- Name (G)
-
The title for a member of Lloyd's, who risks his/her personal wealth in
backing insurance risks.
- NCI Profit (F)
-
An assessment of trading profit for the whole life office. Only relevant
to proprietary life offices. Two main uses:
- Used for a minimum tax test for proprietary life offices.
- Even if the minimum tax test does not bite, NCI profit is used to
split taxable profit into components taxed at different tax rates.
- Negative Reserve (F)
-
The value of a life assurance contract will be negative if the value of
future premiums exceeds the value of the benefits plus future expenses. This
is a negative reserve and it means that the contract is being treated as an
asset. In certain circumstances, such as for statutory purposes in the UK,
companies may not treat policies as assets and they have to set any negative
reserves to zero. For example, if an office had two policies, one with a
reserve of 100, the other with a reserve of - 10, it might think of its
liabilities of 100 rather than 90 in case the second policy lapsed. This
process is called "eliminating negative reserves".
For internal investigations, it is (hopefully!) unrealistically
pessimistic to eliminate all negative reserves, since not all such policies
will lapse. Therefore, if a sophisticated internal investigation is being
made and if an adequate lapse decrement is included in the basis, there is
no need to eliminate negative reserves.
For the DTI Returns, the minimum standard is one in which negative
reserves must be eliminated.
As mentioned, a policy which has a negative reserve is sometimes
described as "an asset of the office". The suggestion that
policies "should not be treated as assets" is the same as saying
"negative reserves should be eliminated".
- Negative Sterling Reserve (F)
-
Reserves for unit-linked business are split into a unit reserve and a
sterling reserve. The reason for this is that many of the liabilities under
a unit-linked policy are defined in terms of the behaviour of particular
assets.
The sterling reserve is calculated by cashflow methods (after the unit
reserve has been calculated, since some of the items in the cashflow model
used are affected by the unit reserve eg the annual management charge). The
cashflow valuation works on the idea of eliminating any net future negative
cashflows.
The result of this calculation may be such that a negative sterling
reservers still consistent with no future negative cashflows. Subject to
certain constraints, It may be possible for a life insurance company to set
up negative sterling reserves in respect of such contracts. Negative
sterling reserves represent loans from contracts with positive reserves that
the company can use to help meet its financing requirement under unit-linked
contracts.
For example, consider the situation of future (positive) sterling
cashflows of 2,2,2,2. This may be consistent with a sterling reserve of -8
(ignoring interest and many other complications) since the "debt"
of -8 can be eliminated by using each of the positive sterling cashflows,
and without creating any future negative cashflows.
The idea of a negative sterling reserve is very similar to the idea of a
negative reserve. However, since a unit-linked policy may have a unit
reserve too, negative sterling reserves need not produce an overall negative
reserve for the policy. If the unit reserve (+) exceeds the negative
sterling reserve (-) on a particular policy, then that policy is not an
asset overall. Because of this, negative sterling reserves need not be
eliminated for the DTI Returns (unless they result in negative overall
reserves).
- Negotiable (E)
-
Tradeable. Property, shares, equities are all negotiable. Most bank
accounts are not.
- Net Asset Value (E)
-
The book value of the shareholders' interests in a company, usually
excluding intangibles such as goodwill.
- Net Premium Valuation (F)
-
This is a method for placing a value on a life insurance company's
liabilities that involves valuing the contractual liabilities to date
allowing for mortality and interest and deducting the value of future net
premiums.
The net premium valuation does make an implicit allowance for future
expenses if the office premium is larger than the net premium on a regular
premium contract.
- Net Premium (A/D)
-
A premium calculated with no allowance for expenses. Same as: Risk
Premium, Pure
Premium . See also: Office
Premium.
- Net Premium (F)
-
In the context of a net premium valuation it is the premium calculated on
the basis of the valuation assumptions to provide the contractual benefits
at outset. Its calculation only allows explicitly for interest and mortality
(or morbidity). It may be Zillmerised in order to treat initial expenses in
a more realistic way.
The term "pure" premium is also used.
A net premium may be smaller or larger than the office premium, depending
on the relationship between the valuation and premium basis. Unless the
valuation basis is very strong, it would be expected to be smaller than the
office premium.
- Net Premium (G)
-
Usually net premium will mean net of reinsurance, although it could mean
net of expenses and/or commission.
- Net Relevant Earnings (H)
-
Earnings used in determining the maximum contributions to a retirement
annuity or personal pension scheme which qualify for tax relief.
- Net-Net Basis (F)
-
A term used to reflect taxation pricing and valuation assumptions. If a
net-net basis is used, both interest and expenses are netted down for tax in
bases.
See Excess
Interest (XSI).
- New Business Strain (F)
-
New business strain arises when the early years' premiums under a
contract, less the initial expenses and any early claims, are not sufficient
to cover the reserve, plus any explicit required solvency margin, that the
company needs to set up. It primarily arises at the outset, but it is
possible to have further strains - usually lower - in subsequent years.
There is a distinction between cashflow new business strain and valuation
new business strain:
- If the asset share is negative, there is always new business strain in
the statutory valuation, since negative reserves have to be eliminated.
This is called cashflow strain (since the net cashflow in the
calculation of the asset share is negative).
- Valuation new business strain occurs when the asset share is positive,
but the reserve is larger (single premium annuities are the classic
example). Valuation new business strain for with-profit business may be
caused by a bonus declaration, which increases the reserve required
after the bonus is declared on a net premium valuation.
For a conventional contract, new business strain occurs if the asset
share is less than the reserve (plus explicit required solvency margin).
Some practitioners will not consider the required solvency margin when
describing new business strain, others will include the whole of the
required solvency margin.
- New Money (A)
-
Funds that have not been generated from an investment itself eg
contributions made to a pension fund, as opposed to dividends and interest
payments earned directly from the investments. The distinction is important
in analysing investment performance.
- Newton-Raphson Formula (A)
-
An iterative formula for finding the root of an equation of the form f(x)
= 0. Successive approximations to the root are calculated using the formula
x* = x - f(x)/f'(x). Graphically, the method involves repeatedly projecting
the tangent to the graph of the function to find the point where it
intersects the x-axis.
- NI Rebate (H)
-
The difference between the national insurance contributions payable (by
both employer and employee) if a member is in a contracted out scheme rather
than in a contracted in scheme.
- Nil Claim (G)
-
A claim which results in no payment by the insurer, ie invalid claims and
where the claim amount is less than the excess.
- No Claims Discount (NCD) (A/D)
-
A no claims discount system is a form of Experience
Rating where the premium is reduced according to the number of
claim-free years the policyholder has had. Predominant in private motor
insurance in the UK. See also: Experience
Rating.
- No-Claim Discount (NCD) (G)
-
A form of experience rating in which policyholders are allowed a discount
from the basic premium according to a scale which depends upon the number of
years since the last previous claim. In practice, the systems often do not
count claims where the policyholder was not at fault and will usually still
provide some discount if a claim is made after a previously long claim free
period. It is used most often in private car insurance and occasionally in
other classes such as household contents and medical expenses insurance.
- Non Contributory Pension
Scheme (A/D)
-
A pension scheme in which members are not required to make contributions.
The cost of the scheme is met by the employer.
- Non Life Business (A/D)
-
Another name for General
Insurance.
- Non-Forfeiture Clause (N)
-
Provision in policy setting out the conditions on which and the extent to
which the policy may remain in force notwithstanding failure to pay a
premium before the end of the days of grace (known as automatic premium loan
in U.S.A.).
- Non-Participating (F)
-
A non-participating policy is one which does not receive bonuses. The
phrase (strictly) includes non-profit and unit-linked business, although it
is often used as synonymous with the phrase non- profit.
- Non-Profit Policy (F)
-
A conventional contract whose premiums and benefits are guaranteed from
the start of the contract and are not augmented at the discretion of the
office. The phrase non-profit policy is normally also taken to exclude
unit-linked business. For most non-profit business, certain benefits are
guaranteed provided specified premiums are paid. (Other benefits, eg
surrender values, are generally not guaranteed.)
As mentioned, most unit-linked contracts are non-profit in a narrow sense
because they do not share in the profits of the office. However, it is
easier to think of unit-linked as a separate group.
- Non-proportional Reinsurance (G)
-
Reinsurance arrangements, where the risk is not shared proportionally
between the cedant and reinsurer.
- Normal Distribution (A)
-
A continuous statistical distribution that arises naturally for
quantities that can be considered as an additive average of a number of
separate factors. See also: Central
Limit Theorem.
- Normal Retirement (A/D)
-
Retirement on attainment of a specified age (eg 60 or 65) at which
workers at a particular company usually retire.
