- Lapse Rate (G)
-
The ratio of the number of lapses in defined period to the corresponding
number of renewal invitations.
- Lapse (A/D)
-
A policy lapses if the policyholder fails to pay premiums when they are
due or fails to renew a general insurance policy when it expires.
- Lapse (F)
-
A life assurance contract lapses if the policyholder ceases to pay
premiums, ie withdraws, without the company making a payment surrender value
to him or her.
Some policies terminate when a surrender value is paid. These are
sometimes called claims (albeit by surrender rather than death). However,
the phrase lapse is sometimes used to include surrenders.
- Lapse (G)
-
A policy which is not renewed at the end of the term.
- Lapse (N)
-
A policy lapses if a premium is not paid before the end of the days of
grace and the policy is not kept in force by an appropriate non-forfeiture
clause (see non-forfeiture
clause).
- Latent Claims (G)
-
Claims resulting form perils or causes of which the insurer is unaware at
the time of writing a policy. The first claims from these sources may often
only be apparent many years after the period of cover, eg asbestos,
industrial deafness, RSI, etc.
- Lead Underwriting (G)
-
The underwriter who takes the lead in setting premium rates and agreeing
policy conditions under a system of coinsurance.
- Letters of Credit (G)
-
A document authorising the addressee to pay a specified sum to a party
specified in the letter. Such letters of credit are widely used in the US to
guarantee the performance of a reinsurance contract.
- Level of Funding (H)
-
The relationship at a specified date between the actuarial value of the
assets and the Actuarial Liability.
As you may have spotted, the term Actuarial Liability is not a unique
calculation as it depends on the funding method being used. Usually where
the term is used without further qualification it uses the Actuarial
Liability as defined under the Projected Unit (or the Attained Age - exactly
the same calculation) funding method. In this form it may also be called the
on-going level of funding.
An alternative form is the discontinuance level of funding where the
Actuarial Liability is calculated in relation to the discontinuance
liabilities.
- Level Premium Insurance (N)
-
Insurance for which the cost is distributed evenly over the period during
which premiums are paid. The premium remains the same, and is more than the
actual cost of protection in the earlier years of the policy and less than
the actual cost in the later years. The excess paid in the early years
builds up the reserve.
- Liabilities (F)
-
Liabilities are the commitments of a life office caused by an insurance
contract.
The most obvious liabilities are future benefits that will be paid. Life
assurance benefits often only materialise if future office premiums are
paid, and are therefore investigated allowing for the payment of those
future premiums. Life office benefits also often involve incurring future
expenses, and these again are allowed for explicitly.
There are three main ways of investigating life office liabilities:
- cash-flow gross premium valuation
- formula gross premium valuation
- formula net premium valuation
Liabilities are often expressed as a present value of the amount needed
now to meet future commitments without recourse to further external* finance
(no future capital requirements).
The term liability is also used in a looser sense, referring only to
benefits or benefits+ expenses. For example, someone might say "The
office has a liability to pay 100 in one year's time in respect of Policy
x. " In the same situation, if a premium of 100 were also payable in
exactly one year's time, and if no other elements were involved, it would
also be true to say "Policy x is not a liability of the office" or
"Policy x is not a net liability of the office". The term
"net liability" is unambiguous (it means liability allowing for
future premiums and other elements).
The short definition from the Core Reading is:
The liabilities of a life insurance company are the benefits it has
contractually agreed to pay to its policyholders, plus its future expenses
less future premiums.
- Liability Claims (A/D)
-
A claim made against a policyholder by a Third
Party for damage caused by the policyholder. The third party may have to
sue the policyholder to establish legal liability through the courts,
- Liability Outgo (F)
-
This is the outgo in each future year expected to arise from the
liabilities. It represents the excess of benefit payments plus expenses over
premium income and may be negative.
As with the phrase "liabilities", the term liability outgo is
ambiguous and is sometimes used to refer to items of outgo only (benefits
plus expenses). The phrase "net liability outgo" is unambiguous,
and includes premiums.
The term is used in the context of matching and immunisation, where asset
proceeds and liability outgo are arranged so as to remove or reduce the risk
from interest rate changes. It is also used in the context of a discounted
cashflow valuation.
- Liability Regulations (F)
-
Part of the framework of legislative control of life offices. The
liability regulations describe the minimum statutory reserves.
- Liability (A/D)
-
A requirement or commitment to make a payment. For example, an insurance
company's liabilities include: benefits payable to policyholders, payments
to staff, agents and suppliers.
- Liability (G)
-
An obligation to pay compensation and costs to another party in respect
of losses sustained by that party.
- LIBOR (London Interbank Offered Rate) (E)
-
This is a benchmark rate of interest. It is the rate at which banks lend
to each other for various specified terms.
- Life Assurance (A/D)
-
A (euphemistic) term for a death benefit.
- Life Assured (N)
-
The person on whose death or survival the benefit under a life policy
becomes payable.
- Life Office (A/D)
-
A life assurance company. Often referred to simply as an
"office".
- Life Table (A/D)
-
A hypothetical table showing the progression of the numbers of survivors
and deaths in a cohort of individuals.
- LIFFE (E)
-
The London International Financial Futures and options Exchange. Its name
describes its role.
- Limited Company (A)
-
A business where the owners(ie the Shareholders)have
limited liability. Shareholders are liable for the debts of the company up
to the face value of the shares they hold.
- Limited Payment Life Insurance
(N)
-
Whole life insurance on which premiums are payable for a specified number
of years or until death if death occurs before the end of the specified
period.
- Limited Price Indexation (LPI) (H)
-
LPI increases are increases to pensions in payment in line with RPI, but
subject to a maximum of 5% in any one year.
Each year is treated separately, eg if RPI was 11% one year and 0 % the
next, the LPI increases would be 5% and 0% respectively even though the
compound rate of increase in the RPI exceeds 5%pa at the end of year two.
- Limited Revaluation Premium (LRP)
(H)
-
A premium which is paid to the State to cover the expected cost of
providing revaluation to the GMP in excess of 5%pa. (see Limited
Revaluation).
- Limited Revaluation (H)
-
This is one of the alternatives to applying section 148 orders in
revaluing the GMP. The scheme is only required to revalue the GMP in line
with section 148 orders up to a maximum of 5%pa. The state makes good any
revaluation that the scheme does not provide, leaving the member's
entitlement unaffected.
- Line (of Business) (A)
-
A CLASS (or subclass) of insurance eg household contents insurance.
- Line Slip (G)
-
A facility under which the underwriters delegate authority to accept a
pre-determined share of certain coinsured risks on their behalf. The
authority may be exercised by the leading underwriter on behalf of the
following underwriters; or it nay extend to the broker or some other agent
being authorised to act for all the underwriters.
- Line (G)
-
In surplus reinsurance, the line is the retention of the direct writer.
- Linked Claims (F)
-
A phrase used in PHI. If a claimant under a PHI policy suffers a relapse
within a certain period of the claim stopping, the claim will immediately
restart. There will be no further deferred period.
This is an alternative way of referring to "off period".
- Linked Internal Rate of Return
(A)
-
An approximation to the Time
Weighted Rate of Return.
- Liquid (A)
-
An investment is liquid if it can readily be converted to Cash
without a loss in value.
- Liquidity (of a Funding Method)
(H)
-
The ability of a funding method to meet cash outgo as required.
- Liquidity (E)
-
"closeness to cash". To be close to cash, an asset should.
Liquidity is generally interpreted as be highly marketable and should be
subject to only small changes in monetary capital value, ie on this
definition, liquid = marketable + not volatile. Do not be too dogmatic with
this definition because some practitioners would take liquidity to be the
same as marketability.
- Listed (E)
-
Shares which have a full listing on the London Stock Exchange.
- Lloyd's Agent (G)
-
A worldwide network of agents who supply information on shipping and
other international risks for the Lloyd's market. They may also assist in
claim settlement processes.
- Lloyd's Broker (G)
-
An agent approved by the Committee of Lloyd's to place business with
Lloyd's underwriters. Except for some of the smaller risks, business written
at Lloyd's must pass through a Lloyd's broker.
- Lloyd's Deposit (G)
Wholly owned, non-assigned assets which must be lodged in trust with the
Committee of Lloyd's before a member can write business. The amount of the
Lloyd's deposit, together with the Name's means if they are individuals or
their capital if they are incorporated Names, determines the maximum limit of
premium income which may be written on their behalf.
- Lloyd's Managing Agent (G)
-
A company appointed to manage the affairs of an underwriting syndicate,
appoint the underwriter, and provide technical and administrative services.
- Lloyd's special reserve fund (G)
-
A contingency reserve of limited size which may be built up by individual
Lloyd's names out of pre-tax income.
- Lloyd's (A/D)
-
An insurance organisation housed in the Lloyd's building in the City of
London. A large number of syndicates, financed by individual Lloyd's members
("names"), write insurance business there. It is governed by
separate legislation from other insurers.
- Lloyd's (G)
-
A long-established market place for insurance in London. It has a long
history of marine insurance. It also has a reputation for covering large and
unusual risks.
- LMX (G)
-
Abbreviation for "London Market excess of loss", ie the excess
of loss reinsurance passed between London Market insurers.
- Loadings (A/D)
-
Adjustments made to the Risk
Premium to calculate the Office
Premium. Loadings include allowances for office expenses, commission and
profit.
- Loan on a Policy (F)
-
Where a life assurance contract has a surrender value, the life insurance
company will usually allow the policyholder to take out a loan using the
contract as security.
The loan will be charged a rate of interest which may be variable, or may
be specified in the original policy document. If the policy is surrendered,
or if a claim becomes payable, the loan will be repaid out of the proceeds.
The initial loan will normally be restricted to some "safe"
percentage of the current surrender value (eg 75 %). Interest may be added
to the amount of the loan outstanding or may be collected in addition to any
premiums payable under the policy.
- Loan Schedule (A)
-
A table showing the interest and capital payments in each period under a
loan agreement.
- Loan (A)
-
An arrangement under which a tender provides a sum of money to a
borrower, who is required to repay the lender according to an agreed set of
conditions. The borrower pays interest on the outstanding amount of the
loan.
- Lognormal Distribution (A)
-
A statistical distribution related to the Normal distribution that is
often suitable for modelling financial variables.
- London Market Excess of Loss
(LMX) (G)
-
Outwards excess of loss reinsurance in the London Market.
- London Market (G)
-
The international insurance and reinsurance market in London.
- Long Gilt (A)
-
A Gilt
whose remaining term to redemption is greater than IS years.
- Long Tail (A/D)
-
A class of general insurance where claims take a long time to settle, as
opposed to Short
Tail. Liability
Claims are often long tail.Long tail claims are often for large amounts.
So the graph of the Loss
Distribution has a "long tail" extending to the right.
- Long Term Business (A/D)
-
Official terminology for life assurance and annuity business, as opposed
to general insurance. So called because policies set out the terms which
will apply for many years and policies are not renewable annually. See also:
Short
Term Business.
- Long-tail (G)
-
Claims with relatively long reporting and/or settlement delays.
- Long-tailed Business (G)
-
Types of insurance in which a substantial weight of claims take several
years to be settled from their date of occurrence.
- Long-Term Business Fund (F)
-
The long-term business fund is colloquially used to mean the assets
backing the long- term business.
The term also has a more formal meaning in the context of the UK
statutory returns where it represents the accumulation of income including
partial allowance for changes in capital values less outgo in respect of the
long-term business. The excess of this fund figure over the value of the
liabilities represents the amount of surplus that can be allocated to
policyholders or shareholders.
In the case of a proprietary office, the fund excludes shareholders'
assets. There are restrictions on the amount of money which can be
transferred out of the long term business fund to shareholders' assets.
- Long-Term Business (F)
-
UK legislation divides insurance into long-term and short-term business,
which broadly correspond to life and non-life business. Thus long-term
business consists of life assurance, annuity, pension and permanent health
insurance contracts.
- Loss Distribution (A/D)
-
A tabulation, graph or formula describing the relative numbers of claims
for different amounts.
- Loss Expense Reserve (G)
-
Another expression for claim ratio.
- Loss Information (G)
-
Full details relating to how and when a claim occurred and the payments
involved.
- Loss Ratio (G)
-
Same as claims ratio.
- Loss Reserve (G)
-
A reserve for outstanding claims, ie another name for claims reserve. The
expression is often used in association with the reserve deposited by a
reinsurer with the cedant to cover outstanding claims.
- Loss (G)
-
What the policyholder may suffer and what insurance us designed to cover.
Can also be interchangeable with the term claim.
- Losses-occurring Policy (G)
-
As opposed to claims-made policy. Insurance cover is provided for losses
occurring in the defined period. This is the usual basis of cover for most
policies.
- Low Cost With-Profit Policy (F)
-
A type of with-profit policy. The with-profit benefit is supplemented by
a decreasing term assurance. This temporarily increases the death benefit.
Low cost endowment assurances are used for mortgage repayment purposes.
Low cost whole life assurances are used to provide high sums assured on
death.
- Lower Earnings Limit (LEL) (H)
-
The minimum amount, approximately equivalent to the Basic State Pension,
which must be earned in any pay period before National Insurance
contributions are payable.
- Lumpsum (A/D)
-
A single payment, as opposed to an Annuity.
