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

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Salvage (G)

Amounts recovered by insurers from the sale of insured items which had become property of the insurer by virtue of settling of a claim.

 

Samurai (E)

A foreign bond issued in yen in the Tokyo bond market.

 

Scale Parameter (A)

In statistical distributions, a parameter that simply defines the "scale" of the measurements, but doesn't affect the "shape" of the distribution. Changing a scale parameter is equivalent to reexpressing observations in different units (eg years to months, to $). As opposed to: Shape Parameter.

 

SEAQ (E)

Stock Exchange Automated Quotations.

 

Seasonal (A/D)

Varying according to the time in the calendar year ie with an annual cycle. Many types of general insurance claims are seasonal.

 

Secondary Market (E)

A market for securities other than at initial issue.

 

Section 148 orders (H)

Orders issued each year which specify the rate of revaluation of earnings used to calculate SERPS pensions and GMPS. The order is based on national average earnings.

When people leave a contracted out scheme with a GMP and preserved benefits, the scheme can choose two alternatives to Section 148 orders for future revaluation:

 

1. Fixed: 7%pa (used to be fixed at 7.5%pa, or 8.5%pa prior to that)
2. Limited:5%pa - or Section 148 orders if less - (a premium has to be paid to choose this alternative)

The name comes from the section of the Pension Schemes Act 1993 (a consolidated Act) which lays down the rules in law.

(Formerly known as Section 21 orders, as this was the section of the original Act relating to contracting out.)

 

Section 32 policy (H)

See Buy Out Policy.

 

Section 68 Orders (F)

An office must obtain approval from the DTI in order to use implicit items to cover its RSM. This approval is called a Section 68 order.

 

Sector (A)

The main types of investments ie Fixed Interest , Equities , Property , Cash and Overseas Investments.

 

Secular (A/D)

"Relating to the passage of time". Derived from the Latin word Saeculum, meaning either a generation or a century.

 

Secured Loan (A)

A loan secured against a specific asset or specific assets. The lender will have the right to reclaim the asset(s) if the borrower does not keep to the terms of the loan.

 

Security (of a Funding Method) (H)

The ability of a funding method to ensure that there will be sufficient assets to meet a scheme's liabilities.

 

Security (E)

A word with several different meanings. Firstly, income or capital will be repaid. Secondly, it might be used to mean any investment that can be traded, or possibly even any investment (irrespective of whether it can be traded).

 

Select Period (A/D)

The Duration. at which the rates in a Select Table Become Equal To the ultimate rates.

 

Selection (A/D)

Selection is present when a group selected from a larger population is not typical of the group as a whole eg the mortality rates for the group may he different.

 

Selection (F)

Among other things, selection is the action taken by a life insurance company - at the proposal stage - to improve the mortality or morbidity experience of its policyholders. More generally, it refer to any process whereby one group of people end up with a different set of features from another group. Used in the context of life assurance where the selection can act to the advantage or disadvantage of the policyholder. Examples include:

 

• class selection: people in a different group (eg old/young) have a different feature (eg high/low mortality)
• anti-selection: used to refer to the situation where policyholders or potential policyholders make a choice which will be to their advantage and to the disadvantage of the life office
• mortality selection: used to refer to the situation of anti-selection where the relevant feature relates to mortality (eg terminally ill people might ask to surrender a pure endowment)
• financial selection: used to refer to the situation of anti-selection where the relevant feature relates to financial conditions (eg when reinvestment rates are very high, and asset values very low, people might ask to surrender any savings policy offering lower rates of return)
• self-selection: often used to describe the feature of voluntary annuitants' mortality (it is very light) since annuitants buy an annuity (presumably) in the expectation that they will live a long time
• initial selection: (also known as temporary initial selection) after people have passed a medical examination, their mortality is temporarily lower than other similar groups of people who haven't just passed a medical examination

 

Self Administered Scheme (H)

A pension scheme where the assets are invested, other than wholly by payment of insurance premiums, by the trustees, an in house manager or an external investment manager.

 

Self Investment (H)

A term used to describe the investment of a scheme's assets in employer related investments.

 

Self-insurance (G)

Where an individual or organisation decides not to obtain insurance for a particular risk.

Large commercial concerns may opt for self-insurance on the grounds that they are avoiding the extra expenses and profit loadings of an insurance policy and have sufficiently strong finances to cope with their likely losses. In practice, they will still seek insurance against very large losses by having insurance contracts with very high excesses. Effectively, having any non-zero excess implies a level of self-insurance. Owning a captive insurance company is a much greater example of self-insurance.

 

Separation Method (G)

A run-off method used to estimate outstanding claims. The method is based upon separating past claims payments into components relating to claims inflation, the total amount payable from a given origin year and a factor reflecting the proportion of claims paid in a given development year.

 

Separation Technique (A/D)

A method used in general insurance for projecting outstanding claims. See also: Chain Ladder Method.

 

SERPS (State Earnings Related Pension Scheme) (A/D)

A state scheme started in 1978 to provide a pension in addition to the basic state pension, funded by National Insurance contributions.

 

Service (A/D)

The period of membership in a pension scheme.

 

Settlement Option (N)

One of the ways in which the policyholder or beneficiary may choose to have the policy proceeds paid.

 

Shape Parameter (A)

In statistical distributions, a parameter whose value affects the "shape" of the Probability (Density) Function. See also: Scale Parameter.

 

Shapes (A)

See: Ordinary Shares.

 

Shareholder (A)

The owner of shares in a Limited Company.

 

Shareholders (F)

Shareholders are the owners of proprietary offices. Shareholders receive dividends. Shareholders are also sometimes asked to inject capital into life offices.

Proprietary offices which write with-profit business have special rules covering how much surplus is allowed to be transferred to shareholders in relation to bonuses declared to with-profit policyholders.

 

Short Gilt (A)

A Gilt whose remaining term to redemption is less than 5 years.

 

Short Sale (E)

Selling a stock which you do not own. By short selling, you make profits if prices fall without tying up any capital. However, you are exposed to the risk of prices rising and making a big loss.

 

Short Selling (E)

Selling securities (or currencies or commodities) that you do not have. For example a market maker may short sell on the expectation that prices will halve - in effect he/she will be holding a negative amount of the security (ie the dealer is in a "short position"). Short selling is possible because there is usually a time delay between agreeing a trade and the settlement date.

 

Short Tail (A/D)

General insurance claims that are settled relatively quickly, as opposed to Long Tail.

 

Short Term Business (A/D)

Another name for General Insurance.

 

Short-Tail (G)

Claims which are reported and settled quickly.

 

Sickness Benefits (A/D)

Also known as "disability benefits".

 

Simple Interest (A)

A method of crediting interest. Interest is credited to the original capital, but not to previous interest payments. Rarely used in practice. See also Compound Interest.

 

Single Decrement Table (A/D)

A hypothetical table showing the number of survivors and exits amongst a cohort of individuals. A single decrement table caters for just one cause of exit eg death.

 

Sinking Fund (E)

A method of repaying (or making provision for eventual repayment of) the capital of a loan over the life of the loan.

 

Skew (A/D)

A statistical distribution that is not symmetrical. Loss distributions for most types of general insurance claims are positively skew, which is indicated by the fact that the mean value is greater than the median and the mode.

 

Slip System (G)

The face-to-face system used within the London market to co-insure risks. Proposed risks are described by a broker on a standard form (slip); terms and the premium rate are added after negotiation with a lead underwriter (who also signs for a certain proportion of the risk), before the slip is circulated by the broker amongst other underwriters who sign the slip to confirm the proportion of risk that they will accept.

 

SMSM (G)

Statutory minimum solvency margin. See Solvency Margin.

 

Soft Premium Rates (G)

Weak (ie low) premium rates. They tend to apply at the bottom of an insurance cycle when insurance business is very competitive.

 

Solvency Margin (F)

In the context of UK practice, the solvency margin of a life insurance company is the excess of the value of the assets over the value of the liabilities that is available to cover its "required" solvency margin. In the case of a proprietary company this excess includes the shareholders' assets to the extent that they are not required to cover the required solvency margin under short-term insurance business.

The required solvency margin is an amount determined according to rules laid down in Regulations. A life insurance company is required to demonstrate that it can cover its required solvency margin.

The phrase "solvency margin" is also used (not strictly correctly) to refer to the required solvency margin.

 

Solvency Margin (G)

Without further qualification, it is the excess of assets over liabilities. As a ratio, it is the excess of assets over liabilities as a proportion of the written premium. Do not confuse the actual solvency margin with the statutory minimum solvency margin (SMSM).

 

Solvency Ratio (G)

The free reserves divided by the net written premiums.

 

Solvency (F)

A life insurance company is solvent if its assets are adequate to enable it to meet its liabilities. In the UK the DTI specify requirements in terms of the values a company can place on its assets and liabilities for the purpose of showing statutory solvency.

Strictly, in assessing solvency, you don't need to allow for future bonuses since these are not guaranteed.

Solvency may be assessed by either cashflow gross premium, formula gross premium or formula net premium methods. However, without modification, the net premium method is unsuitable to demonstrate solvency since it is rather an artificial method. For example, the net premium valued may be larger than the office premium to be collected, which would understate the liability.

 

Spens Clause (E)

A clause protecting preference shareholders. The clause specifies that preference shareholders, on wind-up, receive the higher of their nominal capital or the average recent market value if higher before ordinary shareholders are entitled to anything.

 

Spline Function (A/D)

A spline function is a piecewise continuous function consisting of polynomial segments which join at points called knots. The derivatives on either side of the knots can be matched to produce a smooth function.

 

Spot Rates (F)

A (deterministic) approach to modelling future investment returns involving an initial investment return (eg the gross redemption yield on gifts) and a future investment return which might for example start at the initial level and fall gradually to a prudent level. Needs a cashflow approach to apply. The phrase "spot rates" may also be used to apply to other parameters which vary over time.

 

Spouse's Pension (A/D)

A pension payable to the partner of an assured life or pension scheme member following death. The policy conditions will specify the precise definition of "spouse". "Spouse" is the accepted (but illogical) non sex dependent word for "widow or widower".

 

Spread (E)

The difference between buying and selling price. Also a derivatives strategy.

 

Stability Clause (G)

A clause in a non-proportional reinsurance treaty which provides for the indexation of monetary limits in line with a specified index (eg RPI). Ale clause provides stability in real terms.

 

Stability (of a Funding Method) (H)

The ability of a funding method to produce a Standard Contribution Rate which is not greatly affected by fluctuations in experience.

 

Standard Contribution Rate (H)

see GN26

The text of GN26 is copied below for case of reference.

The contribution rate (employer and employee) appropriate to a particular funding method before taking into account any Actuarial Surplus. It is normally expressed as a percentage of pensionable pay.

 

State Earnings Related Pension Scheme (SERPS) (H)

A term widely used to describe the additional pension provisions of the state pension scheme.

 

State Pension Scheme (A)

A pension scheme providing benefits to residents of a particular country. In the UK this consists of a flat rate pension and SERPS.

 

State Scheme Premiums (H)

A payment made from a contracted out arrangement to the state scheme to reinstate part or all of the SERPS entitlement of one or more members. These include:

 

Accrued Rights Premium (ARP)

Scheme ceases to be contracted out (non-pensioners' GMPs)

Pensioner's Rights Premium (PRP)

Scheme ceases to be contracted out (pensioners' GMPs)

Protected Rights Premium (PROP)

Scheme ceases to be contracted out (protected rights)

Contributions Equivalent Premium (CEP)

Member leaves without a pension entitlement

Limited Revaluation Premium (LRP)

Leaver with a GMP subject to limited revaluation

Transfer Premium (TP)

Member transfers to a non contracted out arrangement

You will come across a few of these in your course of study, although you will not be required to know much about most of them.

 

Statutory Minimum Solvency Margin (G)

The minimum level by which a company's assets should exceed its liabilities according to insurance company legislation. Very very approximately it is 20% of net written premiums.

 

Statutory Reserves (F)

The reserves a life office actually publishes in the DTI returns. Also known as mathematical reserves.

The phrase minimum statutory reserves refers to the lowest level of reserves an office could publish.

 

Sterling Reserve (F)

A phrase used in unit-linked business.

A company will have sterling liabilities under its unit-linked contracts - for example the expenses of managing the business - for which it receives sterling payments in the form of the charges it extracts. If it expects that the charges will not be sufficient to meet the liabilities, it has to hold a positive sterling reserve to provide for the deficiency.

The sterling reserve is calculated using a gross premium cashflow model (which will include the unit reserve as part of the cashflow model) to make sure that there are no future net negative cashflows generated by the policy. The sterling reserve may in some situations be negative.

 

Sterling (E)

The expression used for the UK currency. For example, "pressure on sterling" means that there's downward pressure on the value of the UK pound in relation to other currencies.

 

Stochastic (A/D)

A stochastic model allows for random variation in the value of variables. See also: Deterministic.

 

Stochastic (F)

Contrasts with "deterministic". A stochastic approach to a problem is one which includes at least one parameter which is a random variable (as opposed to a deterministic approach, which doesn't).

 

Stock Exchange Automated Quotation Facility (E)

See SEAQ.

 

Stock Index Futures (E)

Futures contracts based on a stock index such as Footsie (see also Financial Futures).

 

Stock Split (E)

Also known as a bonus or scrip issue.

 

Stop Loss (G)

Also called excess of loss ratio reinsurance. A form of excess of loss treaty reinsurance which provides cover for a proportion of total losses in a given period from a lower limit (defined by a loss ratio) up to an upper limit (a higher loss ratio).

 

Straddle (E)

Simultaneous purchase of a call and put option which have the same exercise price and date.

 

Strong Basis (H)

A way of referring to sets of valuation assumptions. A strong basis is a conservative basis which produces a high value of liabilities or a low value of assets. Therefore, if a scheme has a good level of funding on such a basis, it is in a strong position.

See also Weak Basis.

 

Style Analysis (E)

Another name for attribution analysis.

 

Subrogation (G)

A legal expression meaning the substitution of one party for another as creditor, with a transfer of rights and responsibilities. It applies within insurance as soon as the insurer recognises a valid claim by an insured. The insurer then assumes responsibility for the losses and recoveries relating to the claim.

 

Sum Assured (A/D)

The stated level of benefit payable under a life assurance policy.

 

Sum Assured (F)

This refers to the amount of benefit payable under an endowment, pure endowment, term assurance or whole life contract. In the case of a non-profit contract this is the only amount paid. In the case of a with-profit contract, the company will usually add bonuses to the amount payable.

A few contracts have more than one sum assured, payable under different circumstances. For example, some savings contracts have a low sum assured on death which receives no bonuses, and a higher sum assured on maturity which does receive bonuses.

 

Sum Assured (N)

The cash benefit guaranteed by a life policy; payable in a lump sum or by instalments (known as Face Amount in U.S.A.).

 

Sum at Risk (F)

The difference between the sum assured and the reserve for a policy.

This is effectively the extra cash the office would have to find should this particular policy become a claim.

 

Sum Insured (A/D)

The declared value of an insured object eg a building. Premiums are often expressed as a percentage or per mille of the sum insured.

 

Sunset Clause (G)

Clause defining the time limit within which a claim must be notified, if it is to be valid (this is especially relevant where the reinsurance contract is not renewed. After this period the reinsurer can "walk away").

 

Suretyship (G)

Insurance to provide a guarantee of performance or for the financial commitments of the insured. Also known as fidelity guarantee insurance.

 

Surplus Reinsurance (G)

A form of proportional reinsurance where the proportions are, subject to limits defined in the treaty, determined by the ceding office for each individual risk covered by the treaty.

 

Surplus (F)

Surplus is the excess of the value placed on a life insurance company's assets over the value placed on its liabilities. A negative surplus is usually called a strain or deficit. There are various connected terms, which it is useful to define here together:

 

1. Total surplus (or surplus)
   • assets minus liabilities for whole office
   • could be assessed using cashflow gross premium, formula gross premium or formula net premium methods
   • could be realistic or not
   • the amount would depend on basis
   • for a realistic amount, use market value or discounted value of assets and consistent value of liabilities
2. Surplus arising
   • the difference between Total surplus this year and last year
3. Disclosed surplus
   • assets minus liabilities for whole office
   • on published basis
   • probably using net premium valuation of liabilities, market value of admissible assets
4. Distributable surplus
   • the amount of total surplus you decide you can distribute
   • could be realistic or not, probably implies on published basis
   • made up of surplus arising "naturally", plus the amount by which you think it would be
   • safe to write up the fund to release the free assets
5. Distributed surplus
   • the amount of total surplus you decide to distribute
   • could be realistic or not
   • probably refers to the published (statutory) value of distributed surplus
   • surplus distributed is the cost of the bonus declaration plus the cost of transfers to shareholders (if any) (made up of surplus arising plus the amount by which you decide to write up the fund)

 

Surplus (G)

A form of proportional reinsurance, usually by treaty but also available faculatively. For each individual risk reinsured, the direct writer retains a portion of the risk (called the line) and cedes the rest. Premiums and claims for that risk are split in the same proportion.

 

Surrender Value (A/D)

The amount payable to a policyholder who Surrenders an insurance policy.

 

Surrender Value (F)

This is the amount paid out to a policyholder who surrenders his or her contract.

The words "surrender values" in the Syllabus include the transfer values payable in respect of certain UK Pension Business contracts. In the case of such transfer values, the payment is not made to the policyholder but to another institution providing pensions business contracts.

To protect the life office from financial selection, surrender values are not normally specific guaranteed amounts of money. For unit-linked policies, the method of calculating surrender values will normally be guaranteed (eg bid value of units, or bid value of units minus a specified penalty).

 

Surrender Value (N)

Cash value of a policy payable if the policy is discontinued by arrangement with the life office. Surrender values are inevitably small in the early years of the policy; usually nil over the first year or two. See also Paid-Up Policy.

 

Surrender (A/D)

Termination of an insurance policy by the policyholder before the expiry of its term.

 

Surrender (F)

A surrender occurs when a policyholder ceases paying premiums under a life assurance contract, ie withdraws, and the assurance company makes a payment - a surrender value - to him or her.

Surrender is at the option of the policyholder. By surrendering (fully; in some cases, it may be possible to "part surrender" a policy) the contract, the policyholder gives up all rights to future benefits which would have been payable under the contract, including profit sharing for a with-profit contract.

 

Switching Option (F)

A switching option is a special case of an option. It arises under unitised contracts where the policyholder has the right to switch his or her unit-holding into a different choice of linked funds including into or out of a unitised with-profit fund.

These switches are often allowed on a bid-bid basis, which means that the policyholder does not suffer a second bid-offer spread on switching. A policy may allow one free switch per year, with subsequent switches being charged a fee.

 

Syndicate (E)

A group. The expression is often used when a group of banks underwrite together.

 

Syndicate (Lloyd's) (G)

A group of Lloyd's Names who collectively co-insure risks. The syndicates usually specialise in particular types of insurance and each Name will usually spread their exposure by belonging to many different syndicates.