- Early Leaver (A/D)
A member of an occupational pension scheme who leaves the scheme before
retiring, usually as a result of changing jobs. In past inflationary times
benefits to early leavers from final salary pension schemes have been
eroded, since they were based on the salary at the date of leaving. UK
legislation now requires deferred pensions to be increased during the period
up to retirement to prevent this "early leaver problem".
- Early Leaver (H)
A person who ceases to be an active member of a pension scheme, other
than on death, without being granted an immediate retirement benefit.
- Early Retirement (A/D)
Retiring from a pension scheme before the normal retirement age.
- Earned Premium (D)
The portion of a premium that relates to the cost of providing cover
during a given accounting period.
- Earned Premium (G)
The premium earned over a period, ie written premium plus unearned
premium brought forward less unearned premium carried forward.
- Earnings Cap (H)
The earnings cap is a limit on the remuneration on which benefits and
contributions may be based for an approved pension scheme. The cap was
introduced in the tax year 1989/90 and originally set at 60,000. The
intention was to increase it annually in line with RPI and it is 882,200
for the 1996/97 tax year.
The earnings cap only applies to schemes established on or after 14 March
1989 and members of other schemes who joined them on or after I June 1989,
or who elected to be treated as having joined after this date.
- Earnings Multiplier (E)
Another name for the PIE ratio.
- ECU (E)
The European currency unit. Its value is determined by reference to a
basket of European currencies. Some loans are denominated in ECUS.
- Effect (A)
To "effect" an insurance policy just means to take out the
policy ie to put it into effect. (Note that "to affect", meaning
"to influence", is a different word and is spelt differently.)
- Effective Mean Term (E)
See Discounted Mean Term.
- Efficient Market (E)
A technical term meaning that share prices within a market react quickly,
and without bias, to all the available information on the items for sale. In
an inefficient market (caused by poor information, stupid or lazy traders
and high dealing costs), there may be lots of shares price either too high
or too low.
- Eights Method (G)
A basis for estimating unearned premium reserve, based on the assumption
that annual policies are written evenly over each quarter and the risk is
spread evenly over the year. For example, policies written in the first
quarter of the year are summed to contribute 1/8th of the quarter's written
premium to the unearned premium reserve at the end of the year.
- Embedded Value (F)
This is part of the appraisal value of a proprietary life insurance
company. It represents the value of the future profit stream and the value
of any established surplus from the company's existing business together
with the value of the shareholders' assets.
- Emerging Markets (E)
Stock markets in developing countries such as China, Mexico, Singapore
etc. They offer high expected returns due to rapid industrialisation. They
are also very risky markets.
- EML (G)
The estimated maximum loss on a single policy from a single event.
Commonly used in association with commercial property insurance. Note that
the EML may well be less than the total sum insured.
- Estimated (or Expected) Maximum Loss (EML) (G)
The largest loss which could, within the realms of probability, arise
from a single event. This may well be less than the total value of the
- Employers' Liability Insurance
Employers' liability insurance provides protection to employers against
claims from employees who are injured (eg in accidents) or become ill (eg
from exposure to asbestos) as a result of their work.
- EMS (E)
The European Monetary System. A set of agreements (including the ECU and
the ERM) with the original ultimate aim of creating a single European
- Endorsement (G)
A mid-term change to the insurance arrangement.
- Endowment Assurance (A/D)
A policy that combines a benefit payable on survival (Endowment
) with a death benefit (Assurance). Endowment
assurance policies often form the basis of savings arrangements or are used
to provide protection for mortgages.
- Endowment Assurance (F)
This is a life assurance contract under which the company pays a lump sum
benefit on the maturity date of the contract or the earlier death of the
The two sums payable may be the same or they may be different. The
contract may be non- profit (fixed sum assured), with-profit (sums assured
increase with bonuses) or unit-linked (death benefit the greater of a
defined sum assured and the unit account, maturity benefit = the value of
the unit account).
- Endowment Assurance (N)
A systematic savings contract with the sum
assured payable on a predetermined date or on prior death. Can be with
or without profits/ bonuses.
- Endowment (A/D)
A benefit payable on survival.
- English Life Tables (A/D)
A series of national mortality tables prepared using data from the
decennial Censuses in England and Wales. lie most recently published series
is ELT14, which is based on the 1991 census.
- Entry Age Funding Method (H)
The text of GN26 is copied below for ease of reference.
The Standard Contribution Rate is determined as the contribution rate
which, if payable over the expected future membership of a group of new
entrants, would provide for the total expected benefits payable in respect
of that group. The method does not define the group. For example, it could
be the group consisting of current entrants to the scheme or the entrants
who gave rise to the current active members. A single average age of entry
or a distribution of entry ages could be used. Alternatively the Actuarial
Liability could be calculated individually for each active member.
- Equalisation Reserves (G)
A reserve built up over periods when claims experience is better than
average to provide some strengthening of the assets against the risk of
periods with worse than average claims experience.
- Equity (A)
An asset that entitles the holder to a share in the profits of a company
or other enterprise. Often used as a synonym for a company Ordinary Share.
- Equity (E)
Generally used to mean ordinary shares in a company, ie where the holder
has a share in the residual profits (after all other claims). The holder has
a similar share of the residual after a wind-up of the company.
- Equity (F)
This is a term that is difficult to define. In essence, it means that all
policy holders are treated fairly. That is that some groups of policyholders
do not benefit at the expense of other groups. In a proprietary company,
equity also needs to be considered between policyholders and shareholders.
Examples arise in the distribution of surplus, in the determination of
variable charges and in the determination of surrender values and alteration
Equity differs for different types of policy:
For a non-profit policy, this simply requires that they pay their
guaranteed premiums and receive their guaranteed benefits. If they
surrender, on non-guaranteed terms, they can reasonably expect a surrender
value equal in value to the realistic prospective value of their policy.
For a with-profit or UWP policy, in addition, they can expect bonuses to
be added to the guaranteed benefits consistent with how they were told
bonuses would be added.
For a unit-linked policy, policyholders expect that their benefits will
be calculated as described in the policy conditions although if these
conditions are obscure, they might reasonably expect not to be unduly
penalised. For example, they might reasonably expect even a fully variable
expense charge to be related to the expense experience of the office, and
not used to recoup a loss on another line of business.
- Equivalent Pension Benefit (EPB)
Effectively the predecessor to GMP. The minimum benefit that a scheme
must pay to a member who was contracted out of the graduated pension scheme
(the predecessor to SERPS).
- ERM (E)
The agreement between European governments to keep their currencies
within set bands. Member states can either choose to be in narrow bands or
wider bands. If currencies start to diverge, the government of the weakest
currency should take action (eg cutting the PSBR, raising interest rates)
and the government of the strongest currency should also act (eg cutting
interest rates). Failing this, a realignment of the currencies may be
needed. Sterling entered the ERM in September 1990 and was withdrawn (or
forced out) in September 1992.
- Escalation Clause (G)
A clause which permits the insurer to escalate (or increase in line with
an index) the sum insured.
- Escalation (H)
A system whereby pensions in payment are automatically increased at
regular intervals (normally annually) either at a fixed rate or in line with
a specified index or at the greater/lesser of the two.
See also LPI.
- Estate (F)
The excess of the total assets of the office over reserves for
liabilities plus the required solvency margin (RSM) is known as the estate
of the office. The estate is also known as the "free assets or
The exact interpretation of the word "estate" may vary from
office to office and from time to time:
- it might be used to refer to the excess of assets over liabilities
ignoring the required solvency margin
- it might be used to refer to the excess of a realistic value of assets
over a consistent value of liabilities
For established offices this estate might be (or might look) enormous.
The estate for recently established offices might be very small.
The calculated value of the estate will be very dependent on the basis
and method used to calculate both assets and liabilities.
- Eurobond (E)
An international bond issued by a company or government, often in a
currency other than the currency of the borrower. The bonds are traded
internationally through banks, and not in the traditional bond markets.
- Event (G)
A single accident, outbreak, fire etc which gives rise to one or more
claims. For example, a car crash, a fire, a storm, an earthquake, and so on.
- Ex Dividend (A)
A share or bond is bought/sold ex dividend (ie without attaching
dividend) if the seller is entitled to receive the next dividend or coupon.
See also: Cum Dividend.
- Ex-Dividend (E)
Where the purchaser of a bond or equity is not entitled to the next
coupon or dividend payment. Instead the seller receives the next coupon or
dividend payment. See Cum-Dividend.
- Excess Interest (XSI) and Excess Expenses (XSE)
See Unrelieved Expenses.
- Excess of Loss Reinsurance (G)
A reinsurance which provides cover for a layer of an insurer's loss.
Depending on the type of reinsurance, the loss may be based on an individual
claim or on an aggregation of many claims from a common, defined cause.
- Excess of Loss (Reinsurance) (F)
With excess of loss, the reinsurer has a liability if the amount of a
particular claim exceeds a certain amount. It is used in general insurance,
where the liability under a particular policy may be unknown (eg public or
employer's liability insurance).
It is not normally used in life assurance since the amount of the claim
can be specified before the claim occurs. Some form of excess of loss
insurance is sometimes used in PHI.
- Excess (G)
Amount of any claim that is not included in the cover provided. It
differs from a deductible, which eats into the cover, whereas an excess is
the first layer which is not covered by insurance. The difference matters
only where there is an upper limit in the amount of cover.
- Excess (G)
The first part of each claim not covered by the insurer. Excesses are
used in many forms of insurance, and commonly used for motor and household
- Exchange Rate Mechanism (E)
- Exclusion (G)
An event, peril of cause which is define within the policy document as
being beyond the scope of the insurance cover.
- Executive Pension Scheme (A)
Some companies have a separate pension scheme for senior members of
staff. Such schemes normally provide more generous benefits (eg full pension
benefits from an earlier retirement age) so that they can attract and retain
- Exercise Price (E)
The price at which an underlying security can be sold to (for a put) or
purchased from (for a call) the writer or issuer of an option (or option
feature on a security).
- Expectation/Expected Value (A/D)
The mean ("average") value of a random variable.
- Expected Death Strain (A/D)
The expected amount of the death strain at risk for a group of policies
over a given period.
- Expense Charges (F)
Expense charges are what the office takes from the policyholder in order
to pay for the expenses incurred because of a policy.
See also Expenses.
There are two basic methods that can be used to take charges:
- Charges may be taken "out of" premiums: in other words, less
of the premium will be used to provide benefits.
- Alternatively, charges may be taken "out of" the pool of
assets held for a particular policy.
This distinction between taking charges out of premiums or assets is
easier to draw for unit-linked contracts than conventional contracts.
A unitised contract may also have mortality charges or other benefit
- Expense Overrun (F)
Life offices will often make fairly detailed plans for their business,
and part of these plans win include the amount of money expected to be
spent. An expense overrun is when actual expenses incurred exceed those
planned. The phrase is commonly used in the context of new product launches.
- Expense Ratio (G)
Expenses and commissions/written premiums.
- Expenses (A/D)
The cost of administration, marketing and other operations incurred by an
insurance company which must be met in addition to the direct costs of
providing insurance. See also: Commission.
- Expenses (F)
The expenses of a life insurance company are the amounts it needs to
disburse other than commission in order to write new business, administer
existing business, pay claims and invest its assets. Note that
"expenses" often excludes commission. This is because commission
is treated differently from other expenses in product pricing since it
(commission) is normally directly related to premium size.
The term "expenses" is also often used to refer to
"expenses including commission".
The distinction between expenses and expense charges is critical.
Expenses are items of "outgo" the office incurs in writing
business. Examples are salaries, rent, (commission?) ...
Expense charges are what the office takes from the policyholder in order
to pay for the expenses incurred because of a policy.
- Experience Rating (A/D)
A Premium Rating Structure where the premium charged under an individual
policy depends on the claims experience for that particular policy. One such
system is NCD.
- Experience-Rating (G)
A process whereby the premium for an individual risk is affected by the
claims experience of that individual risk. Experience-rating systems can be
prospective or retrospective. They may be based on claim numbers or claim
- Expiry date (G)
The date on which the insurance cover on a risk ceases.
- Explicit Items (F)
Life offices must hold a minimum level of reserves. They must also hold a
margin over and above those reserves known as the required solvency margin (RSM).
The minimum level of reserves must be held in the form of assets. Some of
the RSM must be covered by explicit items (eg the excess of the value of
assets over the value of reserves). Part of the RSM may be covered by
implicit items (eg an allowance for future profits).
- Exponential Distribution (A)
A continuous statistical distribution which arises as the waiting time to
failure of a life or component that does not age. See also: Gamma
- Exposed to Risk (A/D)
A measure of the average size of a population over a period of time. Used
as the denominator for calculating mortality rates.
- Exposure Unit (G)
The basic unit used by the insurer to measure the amount of risk insured,
usually over a given period. For example, sum insured per annum or vehicle
- Exposure (G)
The amount of risk. The measure of exposure is a measure of the amount of
risk insured, usually over a given period, for example, sum insured per
annum or vehicles per year.
- Extra Premium (F)
An extra premium is an addition to the standard premium payable under a
contract in order to cover an extra risk.
The extra premium might apply for the whole term of the policy, or for
only part of the policy term. The extra premium might be level or decreasing
(or, theoretically, increasing).
- Extra Risk (F)
A term used in underwriting.
An extra risk arises where a proposal for life insurance is not
acceptable at standard rates.
Extra risks may be dealt with by life offices in a number of ways:
- extra premium
- cover may be deferred
- cover may be refused