371 TXTPDF 12 Glossary
Transcript of 371 TXTPDF 12 Glossary
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Glossary Risk Management and Product Design for Insurance CompaniesGLOSS.2
administrative expense charge. For variable (unit-linked) life insurance and
annuity products, a periodic charge assessed to cover the insurers costs of issu-
ing the contract, making administrative changes to the contract and records,
making transfers among variable fund subaccounts, crediting investment earn-
ings to contract accounts, and paying claims and annuity income benefits. [7]
adverse deviation. In product operations, a deviation that produces a decrease inactual product profitability relative to assumed product profitability. Contrast
withfavorable deviation. [6]
ALM. Seeasset-liability management.
annual reset method. For fixed indexed annuities (FIAs), an index-crediting
mechanism that involves comparing the value of the index at the start of the
contract year with its value at the end of the contract year. Also known as the
ratchet method. [13]
annuity. For purposes of financial analysis, any series of equal payments made
at regular intervals over a specified time period. See also annuity due and
ordinary annuity. [8]
annuity due. A series of periodic payments for which the payment occurs at the
beginning of each payment period. Contrast withordinary annuity. [8]
annuity mortality table. A type of mortality table that shows the projected mor-
tality rates and survival rates for a population of annuitants only. [10]
AOM. SeeActuarial Opinion and Memorandum.
appraisal value. A companys embedded value (EV) plus the value of its future
sales. See alsoembedded value (EV)and market value. [15]
asset adequacy analysis. A broad actuarial practice undertaken to ensure that the
assets backing reserves meet established standards. [4]
asset-based commission schedule. For annuities, a commission schedule inwhich commissions are calculated as a percentage of the accumulation value of
a deferred annuity contracts funds. Contrast withdeposit-based commission
schedule. [3]
asset concentration risk. The risk of the excessive concentration of assets in any
single category. [2]
asset-liability management (ALM). The practice of coordinating the adminis-
tration of an insurers asset portfolio (its investments) with the administration
of its liability portfolio (its obligations to customers) so as to achieve the best
possible financial effects. [2]
asset management charge. For variable (unit-linked) life insurance and annuityproducts, a periodic charge assessed to cover the operating costs associated
with establishing and managing a variable products underlying investment
funds. [7]
asset portfolio. In asset-liability management (ALM), the portfolio in which the
insurer holds securities and other invested assets. [2]
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Risk Management and Product Design for Insurance Companies Glossary GLOSS.3
asset risk. For an insurer, the risk that it will lose money on its investments in
stocks, bonds, mortgages, and real estate. One of four officially recognized C
risks. Also known as C-1 risk. [1]
assets. All the things of value owned by a company, such as cash, investments,
buildings, furniture, and land. [1]
assumed mortality. The hypothetical or assumed number or rate of deaths in agiven cohort, or group of people. [10]
assuming company. Seereinsurer.
back-end sales charge. A one-time transaction charge imposed when shares in sub-
account investment funds are sold. Contrast withfront-end sales charge. [7]
balance sheet. A financial document that lists the values of a companys assets,
liabilities, and capital and surplus as of a specific date. Contrast withincome
statement. [1]
basic accounting equation. A mathematical formula which states that an insurers
assets equal the sum of its liabilities and owners equity (capital and surplus);
forms the basis of a balance sheet. See alsobalance sheet. [1]
basic mortality table. A type of mortality table that has no margin built into
the rates, is used for technical product design, and provides realistic mortality
rates so that an insurer can best estimate future mortality costs. Contrast with
valuation mortality table. [10]
basis point (bp). One-hundredth of a percent0.01%or 0.0001. [9]
benchmark index. Seereference index.
benchmarking. A comparison study that consists of (1) identifying the best out-
comes that other companies have achieved for a specific activity or process
and the practices that produced those outcomes and (2) implementing the best
practices to equal or surpass the best outcomes. [3]
benefit utilization. Seepolicyholder behavior.
bp. See basis point.
business credit risk. Seecounterparty risk.
business plan. Seeproduct proposal.
C-1 risk. Seeasset risk.
C-2 risk. Seepricing risk.
C-3 risk. Seeinterest-rate risk.
C-4 risk. Seegeneral management risk.
cap. For fixed indexed annuities (FIAs), the upper limit on the amount of a refer-
ence indexs gain in value that is credited to the annuity contract. [13]
capital adequacy. The minimum amount of capital an insurer must hold to meet a
specified standard for capital. [4]
capital adequacy testing. Seedynamic solvency testing.
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Glossary Risk Management and Product Design for Insurance CompaniesGLOSS.4
capital and surplus. For insurers, the amount remaining after liabilities are sub-
tracted from assets; owners equity in an insurance company. [1]
capital budgeting. The analysis of decisions about the investment of long-term
funds. [15]
cash flow. Any movement of cash into or out of an organization. [1]
cash-flow matching. A technique that involves identifying the patterns of cash
outflows for products and matching those cash outflows with a selection of
assets that will produce a similar pattern of cash inflows. [2]
cash-flow testing (CFT). The use of simulation modeling to project into a future
period the cash flows associated with an insurance companys assets and liabili-
ties as of a given valuation date and to compare the timing and amounts of asset
and liability cash flows at various times after the valuation date. [4]
cash inflow. A movement of cash into an organization. Also known as a source
of funds. [1]
cash outflow. A movement of cash out of an organization. Also known as a use of
funds. [1]
cash surrender value. The amount that is actually available to the owner of a cash
value life insurance policy when the policy is surrendered, after adjustments
have been made for additions and subtractions. [9]
ceding company. See direct writer.
CFT. Seecash-flow testing.
coherence. Relative to data quality, the degree to which data can successfully
be integrated with other statistical information, both over time and in a broad
analytic framework. [4]
cohort. A defined group of people. [10]combined retention. Seecorporate retention limit.
common cost. Seeindirect expense.
competitive intelligence. The systematic collection and analysis of publicly avail-
able information about competitors and ongoing developments in the marketing
environment. [5]
compounding period. Each of the interest periods used in future value calcula-
tions. Contrast with discounting period. [8]
comprehensive business analysis. In the product development process, the stage
in which a company evaluates all the factors that are likely to affect the design,
production, pricing, marketing, and sales potential of a new product. [5]
concurrent control. A type of control that addresses a companys current activities
and systems by continuously monitoring activities as they are performed. [11]
conditionally vested commission. For life insurance sales, a commission that
becomes vested only after a producer reaches a certain age or number of years
of service with the company. [3]
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Risk Management and Product Design for Insurance Companies Glossary GLOSS.5
conditional tail expectation (CTE). A statistical measure of the severity of tail
risk; calculated as the average of all the values within a specified range of a
probability distribution. See alsotail risk. [4]
constants. Seefixed assumptions.
contingency pricing structure. A variation in premium rate structures for indi-
vidual life insurance products that gives the company mechanisms for adjustingthe companys charges for an in-force product to reflect the companys financial
results from the product. [6]
contractholder behavior. Seepolicyholder behavior.
contract maintenance charge. For variable (unit-linked) life insurance and annu-
ity products, a periodic charge assessed to cover general maintenance costs,
such as preparation of account and other statements. [7]
contractual reserve. A liability account that identifies the amount that, together
with future premiums and investment income, an insurer estimates it will need
in order to pay policy benefits as they come due. [1]
control cycle. A repetitive process designed to ensure that all areas of a companyadhere to the companys performance standards. [11]
controllable expense. A cost over which a specified manager or organizational
unit has power and influence. Contrast withnoncontrollable expense. [3]
corporate retention limit. The maximum amount of acceptable total retention
under all lines of business that a group of affiliated companies will retain on any
one person. Also known as combined retention. [11]
cost accounting system. An accounting subsystem that accumulates expense
data for the dual purposes of effective cost control and accurate product design
activities. [3]
cost accumulation. The process of capturing all of a companys costs and catego-rizing them in meaningful ways. [3]
cost allocation. The accounting process of assigning an indirect cost to a par-
ticular cost object according to a formal procedure. Also known as expense
allocation. [7]
cost allocation method. The formal procedure used to assign indirect costs. [7]
costing. The process used during technical product design to set a products
expense projections. [7]
cost object. An operational unit for which a business accumulates, tracks, and
measures costs. [7]
cost of benefits. The value of the benefits guaranteed under in-force contracts.
The projected cost of benefits generally equals the sum of each potential benefit
payment to a customer times the expected probability that the benefit will be
payable. Also known as thecost of insurance. [6]
cost of capital. The overall percentage cost the insurer pays for the funds it
employs. [15]
cost of insurance. Seecost of benefits.
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Glossary Risk Management and Product Design for Insurance CompaniesGLOSS.6
counterparty risk. The risk that a counterparty will fail to perform an obligation
to an insurer; also known as businesscredit risk. [2]
credit risk. The risk that either a party will default on its obligations to an insurer
or an insurer will sustain a loss based on an adverse change in a partys credit-
worthiness. [2]
crediting-rate resolution. A formal declaration by the board of directors of therate of interest the insurer will credit on customers money held in interest-
bearing products. [2]
CTE. Seeconditional tail expectation.
currency risk. The risk arising from changes in currency exchange rates. [2]
current interest-crediting rate. The interest rate an insurer declares and pays if
a fixed deferred annuity contract remains in force for a specified period of time.
See also guaranteed interest-crediting rate and excess interest-crediting
rate. [9]
current mortality rate. In universal life (UL) products, the monthly mortality rate
actually used to calculate the monthly mortality charge; is generally substan-tially lower than the guaranteed maximum mortality rate. See alsoguaranteed
maximum mortality rate. [12]
customer behavior. Seepolicyholder behavior.
customer behavior risk. See policyholder behavior risk.
Day 1 functionality. Product administration and IT elements that a company must
have in place and functioning when a product is first made available for sale. [6]
Day 2 functionality. Product administration and IT elements that a company may
delay in making functional until after Day 1. [6]
declined. In individual life insurance underwriting, a risk that an insurer will notaccept. [11]
default. A failure to meet a financial obligation. [2]
default risk. The risk that an insurer will not receive the cash flows to which it
is entitled because a party with which the insurer has a financial arrangement
is late with payments or entirely fails to pay its obligations. Also known as
invested asset credit risk. Seedefault. [2]
dependent variable. A variable that reacts to outside influences. By convention,
dependent variables are labeledy. Contrast withindependent variable. [4]
deposit-based commission schedule. For annuities, a commission schedule that
pays commissions only on new premium payments made by annuity owners.Contrast with asset-based commission schedule. [3]
derivative. Seederivative security.
derivative security. A financial security, such as a stock option, that derives its
value from another security. Also known as a derivative. [6]
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Risk Management and Product Design for Insurance Companies Glossary GLOSS.7
deterministic modeling. A form of quantitative modeling that simulates the real-
world interactions of a stated set of input variables and produces a single set of
output variables. Contrast with stochastic modeling. [4]
development expenses. For insurance and annuity products, the expenses an
insurer incurs in starting a new product or product line; a type of operating
expense. Also known as research and development (R&D) expenses. [3]DFA. See dynamic financial analysis.
direct costing. Seemarginal costing.
direct expense. A product expense incurred for or physically traceable to a speci-
fied life insurance or annuity product. Also known as a traceable cost. Contrast
withindirect expense. [3]
direct writer. In reinsurance, the insurance company that purchases insurance
from another insurance company. See alsoreinsurance andreinsurer. Also
known as a ceding company. [2]
discounting period. Each of the interest periods used in present value calcula-
tions. Contrast withcompounding period. [8]
diversifiable risk. Risk that is specific to an individual asset or issuer. Also known
as nonsystematic risk orspecific risk. [2]
diversification. A technique for spreading risk by investing in different assets
having different risk profiles. [2]
downsizing. See rightsizing.
DST. Seedynamic solvency testing.
duration. A statistic that measures the price sensitivity of an asset to changes in
interest rates. [2]
duration gap report. A report that describes the results of duration analysis of aninsurers investment and product portfolios; provides a snapshot of the insurers
asset-liability match at the time of the report. [2]
duration matching. A strategy that involves matching the duration statistics for
fixed-income assets such as bonds with the duration statistics for the products
that the assets support. [2]
dynamic assumptions. In product modeling, variables that change over time, but in
a way that is predictable and formula driven. Contrast withfixed assumptions.
[14]
dynamic financial analysis (DFA). The use of simulation modeling and multiple
scenario testing to project into a future period an insurers assets, liabilities, andowners equity as of a given valuation date and to compare the values of those
variables at various times after the valuation date. [4]
dynamic solvency testing (DST). An application of dynamic financial analysis
that involves projecting into a future period an insurers capital as of a given
valuation date and comparing the projected amounts of capital at various times
after the valuation date. Also known as capital adequacy testing. [4]
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Glossary Risk Management and Product Design for Insurance CompaniesGLOSS.8
earnings. For an insurance or annuity product, the amount that a product adds to
the insurance companys capital in a given period; takes into account noncash
adjustments, such as a products contribution to capital. [15]
earnings statement. Seeincome statement.
economic capital. An estimate of the amount of capital that a financial institution
calculates to internally manage its own risks. Also known as internal capital.Contrast withregulatory capitaland rating agency capital. [1]
embedded value (EV). A measure of the economic worth of a life insurance busi-
ness, excluding any value attributable to future new business; equal to the pres-
ent value (PV) of expected future distributable profits pertaining to in-force
covered business, after sufficient allowance is made for the aggregate risks rep-
resented by this business. [15]
enterprise risk management (ERM). A system that identifies and quantifies
risks from both potential threats and potential opportunities and manages these
risks in a coordinated approach that supports the organizations strategic objec-
tives. [2]
equity risk. The risk arising from movements in the direction of the stock market.
See alsomarket risk. [2]
ERM. Seeenterprise risk management.
ethical behavior. Behavior that meets accepted standards of moral conduct. [3]
ethics. Standards of moral conduct. [3]
EV. Seeembedded value (EV).
excess capital. Seeuncommitted capital.
excess interest-crediting rate. For fixed deferred annuities, the amount by which
the current interest-crediting rate exceeds the guaranteed interest-crediting rate.See alsointerest-crediting rateand guaranteed interest-crediting rate. [9]
expected mortality. The number or rate of deaths statistically likely to occur in a
group of people at a given age. [10]
expense. An amount that a company spends in the course of conducting business.
Contrast withrevenue. [1]
expense allocation. Seecost allocation.
experience mortality rate. The historical rate of death in a given cohort. [10]
experience study. A study of data representing company or industry-wide histori-
cal experience with a specified modeling variable. [4]
exponent. A number that indicates the power to which a base number has been
raised. [8]
extrapolation. In financial modeling, the process of estimating values outside of
a known range on the basis of other values derived from direct observation. [4]
favorable deviation. In product operations, a difference between actual and
assumed product values that produces an increase in actual product profitability
relative to assumed product profitability; such a deviation requires no corrective
action. Contrast withadverse deviation. [6]
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Risk Management and Product Design for Insurance Companies Glossary GLOSS.9
feasibility study. An evaluation of whether a company has the capability to take
a new product to market. [5]
feedback control. A type of control that is used to compare performance or output
with established standards. [11]
feedforward control. Seesteering control.
FIA. Seefixed indexed annuity.
field underwriting standards. Criteria for sales producers to use for pre-screen-
ing life insurance applicants. [11]
financial model. A computer-based mathematical model that approximates the
operation of real-world financial processes. [4]
financial risk characteristic. In individual life insurance underwriting, finan-
cial information about a persons economic status, including an indication of
whether the person is applying for more insurance than he reasonably needs or
can afford. [11]
first-year commission. In individual life insurance, a commission that is payablewhen a policy is sold. Contrast withrenewal commission. [3]
fixed amount option. A guaranteed annuity payout option that requires the annu-
ity owner to choose the payment amount of the periodic payments, so the
same sum will be paid on a regular basis until the contract value is exhausted.
Contrast withfixed period option. [13]
fixed assumptions. In product modeling, variables for which actuaries assign a
specific value or proportional relationship and for which the value or proportion
remains unchanged throughout multiple iterations of a model. Also known as
constants. Contrast withdynamic assumptions. [14]
fixed expense. An expense that remains relatively constant regardless of the num-
ber of policies sold or some other measure of the level of operating activity.Contrast withvariable expense. [3]
fixed fund option. For deferred variable annuities, an option that guarantees a
fixed rate of interest for a specified period of time. Premiums allocated to a
fixed fund option are administered and invested with the insurers general
account. [13]
fixed indexed annuity (FIA). A type of annuity that offers the contract owner
specified guarantees as to premiums and earnings on premiums, but also offers
the possibility of additional earnings by linking crediting on the accumulation
value to a published index of stock market prices. [13]
fixed period option. A guaranteed annuity payout option that requires the annu-ity owner to choose the length of time the periodic payments will continue, and
then the company distributes the contract value in a series of equal payments
that, in total, are actuarially equivalent to the contract value. Contrast with
fixed amount option. [13]
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Glossary Risk Management and Product Design for Insurance CompaniesGLOSS.10
flexible premiums. For life insurance products, a form of premium payment
in which a customer can make payments to the company at various times to
increase the savings element in a contract that was established with a single
initial premium; such premiums are used with universal life insurance. [12]
floor provision. For fixed indexed annuities (FIAs), a provision which specifies
that the contracts values are not reduced if the linked index decreases in valueduring a measurement period. [13]
fraud. An act by which someone intentionally deceives another party to get that
party to part with something of value. [3]
free surplus.Seeuncommitted capital.
front-end sales charge. A one-time transaction charge imposed when shares in
subaccount investment funds are purchased. Contrast with back-end sales
charge. [7]
full costing. A method for estimating product-related expenses in which both direct
and indirect expenses are counted. Also known as absorption costing. [7]
fund operating expense charge. For variable (unit-linked) life insurance andannuity products, an annual charge assessed by a fund manager to cover the
advisory and administrative services provided by the manager. [7]
futures studies. Studies that identify possible developments that could disrupt
trendsthereby changing the extrapolation of the values from the past
and then produce an array of possibilities for future values based on these
developments. [4]
future value (FV). The amount that an original sum is expected to be worth at
a specified future date, given a specified interest rate. Contrast withpresent
value (PV). [8]
future value interest factor (FVIF). The future value of $1.00 at a given rate ofinterest for a stated number of periods. [8]
future value interest factor for an annuity (FVIFA). The compound value inter-
est factor that represents the future value of a $1.00 annuity at a given rate of
interest for a stated number of periods. [8]
future value interest factors (FVIF) table. A table that lists the values of future
value interest factors (FVIFs) for a variety of interest rates and compounding
periods. [8]
future value interest factors for an annuity (FVIFA) table. A table that lists the
values of future value interest factors for an annuity (FVIFAs) for a variety of
interest rates and interest compounding periods. [8]
future value of an annuity. The amount that a series of equal payments earning
compound interest will be worth at a given future date. [8]
FV. See future value.
FVIF. See future value interest factor (FVIF).
FVIF table. Seefuture value interest factors (FVIF) table.
FVIFA. Seefuture value interest factor for an annuity (FVIFA).
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Risk Management and Product Design for Insurance Companies Glossary GLOSS.1
FVIFA table. Seefuture value interest factors for an annuity (FVIFA) table.
gender-based mortality table. See sex-distinct mortality table.
general account portfolio. A portfolio of assets that supports a companys con-
tractual obligations to owners of the companys guaranteed products, includ-
ing whole life insurance, fixed-rate annuities, and other nonvariable products.
Contrast withseparate account portfolio. [9]
general and administrative expenses. The expenses that result from undertaking
normal business activities to generate sales of products and to support products;
include expenses for contractual benefits and operating expenses. [3]
general management risk. For an insurer, the risk of losses resulting from the
insurers ineffective general business practices or from the need to pay a special
assessment to cover another insurers unsound business practices. One of four
officially recognized C risks. Also known asC-4 risk. [1]
GLWB. See guaranteed lifetime withdrawal benefit.
GMAB. Seeguaranteed minimum accumulation benefit.
GMDB. Seeguaranteed minimum death benefit.
GMIB. Seeguaranteed minimum income benefit.
GMWB. Seeguaranteed minimum withdrawal benefit.
growth capital. Seeuncommitted capital.
guaranteed annuity payout options. Options in annuities that provide periodic
payments of either a designated amount or for a designated period and that are
not linked to any life expectancy or mortality risk. [13]
guaranteed interest-crediting rate. The minimum interest rate an insurer must
pay on a fixed deferred annuity contracts accumulation value. See alsoexcess
interest-crediting rate. [9]
guaranteed lifetime withdrawal benefit (GLWB). A type of living benefit rider for
variable annuities (VAs) that guarantees minimum withdrawals to a VA owner
for life. The withdrawal amount is usually specified as a percentage of the con-
tracts living benefit value or accumulation value, whichever is greater. [13]
guaranteed maximum mortality rate. For universal life (UL) products, a mone-
tary amount specified in the contract which sets an upper limit on the mortality
charge. The insurer guarantees not to charge a rate higher than the guaranteed
maximum mortality rate. See alsocurrent mortality rate. [12]
guaranteed minimum accumulation benefit (GMAB). A type of living benefit
rider for variable annuities (VAs) that guarantees a minimum protected value forthe customers account even if the contracts actual accumulation value declines
because of poor investment performance. The guaranteed account value provided
under the GMAB becomes available only after a specified waiting period, typi-
cally 7-10 years. The amount of the guarantee is generally equal to a return of the
contract owners premium or the premium plus a modest growth factor. [13]
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Glossary Risk Management and Product Design for Insurance CompaniesGLOSS.12
guaranteed minimum death benefit (GMDB). A type of variable annuity (VA)
rider that generally guarantees that the VA death benefit will equal at least a
specified minimum amount. [13]
guaranteed minimum income benefit (GMIB). A type of living benefit rider for
variable annuities (VAs) that guarantees a minimum protected value that can be
converted into annuity periodic payments, usually after a waiting period, evenif the annuitys actual accumulation value declines because of poor investment
performance. [13]
guaranteed minimum withdrawal benefit (GMWB). A type of living benefit
rider for variable annuities (VAs) that guarantees a protected value against which
a variable annuity (VA) owner may make annual withdrawals of a specified
amount, without charge, even if the contracts actual accumulation value falls
below the protected value as a result of poor investment performance. [13]
heaped commission schedule. For traditional life insurance sales, a commission
schedule that features relatively high first-year commissions and lower renewal
commissions. [3]
hedge cost. An expense for trading and holding derivative securities. [6]
hedging. A risk management strategy that involves holding an asset with charac-
teristics that counterbalance one or more of the risks in the investors risk array.
[2]
high water mark method. For fixed indexed annuities (FIAs), an index-crediting
mechanism that involves comparing the value of the index at the beginning
of the contract term to the highest value that the index reaches at specified
pointsusually anniversary datesduring the contract term. [13]
hurdle rate. The minimum percentage rate of return on capital that an insurer
must earn to cover its cost of capital. Also called required return. [15]
idea generation. In the product development process, an activity that involvessearching for new product ideas that are consistent with the companys overall
product development strategy and the needs of its target markets. [5]
idea screening. In the product development process, an activity in which new
product ideas are evaluated quickly and inexpensively based on a predeter-
mined set of criteria. [5]
income statement. A financial statement that lists a companys revenues and
expenses over a specific period, such as a year, and shows the resulting profit or
loss realized for that period. Also known as astatement of operations, an earnings
statement, or aprofit and loss statement. Contrast with balance sheet. [1]
independent variable. A variable that influences the behavior of another variable.By convention, independent variables are labeled x. Contrast withdependent
variable. [4]
indeterminate premium structure. A variation in premium rate structures for
individual life insurance products that allows the company to periodically reset
premium rates on in-force whole life products while guaranteeing customers
that premiums will not exceed a maximum specified level. [6]
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Risk Management and Product Design for Insurance Companies Glossary GLOSS.1
index. A statistical measurement system that tracks the changes in a group of
similar values. [13]
index credits. For fixed indexed annuities (FIAs), the monetary credits that are
awarded to the contracts value. [13]
indexed crediting. For fixed indexed annuities (FIAs), guarantees that the com-
pany will periodically award monetary credits, known as index credits, to thecontracts accumulation value on a specified basis related to a specified external
index of stock market price movements. [13]
indirect expense. A product expense that cannot be traced to or that is not incurred
for one specific product. Also known as a common cost. Contrast withdirect
expense. [3]
initial investment. For a new product, the amount of capital that an insurer must
invest to establish the product. [15]
insolvency. For a business in general, a condition of being unable to meet its finan-
cial obligations on time. Contrast withsolvency. [1]
insurance rating agency. Seerating agency.
interest-crediting formula. A method that insurers use to credit interest to fixed
annuity contracts. Seeportfolio methodand new money method. [9]
interest-crediting rate. The interest rate an insurer applies to a fixed deferred
annuity contracts values to determine the accumulation value. [9]
interest-crediting strategies. The formulas and criteria a company uses to set the
interest rates it will credit for interest-sensitive products. [2]
interest margin. Seeinterest spread.
interest-rate margin. Seeinterest spread.
interest-rate risk. The uncertainty arising from fluctuations in market interestrates. Also, within the system of contingency risks (C risks), the risk that market
interest rates might shift, causing the insurers assets to lose value or its liabili-
ties to gain value; this contingency risk is also known asC-3 risk. [1, 2]
interest-sensitive cash-flow testing. A type of cash-flow testing in which an
insurer analyzes the effects of various interest-rate scenarios on cash flows. [4]
interest spread. The share of investment earnings that the insurer retains to either
pay expenses or provide a profit to owners; equals the difference between the
rate of investment return the insurer is actually earning and the current credit-
ing rate. Also known as interest marginandinterest-rate margin. [9]
internal audit. An examination of a companys records, policies, and proceduresconducted by a person associated with the organization. [3]
internal capital. Seeeconomic capital.
internal control. For a company, consists of the steps the company takes to encour-
age adherence to its management policies, promote operational efficiency, and
safeguard the organizations assets. [3]
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internal rate of return (IRR). For a life insurance or an annuity product, the
interest rate at which the products net cash flows must be discounted, using
present value techniques, in order to exactly repay the insurers initial invest-
ment in the product. [15]
interpretability. Relative to data quality, the ease with which data can be cor-
rectly interpreted. [4]in the money (ITM). Refers to a policyholders benefit or ownership option when
the policyholder would benefit economically from exercising the option. [14]
investable capital. Seeuncommitted capital.
invested asset credit risk. See default risk.
investment. Any use of resources that is intended to generate a profit or a positive
return of some type. [1]
investment activity report. An asset-liability management (ALM) report that
specifies the details of all investment portfolio transactions, including all asset
acquisitions and all dispositions of assets from the portfolio through sales, pre-
payments (redemptions), or repayment at maturity. [2]
investment expenses. For life insurance companies, the costs associated with
investing the companys assets. [3]
investment policy. A policy that actuaries and investment experts set to manage
the investment risk associated with new products; specifies limits on the asset
types and the proportions of the assets the company will use to support a prod-
uct, as well as any strategies needed to balance a new products unmanaged
liability risks. [6]
investment portfolio performance review. A quarterly investment and asset-
liability management (ALM) report that summarizes the companys investment
performance for the board of directors and the ALM committee. [2]investment yield. A financial ratio that determines the rate of return, or yield, on
an insurers investment portfolio; calculated by dividing the insurers invest-
ment portfolio income by the companys average invested assets for the period.
[15]
IRR. Seeinternal rate of return.
ITM. Seein the money.
J&S annuity. Seejoint and survivor (J&S) annuity.
joint and last survivorship annuity. Seejoint and survivor (J&S) annuity.
joint and survivor (J&S) annuity. A life annuity payout option that guaranteesa series of periodic payments to two or more individuals until both or all of the
individuals die. Also known as ajoint and last survivorship annuity. [13]
joint life annuity. A life annuity payout option that typically covers more than one
life and guarantees periodic payments until one of the covered individuals dies,
and then pays nothing more. [13]
lapse. The termination of a life insurance policy for nonpayment of premium. [7]
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lapse rate. For a block of life insurance policies, the ratio of business in force that
terminates for nonpayment of premium during a given period to the total busi-
ness in force at the beginning of that period. [7]
level annual premium (LAP). For life insurance products, any set of equal annual
payments having a present value equal to a given single premium. [12]
level premium. For life insurance products, periodic premium payments thatare equal in amount; such premiums are generally paid monthly, quarterly, or
annually. [12]
liabilities. A companys debts and future obligations. [1]
liability portfolio. In asset-liability management (ALM), the portfolio that represents
the insurers obligations to customers. Also known as aproduct portfolio. [2]
life expectancy. The average number of years of life remaining for a group. [10]
life insurance mortality table. A type of mortality table that shows the projected
mortality rates and survival rates for a population of life insureds only. [10]
liquidity. The condition of having enough cashor assets that can easily be con-verted into cashavailable as needed to meet obligations as they come due. [1]
liquidity risk. The risk of not having adequate liquidity to meet obligations as
they come due. [2]
loss. A monetary excess of expenses over revenues. Sometimes known as a net
loss.See expense andrevenue. Contrast withprofit. [1]
M&E charge. See mortality and expense risk charge.
maintenance expenses. The product-related expenses an insurer incurs while
a contract is in force. Also known as renewal expenses. A type of operating
expense. [3]
marginal costing. A method for estimating product-related expenses in whichonly direct expenses are counted. Also known asdirect costing. [7]
market analysis. An evaluation of all factors that might affect product sales. [5]
marketing committee. A senior management group whose primary role is to pro-
vide overall guidance and control of the product development process. [5]
marketing plan. A plan that defines a companys product, price, distribution,
and promotion strategies for reaching potential customers and meeting their
needs. [5]
marketing projection. An estimate of future sales; specifies an expected or a
most likely valuerather than a best-case value or a worst-case valuefor an
unknown future value. [5]
market risk. The risk arising from movements in the direction of an entire
market. [2]
market value. A companys appraisal value plus its brand valuethat is, the psy-
chological and emotional value of a company to potential customers at a given
time. See alsoappraisal valueand embedded value (EV). [15]
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medical risk characteristic. In individual life insurance underwriting, a physical
or psychological characteristic that may diminish a persons life expectancy.
[11]
moral hazard. A risk that an applicant for insurance or an insured person may act
dishonestly in a business transaction. [11]
mortality and expense (M&E) risk charge. For variable (unit-linked) life insur-ance and annuity products, a periodic charge assessed to compensate the insurer
for risks under the contract. [7]
mortality experience. The number or rate of deaths that actually occurs in a given
cohort, or group of people. [10]
mortality margin. A provision for conservatism in mortality risk projections.
[10]
mortality rate. The rate of deaths among a defined group of people. [10]
mortality table. A statistical table that shows the number of people in a cohort
or group of peopleand the number or rate of deaths for the cohort at given
agesthat is, how many deaths may be expected at each age. [10]
mortality table with projection. A type of mortality table in which the rates have
been adjusted using the projection method. See alsoprojection method. [10]
negative tail scenario. A highly unfavorable scenario identified in a stochastically
modeled product design as a potential outcome. [6]
net amount at risk. For universal life (UL) insurance products, generally repre-
sents the amount of the insurers funds that would be required at any given time
to pay the policy death benefit. At any given time, a UL policys net amount at
risk equals the difference between the death benefit and the cash value. [12]
net cash flow. For an insurance or annuity product, a products total cash inflows
generated from premiums, investments, and other sources minus the total cashoutflows generated by such items as commissions, expenses, and benefit pay-
ments; focuses only on cash. [15]
net income. Seeprofit.
net loss. Seeloss.
net present value (NPV). For an investment project, a monetary amount that is
generally calculated by subtracting the initial investment in the project from the
present value of the projects earnings over a future period, usually the entire
expected life of the project. [15]
net profit margin. A financial ratio that shows how much after-tax profit is gen-
erated by each dollar of total revenue; found by dividing net income by totalrevenues. Also known as return on revenue ratio. [15]
new money method. An interest-crediting method under which the insurer applies
different interest rates to payments, depending on the market conditions when
each payment was made. Contrast withportfolio method. [9]
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new product project. The most complex type of product development project;
requires the company to develop new product features and also requires com-
prehensive regulatory filings. Contrast withrate change projectandproduct
revision project. [5]
new product risk. Any risk that a company faces in developing and supporting
new life insurance and annuity products. [5]NGEs. Seenonguaranteed elements.
no-load fund. A type of fund that does not assess sales charges. [7]
noncontrollable expense. A cost over which no specified manager or organiza-
tional unit has power or influence.Contrast withcontrollable expense. [3]
nondiversifiable risk. Risk that affects all assets in our economic system and is
therefore not specific to an individual asset or issuer. Also known assystematic
risk. [2]
nonguaranteed elements (NGEs). In life insurance and annuity products, prod-
uct features that allow an insurer to reward customers when the insurer has
experienced or anticipates that it will experience favorable deviations from itsassumptions or, conversely, allow the insurer to charge customers more when
the insurer has experienced or anticipates it will experience unfavorable devia-
tions from its assumptions. [14]
nonsystematic risk. Seediversifiable risk.
nonvested commission. For life insurance sales, a commission that is payable to
a producer only if the producer still represents the company when the commis-
sion becomes due. Contrast with vested commission. [3]
normal curve. A bell-shaped curve produced when data values in a normal distri-
bution are plotted on a graph. [4]
NPV. Seenet present value.
operating expenses. The costs of operations other than expenses for contractual
benefits. Types of operating expenses include development expenses, acquisi-
tion expenses, maintenance expenses, and overhead expenses. [3]
operational risk. The risk of financial loss resulting from (1) inadequate or failed
internal processes and controls, people, or systems, or (2) external events. [3]
optimization modeling. A form of mathematical modeling that focuses on find-
ing an optimum solution to several simultaneous equations. [4]
ordinary annuity. A series of periodic payments for which the payment occurs at
the end of each payment period. Contrast withannuity due. [8]
outsourcing. The practice of hiring an external vendor to perform specified oper-
ations or functions. [3]
overhead expenses. The costs an insurer incurs during normal business opera-
tions that are not directly connected to a specific product or service; a type of
operating expense. [3]
owners equity. See capital and surplus.
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Glossary Risk Management and Product Design for Insurance CompaniesGLOSS.18
PAD. Seeprovision for adverse deviation.
participation percentage provision. For fixed indexed annuities (FIAs), the pro-
vision that stipulates the rate at which the excess of the reference index growth
percentage is shared between the insurer and the customer. [13]
PBA. Seeprinciples-based approach.
persistency bonus. For life insurance sales, extra earnings awarded to a producer
who has favorable persistency results. [3]
personal risk characteristic. In individual life insurance underwriting, a lifestyle
choice that may diminish a persons life expectancy. [11]
point estimate. An estimate that is assigned a single value. Contrast withrange
estimate. [4]
point-to-point method. For fixed indexed annuities (FIAs), an index-crediting
mechanism that involves comparing the value of the index at the start of the
annuity contract term to its value at the end of the term to determine what, if
any, excess interest has accrued because of a change in the index. [13]
policyholder behavior. A key design consideration for life insurance and annuity
products that refers to the benefit utilization choices of customers. Also known
as customer behavior, contractholder behavior, or benefit utilization. [6, 14]
policyholder behavior risk. The risk that a company faces as the result of the
choices made by policyholders. Also known as customer behavior risk. [2]
policyowner dividends. Refunds of excess premium paid to the owners of indi-
vidual participating life insurance policies. [1]
population mortality table. A type of mortality table that shows mortality statis-
tics for all members of a given population. [10]
portfolio. A collection of assets with differing degrees and kinds of risk, usuallyassembled for meeting a defined set of goals. [2]
portfolio method. An interest-crediting method under which the insurer applies
one specified current interest rate to all money in an annuity account on the
interest-crediting date, regardless of when the money was paid into the account.
Contrast withnew money method. [9]
post-death underwriting audit. An external audit of life insurance claims in
which the reinsurer determines whether a life insurance case really should have
been issued at all and if the risk classification was accurate based on the under-
writing information obtained at the time of issue. [11]
preferred risk. In individual life insurance underwriting, a case whose risk char-
acteristics represent a lower risk than standard. Contrast withstandard riskand substandard risk. [11]
present value (PV). The amount that, if invested at a specified interest rate on a
specified date, would grow to equal a specified future amount. Contrast with
future value (FV). [8]
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Risk Management and Product Design for Insurance Companies Glossary GLOSS.1
present value interest factor (PVIF). The present value of $1.00 discounted at an
interest rate of ipercent per period for nperiods. [8]
present value interest factor for an annuity (PVIFA). The present value of a
$1.00 ordinary annuity at a given rate of interest and for a stated number of
periods. [8]
present value interest factors (PVIF) table. A table that shows the values ofpresent value interest factors (PVIFs) for many possible interest rates and num-
bers of periods. [8]
present value interest factors for an annuity (PVIFA) table. A table that lists
the values of present value interest factors for an annuity (PVIFAs) for various
interest rates and various interest periods. [8]
price appreciation. An increase in the market value of an invested asset. [9]
price depreciation. A decrease in the market value of an invested asset. [9]
pricing premium. For a life insurance product, the monetary amount per unit of
coverage that an insurance company must collect from customers to cover the
products cost of benefits plus the companys expenses for supporting the prod-uct, after net investment earnings. [12]
pricing risk. For an insurer, the risk that the insurers experience with product
expenses or benefits will differ significantly from the assumptions used in the
products financial design, causing the insurer to lose money on its products.
One of four officially recognized C risks. Also known as C-2 risk. [1]
principal. A sum of money originally invested; the sum upon which interest is
calculated. [8]
principles-based approach (PBA). An approach to reserve valuation in which
the valuation actuary may apply stochastic (probabilistic) analysis to develop
probabilities for various outcomes and also applies professional judgment to setappropriate values. Contrast withrules-based approach. [9]
probabilistic modeling. See stochastic modeling.
probability distribution. A listing or other depiction of all the values in a data set
and the probability of observing each of those values. [4]
product design objectives. For life insurance and annuity products, specifications
that document a products basic characteristics, such as its benefits, any limits
on the contract amount or the applicants age at issue, any special features, the
commission range, and any settlement options. [5]
product development budget. A project planning document that shows the costs,
such as staffing requirements, associated with each planned work activity andthe anticipated revenue from the new product. [6]
product development team. A team that usually performs hands-on development
of a new product. [5]
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PVIF table. Seepresent value interest factors (PVIF) table.
PVIFA. Seepresent value interest factor for an annuity (PVIFA).
PVIFA table. Seepresent value interest factors for an annuity (PVIFA) table.
quality rating. An alphabetical grade or rating assigned to an insurance company
by a rating agency to indicate the level of the insurance companys financial
strength, its ability to pay its obligations to customers, or its ability to pay its
obligations to creditors. [1]
random number generator. A routine that automatically provides software with
a pattern of individual values that we would expect to get by sampling from a
given probability distribution. See alsorandom sample. [4]
random sample. A statistical sample in which each possible value is equally likely
to be selected. [4]
range estimate. An estimate that provides a range of possible outcome values.
Contrast withpoint estimate. [4]
ratchet method. Seeannual reset method.rate change project. A project that involves changing rates for adjustable pol-
icy elements, such as administrative fees and mortality and expense charges.
Contrast withproduct revision projectand new product project. [5]
rate class. Seerisk class.
rate of return. The earnings on an investment expressed as a percentage of the
principal. [9]
rating agency. An independently owned, private organization that evaluates the
financial condition of insurers and provides information to potential customers
of and investors in insurance companies. Also known as an insurance rating
agency. [1]rating agency capital. The minimum standard of capital that an insurer must
maintain in order to receive a favorable quality rating from a specific rating
agency. Contrast with regulatory capital and economic capital. See also
quality ratingand rating agency. [1]
rating experience. The proportional assignment of new business cases to the
companys available rate classes. [11]
reference index. For fixed indexed annuities (FIAs), the specified external index;
also known as the benchmark index. [13]
refinance. To make new borrowing arrangements, usually because of a drop in
market interest rates. [14]regulatory capital. The legal minimum standard of capital that an insurer must
maintain in order to be considered solvent by the regulatory authorities. Contrast
withrating agency capitaland economic capital. [1]
reinsurance. A type of insurance that one insurance company purchases from
another insurance company. See alsodirect writerand reinsurer. [2]
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Glossary Risk Management and Product Design for Insurance CompaniesGLOSS.22
reinsurer. In reinsurance, the insurance company that provides insurance to
another insurance company. Also known as an assuming company. See also
reinsuranceand direct writer. [2]
reinvestment-rate risk. The risk that the returns on funds to be reinvested will
fall below anticipated levels. [2]
relevance. Relative to data quality, the degree to which information meets theneeds of users. [4]
renewal commission. For life insurance, a commission that is payable while a
policy is in force. Contrast withfirst-year commission. [3]
renewal expenses. See maintenance expenses.
required capital. The amount of capital an insurer must hold to back the liabili-
ties for in-force covered business and for which distribution to shareholders is
restricted. [1]
required rate of return. The return on an investment adjusted for the risk repre-
sented by that investment; typically found by adding the risk-free rate of return
to the risk premium. See alsorisk-free rate of returnandrisk premium. [1]
required return. Seehurdle rate.
research and development (R&D) expenses. Seedevelopment expenses.
retention limit. A specified maximum amount of insurance that a direct writer is
willing to carry at its own risk. [11]
retention schedule. A schedule that presents an insurers retention limits, orga-
nized by applicable categories such as product, product line, issue age, and
underwriting rating. [11]
retrospective valuation method. A method of determining a life insurance
products cash value that looks at the products past cash flows. Contrast withprospective valuation method. [9]
return. Any reward, profit, or compensation that an investor hopes to earn for
taking a risk. [1]
return of premium provision. In a fixed indexed annuity (FIA), a provision
which specifies that the company promises to pay the customer the full value of
premiums, minus partial withdrawals, upon surrender before the contract has
built an accumulation value greater than that promised in the return of premium
provision. [13]
return on capital ratio. A financial ratio that represents the percentage return
an insurer has earned on its capital; calculated by dividing a given measure of
earnings by some measure of total capital employed. [15]
return on equity (ROE). A financial ratio that measures an insurers operating
efficiency; derived by dividing an insurers net income by its owners equity.
[3]
return on invested assets (ROIA) ratio. A financial ratio that measures a compa-
nys profitability by dividing the companys net income by its average invested
assets. [15]
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Glossary Risk Management and Product Design for Insurance CompaniesGLOSS.24
ROIA. Seereturn on invested assets.
rules-based approach. An approach to reserve valuation in which a valuation
actuary applies deterministic analysis and a required set of rules to determine
the reserves. Contrast withprinciples-based approach. [9]
sales revenue. The total dollar volume of sales; calculated by multiplying the sales
volume by the average price-per-unit. See alsosales volume. [5]
sales volume. The number of units of product sold. [5]
scenario testing. A method of evaluating modeling results that involves entering
different sets of data into a model and then determining how changes in the
input data affect the models output. [4]
segregated account portfolio. See separate account portfolio.
select and ultimate mortality table. A type of mortality table that combines
coordinated sets of select mortality rates and ultimate mortality rates.Contrast
withselect mortality tableand ultimate mortality table. [10]
select mortality period. A specified period of time following an underwritingevaluation of a given individual. [10]
select mortality table. A mortality table that shows the expected mortality rates
of people who have recently been underwritten for insurance policies. Contrast
withultimate mortality table. [10]
sensitivity analysis. A method of measuring the responsiveness of the outputs
produced by a mathematical model to changes in the values of the models input
variables. [4]
separate account portfolio. For an insurer, a portfolio of assets that supports
such products as variable life insurance and variable annuities. Also known as
asegregated account portfolio. Contrast withgeneral account portfolio. [9]
setback method. A method of modifying tabular mortality rates that consists of
showing future decreases in mortality for people of a given age by using the
tabular mortality rate for a younger age. See alsoprojection method. [10]
sex-distinct mortality table. A type of mortality table that shows different mor-
tality rates for males and females. Also known as a gender-based mortality
table. Contrast with unisex mortality table. [10]
simulation modeling. The use of a real-world process model and extrapolation to
emulate the behavior of the process over time. [4]
single life annuity. A life annuity payout option that provides periodic payments
in an amount based on both the single premium and the annuitants life expec-
tancy. Payments continue from the inception of payout until the annuitantsdeath. [13]
single life annuity with period certain. A life annuity payout option that guar-
antees periodic payments throughout the lifetime of a named individualthe
annuitantand also guarantees that the periodic payments will continue for
at least a specified period. If the annuitant dies before the end of that specified
period, the periodic payments continue to be paid until the end of the period to
a contingent payee designated by the annuitant. [13]
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single life with refund annuity. A life annuity payout option that guarantees
specified periodic payments throughout the lifetime of a named individualthe
annuitantand also guarantees that a refund will be made if the annuitant dies
before the total of the periodic payments made equals the amount paid for the
annuity. [13]
single premium (SP). For life insurance products, a form of premium paymentin which one lump sum covers all of the financial considerations for the life of
the contract; one-year term life insurance policies are purchased with a single
premium. [12]
solvency. A business organizations ability to meet its financial obligations on
time. Contrast withinsolvency. [1]
source of funds.See cash inflow.
specific risk. Seediversifiable risk.
spread compression. The narrowing of an insurers interest spread. Seeinterest
spread. Contrast withspread expansion. [14]
spread expansion. The widening of an insurers interest spread. See interestspread. Contrast withspread compression. [14]
standard costs. Cost estimates representing the average amount of a given type of
expenditure for normal business operations. [7]
standard deviation. In statistics, a measure of the dispersion of values in a data
set around the mean of the data set. [4]
standard risk. In individual life insurance underwriting, a case whose mortal-
ity risk characteristics overall are nominally standard for the coverage being
sought. Contrast withsubstandard risk and preferred risk. [11]
statement of operations.Seeincome statement.
static mortality table. A type of mortality table that has not been adjusted to
provide for future changes in mortality. [10]
steering control. A type of control that is established in advance and that
describes a companys expectations of performance. Also known as
feedforward control. [11]
stochastic assumptions. In product modeling, variables that are selected randomly
from a specified statistical distribution applied across multiple simulations or
scenarios. Also known asstochastic modeling assumptions. [14]
stochastic modeling. A form of modeling in which an automatic process ran-
domly assigns values to specified input datathereby creating a large number
of scenariosconducts numerous process iterations as needed, and producesoutput data that can be described in the form of a probability distribution. Also
known asprobabilistic modeling.Contrast withdeterministic modeling. [4]
stochastic modeling assumptions.See stochastic assumptions.
stock. A type of financial security that represents a share of ownership in a
company. [1]
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Glossary Risk Management and Product Design for Insurance CompaniesGLOSS.26
substandard risk. In individual life insurance underwriting, a case whose risk
characteristics overall are higher than standard, but who are still insurable.
Contrast withstandard riskand preferred risk. [11]
surrender. A transaction in which the owner of a cash value life insurance contract
or deferred annuity contract elects to receive the contracts entire cash value or
accumulation value, less any charges, before the contract reaches maturity. [7]surrender charge. A transaction charge assessed when the contract owner of a
cash value life insurance policy or deferred annuity contract surrenders the con-
tract or withdraws money from a contract in excess of specified amounts. [7]
surrender rate. For a block of insurance or annuity contracts, the ratio of the
number of contracts surrendered during a contract year to the total number of
contracts in force at the beginning of the year. [7]
surrender value. For a deferred annuity contract, the accumulation value of the
contract less any surrender or expense charges associated with the termination
of the contract. [9]
survival rate. The percentage of people who have attained a given age and areexpected to be alive at their next birthday. [10]
systematic risk. See nondiversifiable risk.
tabular mortality rate. A mortality rate shown in a mortality table. [10]
tail risk. The risk associated with scenarios in the tails at the ends of a probability
distribution. See also conditional tail expectation. [4]
timeliness. Relative to data quality, the delay between the reference date for the
data and the date the analysis is published. [4]
time value of money. A concept which states that the value of a sum of money
changes over time as a result of the effects of interest. [8]
traceable cost. See direct expense.
trend analysis. A form of technical analysis that projects the future movement of
specified variables based on historical patterns. [4]
UL. See univeral life insurance.
ultimate mortality period. The period of time after the select mortality period
has ended. [10]
ultimate mortality table. A mortality table that shows the expected mortality
rates of people who have not recently been underwritten for insurance policies.
Contrast withselect mortality table. [10]
unallocated capital. Seeuncommitted capital.
uncommitted capital. Any capital held in excess of the minimum capital require-
ment. In embedded value, the market value of any capital and surplus, over and
above the required capital, allocated to in-force covered business; this amount could
be immediately distributed to shareholders. Also known as unallocated capital,
growth capital, excess capital, investable capital, andfree surplus. [1, 15]
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Risk Management and Product Design for Insurance Companies Glossary GLOSS.2
underwriting classification system. Seerisk classification system.
underwriting risk. The specific risks that insurers assume through the insurance
and annuity contracts they underwrite. [2]
unisex mortality table. A type of mortality table that shows a single set of mor-
tality rates to be used for both males and females. Contrast withsex-distinct
mortality table. [10]
universal life (UL) insurance. A form of cash value life insurance having flexible
premiums, a flexible face amount, and a flexible death benefit amount. [12]
use of funds. Seecash outflow.
valuation mortality table. A type of mortality table that has a margin built into
the mortality rates, is used to calculate policy reserves, and is inherently more
conservative than is a basic mortality table. Contrast with basic mortality
table. [10]
value of business in force (VBIF). In embedded value (EV) calculations, the pres-
ent value (PV) of future shareholder cash flows from the in-force covered busi-
ness; the different types of cash flows include premiums, investment income,fees, benefits, and expenses. See also embedded value (EV). [15]
variable expense. An expense amount that varies in direct proportion to some vari-
ation in a specified level of operating activity. Contrast withfixed expense. [3]
variable universal (VUL) insurance. A version of universal life (UL) insurance
with a variable cash value component. VUL owners have the option to allocate
the cash value to the insurers general account or to invest in various subac-
counts (funds) of the insurers separate account. VUL policies do not guarantee
minimum investment earnings or cash values for premiums allocated to vari-
able subaccounts. [12]
variables. Items of data whose numerical value varies over time. [4]VBIF. Seevalue of business in force.
vested commission. For life insurance sales, a commission that is guaranteed pay-
able to a producer whether or not the producer represents the company when the
commission becomes due. Contrast withnonvested commission. [3]
weak signals. Incomplete and fragmented data that hint at relevant future events.
[4]
wild cards. Potential future, low-probability, high-impact events that may consti-
tute turning points in the evolution of a trend or system. [4]
withdrawal. A transaction in which the owner of a universal life insurance policy
or a deferred annuity contract removes a portion of the account value. [7]
yield spread provision. For fixed indexed annuities (FIAs), a provision which
states that the insurer always deducts a specified percentage from the growth in
the reference index. Seereference index.[13]