- Makeham's Formula (A)
-
A formula used for valuing the repayments from a fixed interest security.
- Makeham's Law (A/D)
-
A mortality law proposed by Makeham in which the force of mortality at
age x = A + B * c^x. See also: Gompertz'
Law.
- Managed Fund Contract (F)
-
A managed fund contract is the group equivalent of a unit-linked
contract.
As with a unit-linked contract, premiums paid by the policyholder, ie
employer, are first subject to the deduction of the insurance company's
charges and then used to buy units in one or more internal linked funds. The
insurance company will usually deduct from the internal funds further
charges on a regular basis to cover its ongoing costs.
When the employer needs cash to purchase benefits for an employee, an
appropriate number of units will be cashed in. These benefits would not
usually include death-in- service benefits.
If the employer decides to surrender the whole contract, the company will
usually retain the right to impose a surrender penalty.
There are usually no guarantees associated with these contracts.
- Managed Fund (H)
-
An investment contract by means of which an insurance company offers
participation in one or more pooled funds. Also used to denote an
arrangement where the scheme assets are invested on similar lines to unit
trusts by an external investment manager.
- Margin (E)
-
Payments made "on account" to ensure that an option or futures
contract will be honoured.
- Marine Insurance (A)
-
Insurance of ships. This may include marine hull (ie the ship itself),
cargo (ie the ship's contents) and damage to third parties and the
environment.
- Market Capitalisation (E)
-
The market price of one ordinary share multiplied by the total number of
ordinary shares in issue lie usually below what you would have to pay for a
company if you were actually to buy up all the shares).
- Market Level Indicator (MLI) (H)
-
An index used to adjust state scheme premiums to reflect levels of market
values of UK equities and gilts.
- Market Price (or Value) (E)
-
For an individual quoted security this is usually taken as being half way
between the most recently quoted bid and offer prices. For unlisted
securities it can either be the price at which trade last occurred, or an
estimation of what the current price would be if a trade occurred now.
- Market Value Adjustment (MVA) (F)
-
This term is used in connection with unitised with-profit contracts. It
is a discretionary adjustment that a company may make to the bid value of
the units under a contract when a payment is made at maturity, surrender or
on death.
Some practitioners use the term for positive and negative adjustments.
Others use the term to refer to a negative adjustment, and a term like
terminal bonus for any positive adjustment. The term most commonly refers to
a negative adjustment on surrender.
In many cases, negative MVAs cannot be applied on death or at maturity.
"Market value adjuster" is a commonly used alternative name.
- Market Value (of Assets) (F)
-
The market value of a life insurance company's assets is the value that
it would get if it sold them in the open market, given a willing buyer and a
willing seller.
There are three forms of market value:
- the bid market value is the price at which an asset may be sold
- the offer market value is the price at which an asset may be bought
- the mid market value is the mean of the bid and offer values
The bid (offer) market value is sometimes quoted after deducting (adding)
transactions costs, but is normally quoted before this adjustment (which
varies for different holders of assets).
- Marketable (A)
-
An investment is marketable if it can be sold quickly and without
affecting the market price.
- Marketable (E)
-
An asset which can be sold easily and quickly, in large volumes, and
without having to reduce its price significantly.
- Matching (A)
-
The principle of ensuring that Assets
and Liabilities
correspond in respect of their amount, Term
, Currency
and nature. Matching reduces investment Risk
since the value of the assets and liabilities will tend to move together if
there is a change in investment conditions (eg a fall in interest rates).
- Matching (F)
-
This refers to the relationship - by size and incidence - between the
cashflows of the asset proceeds and those of the liability outgo. The assets
and liabilities of a life insurance company are said to be (absolutely)
matched if the two cashflows cancel out. Otherwise, the company is said to
be mismatched.
If you are matched, future (re)investment conditions do not affect your
ability to meet your liability.
Exact matching is normally impossible, because both assets and
liabilities are neither known nor certain. However, people often talk about
matching in a much looser way to refer to assets which will behave in
broadly the same way as liabilities (ie those factors which affect
liabilities should have a broadly similar effect on assets).
- Mathematical Premium (A/D)
-
Same as Risk
Premium, Pure
Premium and Net
Premium.
- Mathematical Reserves (F)
-
In the context of the UK statutory returns, the mathematical reserves
consist of the value of a company's liabilities including any necessary
resilience test or mismatching reserve. The term also includes any other
aggregated reserves eg AIDS reserves.
Mathematical reserves are published in the DTI returns. For linked
business, the mathematical reserves are the sum of unit reserves plus
sterling reserves. (There is no such distinction for conventional business
since the whole reserve is a "sterling" reserve).
The required solvency margin is not part of the mathematical reserves.
Mathematical reserves are also known as statutory reserves.
- Maturity Date (N)
-
The date at which an endowment policy 'matures' and begins to pay
benefits to the policyholders.
- Maturity (A/D)
-
The time at which the survival benefits accruing under an endowment
policy or the proceeds of another investment become payable.
- Mean (A)
-
The "average" value of a random variable. Technically, its full
name is the arithmetic mean.
- Median (A/D)
-
The value of a random variable that will be exceeded half the time.
- Medical Insurance (A/D)
-
Medical insurance covers the costs of medical treatment and provides
medical care and facilities during recovery.
- Medium Gilt (A)
-
A Gilt
whose remaining term to redemption is between 5 and IS years.
- Member (A)
-
A person who participates in a pension scheme.
- Member (H)
-
Someone who is currently or prospectively entitled to a benefit from a
pension scheme. They may be currently accruing benefits (ie active) or
currently receiving benefits (ie beneficiary or pensioner) or they may be
neither (ie a deferred pensioner).
- Members' Agent (G)
-
An agency within Lloyd's which acts on behalf of members (eg by
introducing them to syndicates).
- Merchant Bank (E)
-
An organisation appointed by companies to give advice on takeovers and
raising capital. Nothing like a high street (or 'clearing') bank.
- Minimum Premium (G)
-
The lowest premium that an insurer is prepared to charge within a class
of business, eg where the sum insured is very low.
- Mismatching Reserve (F)
-
If a life insurance company is mismatched it may be unable to meet claims
as they fall due in the event of adverse future investment conditions. To
reduce this risk, it may set up a mismatching reserve that it can call upon
if experience so requires.
For example, consider situations 1 and 2 below. It is now situation 1,
and 100 assets are thought to be sufficient to meet the 100 value of
liabilities. If things were to change to situation 2 (eg interest rates
rise), we now realise that the assets are not actually enough to meet the
liabilities in all situations.
Situation Value of assets Value of liabilities
1 100 100
2 80 90
In situation 1, if we invest the mismatching reserve in cash, we can
calculate a mismatching reserve of 10 so that even after a change to
situation 2, the assets (80+ 10) are still sufficient to meet the value of
liabilities. Alternatively, if the mismatching reserve were invested in the
same assets as the other reserves, a mismatching reserve of (100/80)*10
would be calculated.
A mismatching reserve can be calculated to protect either the statutory
valuation position, or the real internal solvency position. However, the
term "mismatching reserve" is often used to contrast with a
"resilience test reserve" which applies specifically to the DTI
statutory valuation. In this context, "mismatching reserve" refers
to an amount to ensure the office can pay liabilities as they fall due.
- Model Office (F)
-
A model office is effectively a collection of cashflows. Asset proceeds
and liability outgo are projected for existing and/or future policies and
assets.
By choosing "model points" to represent the policies of the
office or by explicitly using data relating to all in force policies, a
cashflow of the whole office can be built up. The model may be quite
simplistic with just a few model points or may be very complex.
A model office may also be used:
- to project future asset and liability ie to project future valuation
balance sheets (Either statutory or realistic or both.)
- to project future asset shares
- to incorporate a tax model .... etc
- Modified Contribution Rate (H)
-
see GN26
The text of GN26 is copied below for case of reference.
The contribution rate (employer and employee) obtained by adjusting the
Standard Contribution Rate to allow for any Actuarial Surplus. It is
normally expressed as a percentage of pensionable pay. There are various
ways of amortizing the Actuarial Surplus and hence of adjusting the Standard
Contribution Rate. The method used should be appropriate for the purpose.
Also referred to as the Recommended Contribution Rate (RCR).
- Moment Generating Function (A)
-
The expected value of e^(tX) , where t is a dummy variable and X is a
random variable. This function encapsulates all the mathematical properties
of the random variable in a single function. See also: Probability
Generating Function.
- Moment (A)
-
The expected value of (X - a)^k, where k is the order of the moment and a
is a constant. If a equals the mean value of X, this is a central moment. If
a equals zero, this is a noncentral moment.
- Money Market (E)
-
The money market is the market for short term assets (see also Capital
Market).
- Money Purchase (H)
-
The determination of an individual member's benefits by reference to
contributions paid into the scheme in respect of that member, usually
increased by an amount based on the investment return on those
contributions.
- Money Weighted Rate of Return
(A)
-
See Internal
Rate of Return.
- Moral Hazard (G)
-
The risk that individuals will make morally "wrong" decisions
which are to the detriment of the insurer.
- Morbidity (A/D)
-
Technical word for "sickness".
- Mortality Charging (F)
-
A term used in unitised business. Mortality charging is a method of
dealing with a guaranteed death benefit. Explicit mortality charging
involves a deduction from the unit account each period (eg month) to cover
the cost of the death benefit. This deduction is of the form of a
probability of death*sum at risk. The sum at risk is normally only the
excess of the sum assured over the unit account. This is because the unit
account is normally extinguished on death.
Implicit mortality charging is also possible. This involves charging for
expected death benefits through the visible charging structure of the
product eg the allocation rate.
- Mortality Law (D)
-
An empirical rule which describes the pattern of mortality rates as a
function of age. See also: Makeham's
Law and Gompertz'
Law.
- Mortality Profit (A/D)
-
Profit arising to an insurer under a block of policies as a direct result
of favourable mortality experience ie lighter than expected for assurances,
heavier for annuities and pure endowments. Opposite: mortality loss.
- Mortality (A/D)
-
"Technical" word for "death".
- Mortgage Protection Policy (N)
-
A term assurance with a sum assured decreasing more or less in step with
the debt outstanding under a mortgage loan. Normally issued with a single
premium.
- Mortgage (A)
-
A Loan
that is secured on a property. The lender is entitled to repossess and sell
the property if the terms of the agreement are broken.
- Motor Fleet Insurance (A)
-
Motor insurance covering a fleet (ie a group) of vehicles under a single
policy. For example, a policy may cover all the company cars used by the
employees at a particular company or all the delivery vans used by a
particular manufacturing organisation.
- Motor Insurance (A/D)
-
Insurance that provides protection to the owners of motor vehicles. Basic
cover for injury to Third
Parties and damage to their property is compulsory in the UK.
Comprehensive insurance also protects motorists against loss of or damage to
their own vehicles (eg from accidents, fire or theft).
- Motor Insurers' Bureau (MIB) (G)
-
This comprises almost all the insurance companies and Lloyd's
underwriters transacting motor insurance in the UK. The Bureau undertakes to
meet legitimate claims of third parties in respect of liabilities covered by
the Road Traffic Act in circumstances where the third party is unable to
recover from an insurer because the negligent driver is uninsured or
untraced. In the latter case, the payments are limited to non-property
damage claims. The costs of claims met by the MIB are financed by a general
levy on its members.
- Movement (G)
-
A movement of a policy onto or off the books of an insurer.
- Multiple Decrement Table (A/D)
-
A hypothetical table showing the number of survivors and exits amongst a
cohort of individuals. A multiple decrement table caters for more than one
cause of exit eg death, retirement, withdrawal. See also: Life
Table, Single
Decrement Table.
- Multiple State Model (A)
-
A statistical model that describes a population in terms of movements
between "states". The standard sickness model, which has the three
states "healthy", "sick" and "dead", is the
most common example.
- Mutual Insurer (A)
-
An insurer with no outside Shareholders.
The company's profits are used to provide bonuses to policyholders or reduce
premium rates or improve services. See also: Proprietary
Company.
- Mutual Insurer (G)
-
An insurance company which is owned by the policyholders. here are no
shareholders.
- Mutual Office (F)
-
This is a life insurance company that does not have any shareholders.
Many are incorporated by Act of Parliament. Participating policyholders (and
in some circumstances non-participating policyholders) have voting rights.
- Mutually Exclusive Events (A)
-
Events are mutually exclusive if they cannot occur together. The
probabilities of mutually exclusive events can be added to find the
probability of one or more of these events occurring.
