurance refers to both life and non-life business, whereas assurance specifically relates to life business. Hence assurance is equivalent to life insurance.

 

Insured Scheme (H)

A pension scheme where the sole long term investment medium is an insurance policy (other than a managed fund policy).

If all the legal/actuarial/administrative work is done by a life office but the investment is in a managed fund rather than an insurance policy, the scheme would commonly be referred to as an insured scheme.

 

Insured (A/D)

A policyholder covered by insurance protection. Plural: "insureds".

 

Integration by Parts (A/D)

A technique in calculus for integrating a product of two functions.

 

Integration of Benefits (A/D)

A common arrangement in pension provision where the total benefit from all sources is target at a specified level. This usually involves making a deduction in a benefit formula to allow for State benefits.

 

Interest (A)

The reward for investing funds. Effectively, the reward for saving rather than spending and consuming now.

 

Internal Rate of Return (A)

The effective rate of interest that satisfies the equation of value for an investment project. Also known as the Money Weighted Rate of Return.

 

Internal Rate of Return (F)

See Return on Capital Employed.

 

Intrinsic Value (E)

The current value of a security based on the expected flow of income and capital from that security, and/or the current market price of any underlying security into which it can be converted.

 

Investment Manager (A)

An individual or a company (eg a merchant bank) given responsibility for investing funds.

 

Investment Trust (A)

A company whose business solely involves buying and selling shares issued by other companies in order to make a profit. The investment trust offers its own shares for sale to investors.

 

Investment Vehicle (A)

A medium for investing funds eg a personal pension plan.

 

Investment-Linked Policy (N)

A savings contract with regular premiums under which life cover is also provided. A part of the premium buys, or is deemed to buy, investment units, such as units in an equity or property portfolio.

 

Investments (F)

Investments are assets that an office holds.

Because of the long-term nature of many life assurance contracts, investments and investment performance are critical either to benefits paid, or to the profitability of a contract or both.

Investment performance may be:

 

• directly relevant to benefits paid (unit-linked contracts)
• indirectly relevant to benefits paid (with-profit and UWP contracts)
• only relevant to the profit made by the office (non-profit contracts)

 

Inwards Reinsurance (G)

Reinsurance business accepted by an insurer, as opposed to that ceded to another insurer.

 

Irredeemable (A)

A stock is irredeemable if the initial capital will never be repaid (by the issuer) to the investor. A number of optionally redeemable gilt stocks with a low coupon rate are effectively irredeemable because it would be more costly to the Treasury to repay them than to carry on paying the coupons.