The LOMA Glossary

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1035 Exchange See Section 1035 Exchange.
12b-1 fee In the United States, an annual fee that is used as an alternative to a sales load to cover the cost of marketing and distributing mutual funds.
13-month lapse rate A lapse rate for insurance policies that is based on the proportion of new policies on which no part of any required second-year premium has been paid.
401(k) plan In the United States, a type of retirement savings plan that is established by employers for the benefit of employees and that allows both employers and employees to make specified contributions to the plan that reduce current taxable income.
403(b) plan In the United States, a type of retirement savings plan that is established by not-for-profit employers for the benefit of employees and that allows both employers and employees to make specified contributions to the plan that reduce current taxable income.
412(i) plan See individual policy pension trust.
457 plan In the United States, an arrangement that allows state and local governments and their employees to make contributions to a tax-deferred savings plan established for the benefit of employees.
60-day rollover See rollover.
ABC See activity-based costing.
ABS See asset-backed security.
absolute assignment The irrevocable transfer of all of a policyowner’s ownership rights in a life insurance policy to another. Contrast with collateral assignment.
absolute return fund A fund option or mutual fund that seeks to achieve positive returns in all market conditions by investing in alternative investments and derivatives, and employing alternative investment management techniques.
absorption costing See full costing.
ACA See Affordable Care Act.
accelerated death benefit A supplemental life insurance policy benefit which provides that a policyowner may elect to receive all or part of the policy’s death benefit before the insured’s death if certain conditions are met. Also known as a living benefit.
acceptance In the formation of a contract, the offeree’s unqualified agreement to be bound to the terms of the offer.
access In the management of customers' information, allowing the customer the right to review and correct his personal information.
access to records provision In a reinsurance agreement, a provision that gives the reinsurer the authority to examine the direct writer’s records related to the business conducted between the companies.
accession In property law, the right of a property owner to all that his property produces and all that is added to or united with the property.
Accident and Sickness Insurance Minimum Standards Model Act In the United States, a model law proposed by the National Association of Insurance Commissioners (NAIC) that establishes certain standards for all individual health policies other than Medicare supplement policies.
accidental death and dismemberment (AD&D) benefit A supplemental life insurance policy benefit that provides an accidental death benefit and provides a dismemberment benefit payable if an accident causes the insured to lose any two limbs or sight in both eyes.
accidental death benefit (ADB) A supplemental life insurance policy benefit that requires the insurer to pay a specified amount of money in addition to the policy’s basic death benefit if an insured dies as a result of an accident.
accidental death benefit (ADB) rider premium rate table A premium rate table that shows a supplemental premium rate for optional accidental death benefit coverage.
accord and satisfaction In contract law, a method of discharging a contract in which one party to the contract agrees to accept something other than what he was entitled to receive under the original contract.
account The basic accounting tool that a company uses to record, group, and summarize similar types of financial transactions.
account aggregation The ability to bring together on one Web site all of a customer’s financial information across all of his accounts.
account fee A fee charged to financial services customers for certain transactions, such as cash advances, late payments, or annual service.
account maintenance charge For variable annuities, an annual expense charge generally expressed as the lesser of (1) a monetary amount, such as $30 per year, or (2) a percentage, such as 2 percent, of the account value per year.
account maintenance transactions Changes to an annuity contract or its supporting administrative records that do not involve (1) immediate contributions to or disbursements from the annuity or (2) immediate changes in the investment allocations of the annuity’s accumulated value. Also called  nonfinancial transactions.
accountability (1) In a company, the obligation of employees’ to answer to the employer for how well they carry out their responsibilities. (2) For institutional investors, the obligation of an organization to be responsible to its stakeholders for the results of its actions.
accounting (1) A system or set of rules and methods for collecting, categorizing, measuring, recording, summarizing, reporting, analyzing, and monitoring financial information about the financial condition and performance of a company as a whole, as well as of segments, product lines, or divisions within the company. (2) The functional area of a company that collects, records, summarizes, analyzes, and reports data about the company’s financial condition.
accounting conservatism An approach to financial reporting that typically understates the values for a company’s assets, overstates the value of a company’s liabilities and expenses, and projects a lower level of net income than would be the case if the company used a less conservative reporting method.
accredited reinsurer An accredited reinsurer is a reinsurer that is not licensed in a given state but that meets specified financial and reporting requirements of that state and is licensed to transact insurance or reinsurance in at least one other state.
accrual-basis accounting An accounting system under which a company records revenues when they are earned and expenses when they are incurred, even if the company has not yet received the revenues or paid the expenses.  Contrast with cash-basis accounting.
accumulated cost of insurance For a given product, the total of benefits paid, accumulated at interest.
accumulated value (1) The total of an amount of money invested plus the interest earned by that money. (2) During a deferred fixed annuity’s accumulation period, the amount paid for the deferred annuity, plus the investment earnings, minus the amount of any withdrawals and fees. The accumulation value of a deferred variable annuity is the total of all subaccount values under the variable annuity. Also known as accumulation value.
accumulation at interest dividend option A policy dividend option under which a participating insurance policyowner can choose to leave any policy dividends the policy receives on deposit with the insurer to accumulate at interest.
accumulation period The period between the contract owner’s purchase of a deferred annuity and either the date that the contract’s payout period begins or the date that the contract’s surrender value is paid. See also deferred annuity.
accumulation unit An ownership share in a selected subaccount of a separate account held during the accumulation period of a variable deferred annuity.
accumulation value See accumulated value.
acid-test ratio See quick ratio.
ACORD A standards-developing organization that supports data and technology standards for insurance and financial services worldwide.
acquisition An arrangement in which one corporation purchases a controlling interest in another corporation, resulting in an ownership link between formerly independent corporations.
acquisition expenses For insurance and annuity products, the expenses an insurer incurs to obtain and issue new business; a type of operating expense.  Some companies classify all pre-issue and first-year expenses as acquisition expenses.  Other companies classify as acquisition expenses only those expenses incurred before contract issue. For these companies, expenses incurred after contract issue are classified as maintenance expenses. Contrast with maintenance expenses.
active portfolio management A broad category of portfolio management strategies that involves constantly researching opportunities to add value to a portfolio by making trades and replacing existing assets with new ones.
active risk See tracking error.
actively-at-work provision A group insurance policy provision which states that, in order to be eligible for coverage, an employee must be actively at work—rather than ill or on leave—on the day the insurance coverage is to take effect.
activities of daily living (ADLs) Activities used to measure the functional status of a person, such as eating, bathing, dressing, continence, toileting, or transferring into or out of a bed, chair, or wheelchair. Long-term care insurance benefits are triggered by an insured person's inability to perform a certain number of ADLs. Contrast with instrumental activities of daily living.
activity ratios Financial ratios that measure the speed with which a company’s various assets are converted into sales or cash. Also known as operating efficiency ratios or turnover ratios.
activity-based costing (ABC) The process of linking costs to products based on the activities performed in producing the products or services.
actual authority According to the principles of agency law, the authority to act on behalf of a principal that the principal intentionally gives to the agent and that the agent reasonably believes is given. Contrast with apparent authority.
actual cash value insurance A type of property insurance that pays the insured an amount equal to the replacement cost of the property minus an amount for depreciation.
actual damages See compensatory damages.
actual return See historical return.
actuarial assumption An assigned value used in life insurance or annuity product design to represent the estimated value of a component, such as investment earnings, the cost of benefits, company expenses, and unexpected financial results.
actuarial memorandum In the United States, the part of an Actuarial Opinion and Memorandum (AOM) that consists of a lengthy report supporting the conclusion expressed in the actuarial opinion. Based on the size and complexity of the insurance company, this document may or may not be required. See also actuarial opinion.
actuarial opinion In the United States, the document in an Actuarial Opinion and Memorandum (AOM) which states that the company’s reserves are adequate, given the assets supporting them. See also actuarial memorandum.
Actuarial Opinion and Memorandum (AOM) In the United States, a formal asset-liability management (ALM) report that consists of two documents: an actuarial opinion and an actuarial memorandum. See also actuarial opinion and actuarial memorandum.
actuary An expert in financial risk management and the mathematics and modeling of insurance, annuities, and financial instruments.
AD&D benefit See accidental death and dismemberment benefit.
ADA See Americans with Disabilities Act.
ADB See accidental death benefit.
additional insured rider See second insured rider.
additional term insurance dividend option A policy dividend option under which a participating insurance policyowner can choose to use each policy dividend to purchase one-year term insurance on the insured’s life.
ADEA See Age Discrimination in Employment Act.
adjustable rate certificate of deposit See variable rate certificate of deposit.
adjustable rate mortgage (ARM) A mortgage in which the interest rate fluctuates according to a benchmark rate specified in the mortgage agreement. Also known as variable rate mortgage.
ADLs See activities of daily living.
administration In debt restructuring in Europe and certain other countries outside the United States, a legal proceeding under which an insolvent company makes a plan to pay its creditors, in full or in part, and remain in operation. Known as reorganization in the United States and some other countries.
administration expense See maintenance expense.
administrative charge A charge an insurer levies to cover the costs of issuing certain types of life insurance or annuity contracts, making administrative changes to such contracts, preparing contract owner statements, and performing general maintenance activities. Also known as administrative expense charge, administrative fee, or service fee.
administrative expense charge See administrative charge.
administrative expenses See maintenance expenses.
administrative fee See administrative charge.
administrative services only (ASO) contract A contract under which a self-insured group policyholder pays a fee in exchange for administrative services provided by an outside organization.
administrative supervision In the United States, a legal condition under which regulators require an insurer to obtain regulatory permission before taking any of a variety of specified actions.
Administrative Supervision Model Act In the United States, a model law developed by the National Association of Insurance Commissioners that provides details about a state insurance department’s authority to require administrative supervision of an insurer. Also known as the Model Supervision Act.
admitted asset In the United States, an asset whose full value can be reported on the Assets page of an insurance company's Annual Statement. Contrast with nonadmitted asset.
admitted reinsurer See authorized reinsurer.
ADR See average daily rate.
ADR method See alternative dispute resolution method.
advance commissions Commissions a replacing insurer pays in advance to a producer for replacement business, based on the estimated contribution that will be obtained from the account the customer holds with the existing insurer.
advance earnings A loan made by an insurer to a producer in anticipation of future commissions.
advance premiums See premiums paid in advance.
advanced underwriting For new business, a group of specialists who will assist a producer in preparing sales proposals, and will accompany the producer, if requested, to sales presentations on how to use insurance products in a financial plan or estate planning.
adverse accounting opinion A type of nonstandard auditor’s opinion stating that the financial statements do not fairly present the company’s financial condition.
adverse action See adverse underwriting decision.
adverse deviation In insurance product operations, a deviation that produces a decrease in actual product profitability relative to assumed product profitability. Contrast with favorable deviation.
adverse risk experience A worse outcome from a reinsured product’s operations than the outcome the direct writer and the reinsurer assumed when they set the reinsurance premium rates. Contrast with favorable risk experience.
adverse selection See antiselection.
adverse underwriting decision A decision in which an insurer (1) declines insurance coverage to an applicant, (2) terminates coverage under an existing policy, or (3) offers to insure an applicant at a higher than standard premium rate. Also known as adverse action.
Advertisement Rule (Conduct Rule 2210) In the United States, a Financial Industry Regulatory Authority (FINRA) conduct rule that establishes requirements for advertisements and sales literature used to communicate with the public.
Advertisements of Life Insurance and Annuities Model Regulation In the United States, a model law developed by the National Association of Insurance Commissioners that requires insurers to disclose to the public all relevant information in their advertisements of insurance and annuity contracts and establishes minimum standards of accuracy and fairness.
affiliate A company that controls, is controlled by, or is under common control with another company. See also subsidiary.
affiliated agent An agent who sells primarily the products of a single insurance company. Also known as an agency-building agent.
affinity group A group of people who share a common bond, background, or interest and who belong to an association or organization.
Affordable Care Act (ACA) In the U.S., a law that requires insurance companies to accept all applicants for medical expense coverage and restricts insurers from basing premium rates on preexisting conditions.
after-tax contributions Annuity contributions that contract owners or plan participants  include as part of their current taxable compensation.
age and amount requirements chart See table of underwriting requirements.
age basis table A premium rate table that shows premium rates distinguished on the basis of age.
Age Discrimination in Employment Act (ADEA) In the United States, a federal law that protects workers who are age 40 and older from employment discrimination because of their age.
agency (1) A legal relationship in which one party—known as the principal—authorizes another party—known as the agent—to act on the principal’s behalf. (2) See field office.
agency administration The activities performed by the people in an insurer’s home office or field offices to support and service the insurer’s field force.
agency agreement See agency contract.
agency by actual authority An agency relationship created when a principal appoints a person to be its agent, the person agrees to be the principal’s agent, and the principal gives the agent the authority to act on the principal’s behalf. Contrast with agency by apparent authority.
agency by apparent authority An agency relationship that is created when a principal does not expressly grant authority to an agent, but does intentionally or negligently allow a third party to believe the agent possesses authority. Contrast with agency by actual authority.
agency by ratification An agency relationship created when a principal ratifies an unauthorized act taken by a purported agent. See also agency by actual authority, agency by apparent authority.
agency contract A written agreement between an agent and an insurance company that outlines the agent’s role, compensation, and responsibilities to the insurance company. Also known as an agency agreement.
agency MBS A security based on a portfolio of residential mortgages that meet the guidelines as to credit quality, underwriting standards, and other risk factors set by one of several U.S. government agencies. Also known as an agency mortgage-backed security.
agency mortgage-backed security See agency MBS.
agency relationship The legal relationship between a principal and agent, by which the principal authorizes the agent to perform certain acts on behalf of the principal.
agency-building agent See affiliated agent.
agent In insurance sales, an independent sales representative or company employee who is authorized under the terms of an agency contract to act on behalf of an insurance company in selling insurance products. Also known as a producer.
agent’s report See agent’s statement.
agent-broker See broker.
agent's statement A portion of an insurance application in which a producer may report additional information that he thinks could affect the underwriting decision.
aggregate deductible See attachment point.
aggregate premium rate table A premium rate table that shows one set of premium rates for all insureds.
aggregate reserves The reserves for a block of contracts, a line of business, or an entire company.
aggregate stop loss insurance Stop-loss insurance under which the stop-loss insurer begins to reimburse the employer for claims when the employer’s total claims exceed a stated dollar amount within a stated period of time.
aggregation rule In the United States, a rule on the taxation of withdrawals from nonqualified annuities stating that all deferred annuity contracts issued (1) after October 21, 1988, (2) by the same insurer to the same contract owner, and (3) during the same calendar year are treated as one contract for purposes of determining the amount of any withdrawal that is taxable as income.
aggregator An Internet intermediary that lists products from several different companies on a single Web site.
aggressive financial strategy A financial management strategy that emphasizes taking risks to enhance a company’s profitability. Contrast with conservative financial strategy.
aggressive growth fund A mutual fund that typically invests in companies with the potential for rapid growth resulting in capital appreciation. An aggressive growth fund has a high risk of loss but potentially high returns or gains.
agreed value insurance Property insurance that pays the insured an amount agreed upon by the insured and the insurer at the time of policy issue.
AIR See assumed investment rate.
aleatory contract A contract under which one party provides something of value to another party in exchange for a conditional promise. Contrast with commutative contract.
alien corporation From the point of view of a given state in the United States, a corporation that was incorporated under the laws of another country. Contrast with foreign corporation, domestic corporation.
allied medical practitioner A licensed health care provider other than a licensed medical doctor.
allocated pension funding contract A type of pension plan contract in which all of the plan sponsor’s contributions are credited to individuals in a manner that gives the individual-participants a legally enforceable claim to the benefits attributable to those contributions. Contrast with unallocated pension funding contract.
allowable expenses In health insurance, reasonable and customary expenses that an insured incurred and that are covered under the insured’s group medical expense plans.
allowance In reinsurance, an amount the reinsurer reimburses to the direct writer and that is designed to recognize the direct writer’s acquisition, maintenance, and other expenses related to the ceded business. Also known as expense allowance, reinsurance allowance, ceding commission, or reinsurance commission.
ALM See asset-liability management.
ALM risk See asset-liability management risk.
alternative dispute resolution (ADR) method Formal or informal negotiations to resolve a legal dispute.
AMA See asset management account.
Americans with Disabilities Act (ADA) In the United States, a federal law that protects disabled individuals against all types of discrimination, including employment discrimination.
amortization In general, the reduction of a debt by regular payments of principal and interest that result in full payment of the debt by the maturity date. In accounting, the periodic and systematic increase (decrease) of the original cost of an investment to its ultimate value at maturity; amortization typically applies to an insurer’s long-term assets such as bonds, mortgages, and other debt securities. Contrast with depreciation.
amortizing loan A loan for which each repayment reflects both principal and interest.
analysis effect For debt investment portfolios, the share of excess bond portfolio returns attributable to the manager’s bets around trading in under- or overvalued debt securities.
analyst An investment professional responsible for monitoring issuers of securities and making buy-hold-sell recommendations as to future trading activity.
analytical phase of IRIS The second phase of the Insurance Regulatory Information System (IRIS) used in the United States to monitor the financial condition of insurers. During this phase, NAIC examiners apply qualitative and quantitative standards to further analyze the Annual Statement data of insurers that had a number of unusual ratios during the first phase of IRIS analysis. See also statistical phase of IRIS.
anchor tenant In a shopping center, a major department store or store from a major retail chain that will attract customers to the center.
annual administration charge For fixed deferred annuities, a stated charge in a flat monetary amount, automatically deducted from a customer’s annuity account value each year.
annual percentage rate (APR) The actual yearly cost of borrowing over the term of a loan expressed as a single yearly percentage rate. The APR includes any fees or additional costs associated with the transaction. Also known as effective interest rate.
annual premium The amount that a group policyholder will be charged annually for the total amount of coverage provided by a group insurance policy.
annual rate of return See annualized return.
annual report A financial document that the management of a company sends to interested parties—such as stockholders and investors—to report on the company’s financial performance during the preceding year; helps users assess a company’s profitability and financial strength. Contrast with Annual Statement.
annual reset method For equity indexed annuities, 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. The starting value for the next year is reset to the value of the index at the end of the current contract year. The insurer determines the amount of excess interest by averaging the results for each contract year of the contract term. Also known as ratchet method..
Annual Return A document Canadian insurers must file each year with Canadian insurance regulatory authorities that includes detailed accounting and statistical data about the insurer; similar to the Annual Statement required for insurers in the United States.
annual roll-up benefit  An enhanced death benefit under which the principal of a variable annuity contract is increased, or “rolled up,” by a specified percent annually and the guaranteed death benefit payable is equal to the greater of (1) the contract’s accumulated value at the time of the contract owner’s death or (2) the rolled-up principal amount.
Annual Statement A financial statement that every insurer in the United States must file with the National Association of Insurance Commissioners (NAIC) and the insurance regulatory organization in each state in which the insurer conducts business; helps regulators assess a company’s solvency. Contrast with annual report.
annual step-up benefit An enhanced death benefit sometimes included in variable annuities that locks in investment gains on each contract anniversary, thus guaranteeing a minimum accumulated value.  The death benefit payable under this guarantee is the greater of (1) the actual accumulated value of the contract at the time of the contract owner’s death or (2) the stepped-up value of the contract at the anniversary date.
annualized return For investments, a variation on a rate of return calculation that expresses a return for a period longer than a year as a rate of return for one whole year. Also known as a yearly rate of return or an annual rate of return.
annually renewable term (ART) insurance See yearly renewable term insurance.
annuitant The person whose lifetime is used to determine the amount of benefits payable under an annuity contract.
annuitization The process of changing from the accumulation period to the payout period of an annuity.
annuitization period See payout period.
annuity In general terms, a series of periodic payments.  In the financial services industry, a contract under which an insurer promises to make a series of periodic payments to the contract owner in exchange for a premium or series of premiums. See also deferred annuity and immediate annuity.
annuity certain See period certain annuity.
annuity contract See annuity.
annuity conversion costs For deferred annuities, the costs to the contract owner to obtain a specified dollar amount of periodic income payment.  Tables of these costs show the actuarial present value of periodic income payments of a specified amount per period for an annuitant of a specified age and sometimes of a specified gender.
annuity cost The present value of future periodic income payments under an annuity.
annuity date See maturity date.
Annuity Disclosure Model Regulation In the United States, a model act developed by the National Association of Insurance Commissioners (NAIC) that provides prospective purchasers of specified types of annuities with information to help them select an annuity appropriate for their needs.
annuity due A series of equal  payments that are made at the beginning of each payment period over a fixed amount of time. Contrast with ordinary annuity.
annuity mortality table A type of mortality table that shows the projected mortality rates and survival rates for a population of annuitants only. Contrast with life insurance mortality table.
annuity period The time span between each of the payments in the series of periodic annuity payments.
annuity purchase costs For immediate annuities, the costs to the contract owner to obtain a specified dollar amount of periodic income payment.  Tables of these costs show the actuarial present value of periodic income payments of a specified amount per period for an annuitant of a specified age and sometimes of a specified gender.
annuity reserves Contractual reserves that are calculated at annuity contract issue.
annuity unit A share in an insurer’s separate account during the payout period; obtained by converting accumulation units in various subaccounts before the first annuity payment is made.
antiselection The tendency of individuals who believe they have a greater-than-average likelihood of loss to seek insurance protection to a greater extent than do other individuals. Also known as adverse selection or selection against the insurer.
antitrust laws Laws designed to protect commerce against the monopolization of market power and unlawful restraints of trade, such as price discrimination and price fixing. Known as competition laws in most countries other than the United States.
AOM See Actuarial Opinion and Memorandum.
AOR See average occupancy rate.
APL option See automatic premium loan option.
apparent authority According to the principles of agency law, authority that is not expressly given to an agent but that the principal either intentionally or negligently allows a third party to believe the agent possesses. Contrast with actual authority.
app-later issue A new business procedure whereby the insurer receives application information electronically and then prints and sends a paper application, or a confirmation receipt, along with the annuity contract for the contract owner to sign.
app-less issue A new business procedure whereby the insurer issues the annuity contract without ever requiring a signed application or confirmation receipt.
applicant The person or business that applies for an insurance policy.
appointment A written statement issued by a licensed insurer authorizing the holder to act as an agent of the insurer.
appraisal In real estate, an estimate of a property’s value as of a given date, determined by a qualified professional known as an appraiser.
appreciation An increase in the value of an investment. Contrast with depreciation.
appropriated surplus See special surplus.
approval limit The maximum amount of coverage an underwriter may approve and the degree to which the underwriter may rate or decline a policy without approval or review of a more experienced underwriter.
approval premium receipt A conditional premium receipt that provides temporary insurance coverage only when the insurer approves the proposed insured as a standard or better-than-average risk. Contrast with insurability premium receipt. See also conditional premium receipt and binding premium receipt.
APR  See annual percentage rate.
APS See Attending Physician's Statement.
arbitration An alternative dispute resolution method in which impartial third parties, known as arbitrators, evaluate the facts in a legal dispute and render a decision that usually is binding on the parties. See also mediation.
arbitration provision A reinsurance agreement provision that requires the reinsurance parties to submit disputes they cannot resolve through negotiation to an arbitration panel rather than to a court of law and that describes the procedures the parties must use to select arbitrators and conduct the arbitration process.
arbitrator An impartial third party who evaluates the facts in a legal dispute and renders a decision that is binding on the parties. See also mediator.
arithmetic mean annual return The average return of a series of annual investment returns during a multiyear holding period.
ARM See adjustable rate mortgage.
ART insurance Annually renewable term insurance. See yearly renewable term insurance.
A-share annuity A variable annuity with a front-end load based on the contribution amount. Contrast with B-share annuity, C-share annuity, L-share annuity.
ASO contract See administrative services only contract.
asset accumulation product A product that enables customers to increase the amount and/or value of their assets over time.
asset adequacy analysis (1) In asset-liability management for insurance companies, an analysis of the adequacy of reserves and other liabilities being tested, in light of the assets supporting those reserves and other liabilities. (2) A broad actuarial practice undertaken to ensure that the assets backing reserves meet established standards.
asset allocation In portfolio management, the percentage distribution of all portfolio holdings across a specified array of asset classes, such as various subcategories of stocks and bonds. Also known as asset mix.
asset allocation criteria An element in an investment policy that consists of rules stating limits on the portion of a portfolio that may be invested in a stated category. Also known as diversification criteria or limitations on asset concentrations.
asset allocation fund A type of mutual fund that invests in various asset classes—stocks, bonds, and cash equivalents, such as money market instruments, to maintain precise weightings within each of those asset classes.
asset allocation model A tool that uses an investor’s personal and financial data to generate options for strategically distributing assets among different types and classes of investments.
asset allocation plan A determination or plan outlining into which asset classes investments should be placed.
asset bubble A rapid rise in the price of an asset so that the asset’s price comes to greatly exceed its fundamental value. Also known as a speculative bubble or price bubble.
asset class A group of similar investment instruments linked by related risk and return features. Three common asset classes are stocks, bonds, and money market funds or cash equivalents.
asset concentration See portfolio concentration.
asset concentration risk The risk of the excessive concentration of assets in any single category.
asset distribution products Financial products that enable owners to manage the distribution of assets to ensure that resources are available when needed.
asset fluctuation reserves Non-contractual reserves designed to absorb short-term fluctuations in the gains and losses affecting an insurer’s invested assets. These reserves allow the effects of short-term investment gains and losses to be reflected only gradually in reported capital and surplus.
asset management account (AMA) An account that offers checking services as part of a package of financial services, including a money market deposit account, securities brokerage services, credit and debit cards, loans, and unified record keeping. Also known as a sweep account.
asset management charge See investment management fee.
asset management fee See investment management fee.
asset manager See asset-liability manager.
asset mix See asset allocation.
asset portfolio In asset-liability management (ALM), the portfolio in which the insurer holds securities and other invested assets. Contrast with liability portfolio.
asset preservation A process of identifying and monitoring mortgages for slow payment and resolving problems with delinquency.
asset protection product A product that protects owners against the risk of financial loss from unforeseen events such as natural disasters, theft, accidents, illnesses, and death.
asset risk For an insurance company’s general account, the risk that, for reasons other than changes in interest rates, the company could lose money on its investments and, for that reason, might have to draw on its capital.  One of four officially recognized C risks. Also known as C1 risk or credit risk.
asset trader An investment professional who is responsible for executing purchases and sales of publicly traded securities.
asset valuation The process of calculating the monetary values for assets.
Asset Valuation Reserve (AVR) For insurance companies in the United States, an investment reserve liability intended to absorb realized and unrealized investment gains and losses on assets sold, and potentially arising from changes in market value of assets and changes in credit ratings on assets.
asset-backed security (ABS) A structured security backed by debt instruments other than real estate mortgages.
asset-based commission schedule For annuity sales, a commission schedule in which commissions are calculated as a percentage of the accumulated value of a deferred annuity contract’s funds. Also known as a trail commission schedule. Contrast with deposit-based commission schedule.
asset-class correlation matrix For a defined set of asset classes, a table showing the correlation coefficients for all potential pairs of asset classes.
asset-liability management (ALM) (1) The practice of coordinating the administration of an insurer’s asset portfolio (its investments) with the administration of its liability portfolio (its obligations to customers) so as to manage risk and still earn an adequate level of return. (2) A cross-functional management system that many types of financial institutions, including life insurance companies, banks, and retirement plans, use to coordinate the risks that simultaneously affect the company’s investments and products.
asset-liability management risk The risk that a company’s capital could be depleted due to a narrowing of the difference between returns earned on assets and liabilities or a mismatch in cash flows for assets and liabilities. Also known as ALM risk.
asset-liability manager A financial professional who monitors a company’s assets and investments supporting a specified product line, such as annuities, and makes sure funds are available when needed to support that line. Also known as an asset manager.
assets All the things of value owned by a company, such as cash, financial securities, buildings, furniture, and land.  Contrast with liabilities.
assigned surplus See special surplus.
assignee The party to whom property rights are transferred under a legal agreement known as an assignment. Contrast with assignor.
assignment As pertains to insurance, a legal agreement under which a policyowner or contract owner—the assignor—transfers some or all of her ownership rights in an insurance policy or annuity to another party—the assignee. See also absolute assignment, collateral assignment.
assignment provision A life insurance policy or annuity contract provision which describes the roles of the insurer and the policyowner or contract owner when the policy is assigned.
assignor The person who transfers ownership rights in property by means of an assignment. Contrast with assignee.
association examination In the United States, a single financial condition examination of an insurer operating in more than one zone or in more than three states conducted by examiners representing the various states or zones in which the insurer does business.
association group An insured group that consists of the members of an association, which is an organization of employers or individuals formed for a purpose other than to obtain insurance.
assumed investment rate (AIR) The rate of return that variable annuity subaccount investments are expected to earn during the accumulation period; used to estimate annuity payments.
assumed mortality The hypothetical or assumed number or rate of deaths in a given cohort, or group of people. Contrast with expected mortality.
assuming company See reinsurer.
assumption certificate The new insurance certificate issued by the assuming company (reinsurer) to each policyowner affected by an assumption reinsurance transaction to show policyowners that the assuming insurer has taken responsibility for all risk under their insurance policies. See also assumption reinsurance.
assumption reinsurance Reinsurance designed to permanently and entirely transfer blocks of existing insurance business from one company to another. Also known as portfolio reinsurance. Contrast with indemnity reinsurance.
Assumption Reinsurance Model Act In the United States, a model law proposed by the National Association of Insurance Commissioners (NAIC) to regulate the transfer and novation of insurance contracts by way of assumption reinsurance. Defines the rights and responsibilities of policyholders, regulators, and the parties to assumption reinsurance agreements.
assured See insured.
attachment point For stop-loss insurance, the total dollar amount of claims that the employer must pay within a stated period of time before the stop-loss insurer begins to reimburse the employer. Also known as aggregate deductible.
attained age conversion A conversion of a term life insurance policy to a cash value life insurance policy in which the premium rate for the cash value policy is based on the insured’s age at the time the policy is converted. Contrast with original age conversion.
attending physician A physician, whether he is a primary care physician or a specialist, who has provided medical care for a proposed insured. Contrast with examining physician.
Attending Physician's Statement (APS) A report by a physician who has treated or is currently treating a proposed insured that is provided to an insurer during the underwriting process. Also known as a medical attendant’s report (MAR).
attribution analysis In portfolio management, an analytical technique that involves assigning components of portfolio returns to specified portfolio management tactics, and in this way, identifies the share of portfolio returns associated with each portfolio management tactic.
audit A systematic examination and evaluation of a company’s records, procedures, and controls.
audit committee A standing committee that assists a company’s board of directors in overseeing the internal audit function, independent (external) auditors, financial reporting practices, internal controls, and, in some companies, ethics policy, and compliance with regulations and standards.
audit policy A corporate statement about a company’s provisions for systematically examining, testing, and evaluating the company’s compliance with one or more specified sets of standards.
auditor's opinion A statement, prepared by a public accounting company, that attests that the information contained in an insurer’s annual report fairly represents the insurer’s operations and that the audit was conducted in accordance with applicable auditing standards.
authorization limit In financial control systems, a maximum monetary amount that a company employee has official power to approve for disbursement without prior approval by another company employee with higher authority.
authorized reinsurer In the United States, a reinsurance company that is licensed or otherwise recognized by the insurance department in the jurisdiction of a direct writer. Also known as an admitted reinsurer.
auto-adjudication An electronic claim processing system for processing claims that fit certain parameters specified for electronic handling.
automatic binding limit In an automatic reinsurance arrangement, the maximum monetary amount of risk the reinsurer will accept automatically on a given policy or case without making an independent underwriting assessment.
automatic dividend option A specified policy dividend option that the insurer will apply if a policyowner does not choose an option.
automatic nonforfeiture benefit A specific nonforfeiture benefit that becomes effective automatically when a renewal premium for a cash value life insurance policy is not paid by the end of the grace period and the policyowner has not elected another nonforfeiture option.
automatic portfolio rebalancing A special service whereby the insurer transfers money among subaccounts at specified intervals (such as at the end of each calendar quarter) to maintain the contract owner’s desired investment allocation.
automatic premium loan (APL) option A cash value life insurance policy nonforfeiture option under which the insurer will automatically pay an overdue premium for the policyowner by making a loan against the policy’s cash value as long as the cash value equals or exceeds the amount of the premium due.
automatic reinsurance A type of reinsurance under which the direct writer agrees in advance to cede and the reinsurer agrees in advance to assume all cases that meet the specifications in the reinsurance agreement. Contrast with facultative reinsurance and facultative-obligatory reinsurance.
automobile insurance A type of personal property insurance that protects an insured from financial losses arising from operation of a vehicle.
average daily rate (ADR) The average of rates charged for a hotel or resort room during a specified period; one factor used in measuring the success of investments in the lodging industry.
average occupancy rate (AOR) The percentage of days a hotel or resort room is occupied during a specified period; one factor used in measuring the success of investments in the lodging industry.
aviation exclusion provision A life insurance policy provision which states that an insurer will deny payment of policy proceeds if the insured’s death is caused by certain aviation-related activities.
AVR See Asset Valuation Reserve.
backdating A practice by which an insurer makes the effective date of an insurance policy earlier than the date of the application.
back-end load (1) A fee a mutual fund charges when an investor sells shares. Also known as a deferred sales charge. (2) An amount charged to an insurance or annuity contract owner when she withdraws money from the product. Also known as a surrender charge, and for variable annuities, a contingent deferred sales charge. For investments, see also short-term trading fee. Contrast with front-end load.
backward number sequence test A type of cognitive screen that examines a person’s ability to recall a series of numbers and name them in reverse sequence.
bailout provision In a fixed annuity contract, a provision that enables the contract owner to surrender the annuity contract, usually without surrender charges, if the current interest rate falls below a stated level—typically 1 percentage point below the initial current interest rate. Also known as an escape clause or cash-out provision.
balance sheet A financial document that lists the values of a company’s assets, liabilities, and capital and surplus as of a specific date. See asset, liability, capital, and surplus. Also known as a statement of financial position or a statement of financial condition. See also basic accounting equation. Contrast with income statement.
balance sheet equation See basic accounting equation.
balanced mutual fund A mutual fund that has the objective of preservation of capital with moderate income and growth in value.
balloon payment In a mortgage, a lump-sum payment of the final amount of the mortgage, payable on a specified date.
bancassurance Outside of the United States, a term used to describe the distribution of insurance products to bank customers through a bank-affiliated insurer. In the United States, known as bank distributed insurance.
banded premium rate table A premium rate table that shows premium rates for life insurance with face amounts within a specified range.
banding A method of providing quantity discounts in which a company creates a number of contiguous bands based on the face amount of a policy and charges different premium rates for each band.
bank distributed insurance See bancassurance.
Bank for International Settlements (BIS) A prominent international self-regulatory organization with a primary focus on central banks and the banking industry, with a mission to serve central banks globally in supporting monetary and financial stability, fostering international cooperation, and acting as a bank for central banks.
bargaining contract A contract created when both parties, as equals, set the terms and conditions of the contract. Contrast with contract of adhesion.
Basel Committee on Banking Supervision (BCBS) A membership organization comprising representatives of bank supervisory authorities and central banks from countries with prominent economies, with a mission to provide a forum for discussing bank supervision matters worldwide.
Basel III The common name for a comprehensive set of financial supervision reform measures designed to strengthen the regulation, supervision and risk management of the banking, insurance, and securities sectors globally.
basic accounting equation An equation which states that a company’s assets equal the sum of its liabilities and its owners' equity (capital and surplus); forms the basis of a balance sheet. Also known as balance sheet equation. See also balance sheet, assets, liabilities, capital, and surplus.
basic illustration A spreadsheet, ledger, or proposal that is used in the sale of a life insurance policy and that shows both guaranteed and nonguaranteed policy values. Contrast with supplemental illustration.
basic medical expense coverage Medical expense insurance coverage providing separate benefits for each type of covered medical care cost. Basic coverage typically provides benefits for hospital, surgical, and physicians' expenses.
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.
basis point (bp) An increment of one-hundredth of a percent (0.01 percent). Thus, 100 basis points equals one percent. Half a percent is equal to 50 bp, and one and a half percent is equal to 150 bp. Insurers often use this unit of measurement in calculating interest margins for insurance products with a significant investment component. See also interest spread.
BCBS See Basel Committee on Banking Supervision.
benchmark A performance standard, often based on a standard achieved by leading companies, that represents a company’s goal for performance.
benchmarking A process by which a company compares its own performance, products, or services with those of other organizations that are recognized as the best in a particular category in order to identify areas for organizational improvement.
beneficiary For an insurance policy, the person or party that the owner of an individual policy or the group insured names to receive the policy benefit. See also primary beneficiary, contingent beneficiary, revocable beneficiary, irrevocable beneficiary, concurrent beneficiary, preference beneficiary.
benefit base The amount to which a variable life insurance policy’s net investment return will be applied periodically.
benefit period The time during which an insurer agrees to pay benefits to an insured under a disability income or long-term care insurance policy.
benefit schedule A table or schedule that specifies the amount of coverage provided for each class of group insureds by a group insurance policy.
benefit transmittal In group insurance, an attachment to a request for proposal (RFP) that provides details about the insurance benefits being requested, the effective date of coverage, how premium billing and claims will be administered, and other information about the requested group insurance plan.
benefit trigger A long-term care insurance policy requirement specifying the conditions that establish an insured’s eligibility to receive long-term care benefits.
benefit unit The specific amount of coverage specified in a premium rate.
benefit waiting period See elimination period.
benefits budget A type of expense budget, which indicates the amount of money an insurer expects to pay for insurance policy or annuity contract benefits, such as claims, cash surrenders, and policy dividends during the next accounting period.
best efforts basis A service in which an investment bank undertakes to sell a bond issue on behalf of the issuer on the best terms obtainable, but does not first purchase the bonds from the issuer.
beta For investment analysis, a popular measure of financial market volatility that highlights both return and market risk.
BGA See brokerage general agent.
bilateral contract A contract in which both parties make legally enforceable promises when they enter into the contract. In an insurance contract, only one party—the insurer—makes a legally enforceable promise. Contrast with unilateral contract.
binding premium receipt A premium receipt that provides temporary insurance coverage that becomes effective on the date specified in the receipt. The temporary insurance coverage ends at the earlier of (1) the date specified in the receipt, (2) when the insurer rejects the application, or (3) when the insurer approves the application. Contrast with conditional premium receipt. See also temporary insurance agreement.
BIS See Bank for International Settlements.
blended rating A method of calculating group insurance premium rates that combines manual rating and experience rating. Contrast with manual rating and experience rating.
block of business A number of similar insurance policies.
block of policies A group of policies issued to insureds who are all the same age, the same sex, and in the same risk classification.
block trade See block transaction.
block transaction Generally, a securities transaction that is larger than normal given current market conditions—often a minimum of 10,000 shares. Also known as a block trade.
blood chemistry profile A group of laboratory tests that analyze a sample of blood to identify factors that point to possible chronic and acute diseases.
board of directors A group of individuals who are responsible for overseeing the management of a corporation; the top level of management.
bond A security that represents a debt that a borrower (the issuer of the bond) owes to the bondholder (the person or company that buys the bond). Bonds are typically the largest investment holdings in the general accounts of insurance companies. See also debt security.
bond curve See yield curve.
bond fund A mutual fund whose assets are invested primarily in bonds. See fixed-income fund.
bond issuer The entity that sells a bond to raise money.
bond ladder An investment strategy that involves purchasing a series of bonds whose maturity dates are staggered to produce a steady stream of potential cash.
bond principal See par value.
bond rating A letter grade that a bond rating agency assigns to indicate the quality of a bond issue.
bond subaccount A subaccount in an insurance company’s separate account that consists of a variety of both short-term and long-term government and corporate bonds.
bondholder The owner of a bond.
bonus annuity A variable annuity under which the insurer credits a stated amount to the initial purchase payment or subsequent purchase payments as an incentive for the customer to purchase the contract.
book value The value at which an asset is reported in a company’s financial records. Contrast with current market value.
bordereau service A direct writer’s action of providing a reinsurer with a list of total reinsurance premiums and other information.
bottom-up budgeting A budgeting approach that starts at the bottom of a company, with lower-level managers generating budgets for their areas, which are then presented in the form of recommendations to senior management. Contrast with top-down budgeting, zero-based budgeting.
bottom-up investing In portfolio management, a practice of selecting individual securities or other assets for a specific portfolio in a manner consistent with portfolio risk guidelines; bottom-up investors seek asset diversification by selecting one security or issuer at a time.
bp See basis point.
breakeven analysis See cost-volume-profit analysis.
breakeven point The point at which product revenues equal product costs, marking the end of the breakeven period. Also known as the validation point.
broker In insurance sales, an independent agent who does not have an exclusive contract with any single insurer or specific obligations to sell a single insurer’s products. Also known as an agent-broker or insurance broker.
brokerage general agency arrangement An arrangement to distribute nonproprietary products in which an insurance company enters into an agreement to allow its affiliated agents to sell products offered through an independent general agent, known as a brokerage general agent.
brokerage general agent (BGA) An independent general agent who is under contract to a number of insurers.
broker-dealer A financial institution that buys and sells securities either for itself or for its customers and provides information and advice to customers regarding the purchase and sale of securities.
B-share annuity A variable annuity with a back-end load that reduces gradually over a six, seven, or eight-year period. Contrast with A-share annuity, C-share annuity, L-share annuity.
budget A financial plan of action, expressed in monetary terms, that covers a specified period, such as one year.
build chart A chart that indicates average weights for various heights, along with the mortality debits associated with increases in weight.
bulk administration A method of reinsurance administration in which the direct writer administers the reinsurance and periodically submits summarized reports on premiums and on the policies to the reinsurer, but does not provide individualized detailed information about risks reinsured until a claim needs to be processed.
business continuance plan A plan that provides arrangements and systematic procedures to be followed in case of weather emergencies (such as floods or ice storms), computer systems failures, power or network outages, power spikes, cable cuts, fires, or similar events that would prevent or hamper normal business operations. Also known as a contingency plan or a disaster recovery plan.
business continuation insurance plan An insurance plan designed to enable a business owner (or owners) to provide for the business’ continued operation if the owner or another key person dies. See also  partnership insurance.
business credit risk See counterparty risk.
business finance company See commercial finance company.
business income insurance A type of property insurance that covers losses resulting from the suspension of business operations, including loss of net income, expenses that continue during suspension of business operations, and extra expenses incurred to avoid or minimize business interruption.
business insurance Insurance that serves the needs of a business organization rather than those of a person.
business market See organizational market.
business overhead expense coverage A disability coverage option that provides benefits designed to pay a disabled insured’s share of a business’s overhead expenses.
business risk  The risk that changes in a company’s external environment will affect its operations. Also known as marketplace risk.
businessowners policy A package commercial property and liability insurance policy that is available to certain small- to medium-sized businesses and covers commercial real property, personal property, and liability.
buy-and-hold strategy See passive portfolio management.
Buyer's Guide See Life Insurance Buyer's Guide.
buy-sell agreement An agreement in which (1) one party agrees to purchase the financial interest that a second party has in a business following the second party’s death and (2) the second party agrees to direct his estate to sell his interest in the business to the purchasing party. See also cross-purchase agreement, entity agreement.
C (contingency) risks In the United States, four officially recognized categories of risk that the actuarial profession has identified as being able to cause financial distress for insurers. See also asset risk, pricing risk, interest-rate risk, and general management risk.
C1 risk See asset risk.
C2 risk See pricing risk.
C3 risk See interest-rate risk.
C4 risk See general management risk.
calendar-year deductible In medical expense insurance, a deductible that applies to the total of all allowable expenses an insured incurs during a given calendar year.
call See call option.
call center An organizational unit within a company that receives and/or places telephone calls to customers. See contact center.
call option A type of derivative security that gives the holder the right, but not the obligation, to buy an underlying security at a specified strike price, on or before the expiration date. Also known as a call.
call provision A bond provision that states the conditions under which the bond issuer has the right to require the bondholder to sell the bond back to the issuer at a date earlier than the maturity date.
callable bond A bond that includes provisions that allow the bond issuer to retire the bond prior to the maturity date at a specified price—the call price.
Canada Pension Plan (CPP) A Canadian federal compulsory, contributory, earnings-related social insurance program that ensures a measure of protection to a contributing wage earner and his family against the loss of income due to retirement, disability and death.
Canadian Council of Insurance Regulators (CCIR) An organization that consists of provincial superintendents of insurance that discusses insurance issues and recommends uniform insurance legislation to the provinces; similar to the National Association of Insurance Commissioners (NAIC) in the United States.
Canadian Reinsurance Conference (CRC) An annual meeting of Canadian direct writers and reinsurance companies that provides a forum for discussion of current life and health insurance and reinsurance issues.
Canadian Reinsurance Guidelines A set of common reinsurance principles, established by the Canadian Reinsurance Conference (CRC), that can be voluntarily used as a basis upon which new reinsurance treaties can be written and existing treaties can be interpreted
cancellable policy An individual health insurance policy that grants the insurer the right to terminate the policy at any time, for any reason, simply by notifying the policyowner that the policy is cancelled and refunding any advance premium that has been paid for the policy. See also conditionally renewable policy, guaranteed renewable policy, noncancellable policy, optionally renewable policy.
cap See interest-rate cap.
capacity The total amount of risk that a reinsurer is able to accept and still maintain its financial ability to handle claims, maintain adequate reserves, and maintain adequate surplus.
capital (1) An amount of money that a company’s owners invested in the company, usually through the purchase of company stock. (2) The excess of a company’s assets over its liabilities.
capital adequacy The minimum amount of capital an insurer must hold to meet a specified standard for capital.
capital adequacy testing See dynamic solvency testing.
capital and surplus For insurers, the amount remaining after liabilities are subtracted from assets; owners’ equity in an insurance company. See also owners' equity, balance sheet, basic accounting equation.
capital and surplus ratio A solvency ratio that describes the relationship between an insurer’s capital and surplus and its liabilities. A capital and surplus ratio is used to measure an insurer’s financial strength. Also known as a capital ratio.
capital appreciation An increase in the value of invested assets.
capital budget A budget that shows a company’s plans for the financial management of its long-term, high-cost investment proposals, such as new investments in equipment or real estate, major repairs to or remodeling of existing investments, acquisitions of other companies or lines of business, mandated safety and environmental improvements, expense reduction projects, purchases of new computer systems and equipment, and revenue expansion projects.
capital budgeting The analysis of decisions about the investment of long-term funds.
capital gain The amount by which the selling price of an investment is more than its purchase price. Contrast with capital loss.
capital loss The amount by which the selling price of an investment is less than its purchase price. Contrast with capital gain.
capital market The aggregate of all marketplaces, participants, and activities that move funding in a given economic system from net suppliers of capital to net users of capital.
capital ratio See capital and surplus ratio.
captive agent See career agent.
captive reinsurer A reinsurer that was formed by an insurer for the purpose of providing reinsurance and that is controlled by the insurance company that formed it.
career agent An insurance sales agent who is under a full-time contract with one insurance company and sells primarily that company’s life insurance products. Also known as captive agent, exclusive agent.  See also independent agent and multiple-line agent.
case assignment system A method of assigning cases to underwriters that enables an underwriter to specialize in certain types of cases.
case management A process by which a health plan (1) identifies plan members who require extensive, complex health care, (2) develops an appropriate treatment strategy based on medical necessity and appropriateness and the availability of alternative care solutions, and (3) coordinates and monitors patient care.
cash accounting See treasury operations.
cash dividend option A life insurance policy dividend option under which the insurance company sends the policyowner a check in the amount of the policy dividend that was declared. See also policy dividend options.
cash equivalents Short-term assets that are not cash, but can typically be converted to cash within 90 days with little or no risk of losing value.
cash flow Any movement of cash into or out of an organization.
cash flow statement A financial statement that provides information about a company’s cash receipts (inflows), cash disbursements (outflows), and the net change in cash (the difference between cash inflows and cash outflows) during a specified accounting period. Also known as a statement of cash flows.
cash flow testing (CFT) See cash-flow testing.
cash inflow A movement of cash into an organization. Also known as a source of funds.
cash management See treasury operations.
cash management products Financial products that enable owners to manage available funds and use them to make purchases and pay bills, to store money for short periods of time, and to transfer funds from one account to another.
cash outflow A movement of cash out of an organization. Also known as a use of funds.
cash payment nonforfeiture option See cash surrender value nonforfeiture option.
cash surrender value The amount of the cash value that a policyowner is entitled to receive upon surrender of the policy. Also known as the surrender value or surrender benefit. See also net cash surrender value. Contrast with face amount.
cash surrender value nonforfeiture option A life insurance policy nonforfeiture option that permits a policyowner to discontinue premiums payments, surrender the policy, and receive the policy’s cash surrender value in a lump-sum payment. Also known as cash payment nonforfeiture option.
cash value The savings element of a cash value life insurance policy. See also cash surrender value.
cash value accumulation test For federal income tax purposes in the United States, one of the qualification tests a policy must meet to be considered a life insurance contract that provides a tax-free death benefit.  A policy passes this test if, according to the contract terms, the amount of its cash surrender value is never greater than the amount of the net single premium needed to fund the policy death benefit.
cash value life insurance Life insurance that provides insurance coverage throughout the insured’s lifetime and provides a savings element, known as the cash value. Sometimes referred to as permanent life insurance. Contrast with term life insurance.
cash value reimbursement An amount the reinsurer pays to a direct writer under a coinsurance or modco reinsurance treaty when a life insurance policyowner surrenders a reinsured policy in exchange for the policy’s cash value.
cash-basis accounting An accounting system in which a company recognizes revenues or expenses only when it receives or disburses cash. Contrast with accrual-basis accounting.
cash-flow matching A technique that involves identifying the patterns of cash outflows for insurance products and matching those cash outflows with a selection of assets that will produce a similar pattern of cash inflows.
cash-flow testing A method of asset adequacy analysis; a modeling exercise involving the projection and comparison of the timing and amount of future cash flows resulting from economic and other assumptions.
cash-flow testing (CFT) The use of simulation modeling to project into a future period the cash flows associated with an insurance company’s assets and liabilities as of a given valuation date and to compare the timing and amounts of assets and liability cash flows at various times after the valuation date.
cash-out provision See bailout provision.
cat cover See catastrophe coverage.
catastrophe coverage A type of nonproportional reinsurance designed to partially protect direct writers from (1) a single catastrophic event resulting in multiple claims or (2) an annual total of claims in a catastrophic amount. The coverage usually is a backup for accident or casualty coverages.  The coverage usually requires the reinsurer to pay claims on the direct writer’s total claims above a stated amount, subject to (1) a minimum number of qualified claims or minimum amount of claim benefits and (2) a maximum total reinsurance payout. Also known as cat cover.
catastrophic health insurance plan See high deductible health plan.
CCIR See Canadian Council of Insurance Regulators.
CD See certificate of deposit.
CDS (1) See Complaints Database System. (2) See credit default swap.
CDSC Contingent deferred sales charge. See back-end load.
cede An insurance company’s transfer of all or part of a specified risk to a reinsurance company.
ceding commission See allowance.
ceding company See direct writer.
census In group insurance, a document that lists demographic information about the group prospect as a unit and about individual members within the group.
certificate holder See group insured.
certificate of authority A document that grants an insurer the right to conduct an insurance business and sell insurance products in the jurisdiction that grants the certificate. Also known as a license.
certificate of deposit (CD) A contractual agreement issued by a bank or other depository institution such as a credit union that returns the owner’s principal with interest on a specified date.
certificate of insurance A document that is provided to each person insured by a group insurance plan that describes (1) the coverage that the master group insurance contract provides and (2) the group insured’s rights under the contract.
cession Both the unit of insurance risk that a direct writer transfers to a reinsurer and the document used to record the transfer of risk from a direct writer to a reinsurer
cession arrangement An agreement that Identifies the direct writer’s obligations and rights to cede risks, and identifies the reinsurer’s obligations to accept risk as well as its rights to reject risk.
CFT See cash-flow testing.
change in health statement A document, contained in most individual life insurance applications and premium receipts, that requires a proposed insured to notify the insurer in writing if his health or any material information in the application changes before the policy is delivered.
change of beneficiary provision A provision included in individual life insurance policies and health insurance policies providing a death benefit which states the procedure the policyowner should follow for making a beneficiary change. Typically, the provision states that, unless a policyowner makes an irrevocable beneficiary designation, the policyowner has the right to change a beneficiary designation and to surrender or assign the policy without the beneficiary’s consent.
change of occupation provision A provision in individual disability income insurance policies that permits the insurer to adjust the policy’s premium rate or the amount of benefits payable under the policy if the insured changes occupation.
change of ownership provision An individual life insurance policy provision that permits a policyowner to transfer all ownership rights by notifying the insurer, in writing, of the change.  When the insurer records the ownership change in its records, the change generally becomes effective as of the date the policyowner signed the written notification.
ChFC See Chartered Financial Consultant.
chief underwriter The highest ranking underwriter in a company, who sets underwriting philosophy, monitors underwriting cost and quality, assists in underwriting large or difficult cases, helps select products and vendors, oversees underwriting training, reviews contestable claims, and otherwise acts as liaison with other company functional areas.
children's insurance rider A supplemental life insurance policy benefit that can be added to an individual life insurance policy to provide term life insurance coverage on the insured’s children.
chronic condition An illness or disease that is expected to last a year or longer. A person certified by a licensed health care practitioner as having a chronic condition may, in certain circumstances, qualify for long-term care or disability income benefits.
churning An unfair sales practice in which a producer induces a customer to replace one life insurance policy or annuity contract with another product, multiple times, so that the producer can earn a series of first-year commissions on the replacements.
CI benefit critical illness benefit. See dread disease benefit.
claim A request for payment under the terms of an insurance policy.
claim adjudication See claim administration.
claim adjustor See claim analyst.
claim administration The insurance function that is responsible for evaluating, processing, and paying valid claims for contractual benefits that policyowners or beneficiaries present. Also known as claim adjudication, claim handling, claim processing, or claim servicing.
claim analyst An insurance company employee who is trained to review individual claims and determine the company’s liability under each claim. Also known as a claim examiner, claim adjustor, or claim specialist.
claim examiner See claim analyst.
claim file An organized collection of all the information relevant to a claim.
claim form A document containing information about a loss under an insurance policy that is submitted to an insurer to begin the claim evaluation process. Also known as a claimant’s statement.
claim fraud An action by which a person intentionally uses false information in an unfair or unlawful attempt to collect benefits under an insurance policy or annuity contract.
claim handling See claim administration.
claim investigation The process of obtaining the additional information necessary to make an appropriate claim decision.
claim processing See claim administration.
claim provision A reinsurance treaty provision that states the terms and conditions of the reinsurer’s liability for claims submitted under reinsured policies.
claim servicing See claim administration.
claim settlement A lump-sum payment by an insurer to a claimant in exchange for the claimant’s agreement to release the insurer from further responsibility for coverage under the policy.
claim specialist See claim analyst.
claimant A beneficiary or policyowner who submits a policy claim to an insurance company.
claimant’s statement See claim form.
claims bordereau In some self-administered reinsurance arrangements, a report that includes information about the individual claims received and/or paid by the direct writer on reinsured policies and the reinsurer’s obligation under those claims. Also called a loss bordereau.
claims provision A provision typically included in individual health insurance policies that defines an insured's obligation to provide timely notification of loss to the insurer and the insurer's obligation to make prompt benefit payments to the insured. Also known as notice of claim provision.
class designation A life insurance beneficiary designation that identifies a certain group of people rather than naming each person individually. See also per stirpes beneficiary designation and per capita beneficiary designation.
classified common stock A type of common stock that entitles different share classes to distinctive stockholder rights, such as dividend rights and rights in a liquidation proceeding.
cliff vesting schedule For qualified retirement plans in the United States, a type of minimum vesting schedule that provides a participant with a nonforfeitable right to all employer-funded plan benefits or account values after a specified period—for example, after five years of full employment. Contrast with graded vesting schedule.
close notice See drop notice.
closed contract  A contract for which only those terms and conditions that are printed in—or attached to—the contract are considered to be part of the contract. Contrast with open contract.
closed-end investment company An investment company whose shares are traded on an organized stock exchange, like the New York Stock Exchange or the National Association of Securities Dealers Automated Quotation System (Nasdaq). Contrast with open-end investment company.
closing (1) In insurance sales, the part of an insurance sales presentation that occurs when an agent secures a purchase commitment from a prospect by asking for and obtaining the prospect’s agreement to submit an application for the coverage recommended in the proposal. (2) Generally, the conclusion of a purchase transaction, usually accomplished by satisfaction of all conditions stated in the purchase contract.
CLU See Chartered Life Underwriter.
CMBS See commercial mortgage-backed security.
CMO See collateralized mortgage obligation.
COB provision See coordination of benefits provision.
COBRA See Consolidated Omnibus Budget Reconciliation Act.
COBRA continuation coverage In the United States, group medical expense insurance coverage that is continued under the provisions of the Consolidated Omnibus Budget Reconciliation Act (COBRA) when an individual's employer-provided group health insurance has terminated because of certain qualifying events.
coefficient of variation See correlation coefficient.
cognitive impairment In long-term care (LTC) insurance underwriting, mental incapacity that prevents a person from performing activities of daily living (ADLs) or from living safely. See also activities of daily living.
cognitive screen A test designed to determine a person’s powers of recollection or short-term memory that is often used to measure cognitive impairment in persons insured under long-term care (LTC) insurance.
cohort A defined group of people.
coincident indicator A statistical variable that tends to change about the same time that gross domestic product (GDP) changes. Contrast with leading indicator, lagging indicator. See also gross domestic product.
coinsurance (1) A provision in a medical expense insurance policy requiring the insured to pay a percentage of all allowable expenses remaining after the insured pays the deductible. (2) A basic type of proportional reinsurance, suitable for life, annuity, health, disability income, and long-term care coverages, in which a direct writer and a reinsurer proportionately share the obligations of a policy, including paying the death benefit and the nonforfeiture values, and establishing the policy reserve.
coinsurance allowance In a coinsurance arrangement, an allowance that the reinsurer provides to the direct writer to acknowledge expenses.
coinsurance gross premium In a coinsurance arrangement, the reinsurance gross premium including reinsurance allowances.
coinsurance net premium In a coinsurance arrangement, the amount that the direct writer must pay to the reinsurer after subtracting the coinsurance allowance from the coinsurance gross premium.
COLA benefit See cost-of-living adjustment benefit.
cold calling A sales process in which the seller telephones or visits prospects with whom the seller has had no prior contact. Also known as cold canvassing.
cold canvassing See cold calling.
collateral An asset that is pledged as security for a loan until the debt is paid.
collateral assignment A temporary assignment of the monetary value of a life insurance policy as collateral—or security—for a loan. Contrast with absolute assignment.
collateralized loan obligation (CLO) A structured security representing an interest in a pool of corporate debt such as commercial loans.
collateralized mortgage obligation (CMO) A bond secured by a pool of commercial mortgage loans.
collision insurance Physical damage insurance that covers an insured for losses to his vehicle caused by a collision regardless of whether the insured was at fault.
combination roll-up/step-up benefit An enhanced death benefit in a variable annuity that offers both a roll-up of principal and a lock on investment gains at each contract anniversary.  Under this benefit, the death benefit payable is equal to the greatest of (1) the contract’s accumulated value at the time of the contract owner’s death, (2) the rolled-up principal amount, or (3) the stepped-up value at contract anniversary.
combined retention See corporate retention limit.
commercial automobile insurance A type of property insurance that comes in three forms: business automobile coverage, which is similar to personal automobile coverage; garage coverage, which covers businesses that sell, service, park, or store automobiles; and motor carrier coverage, which covers businesses that provide transportation of people, goods, or both, as specified in the policy.
commercial bank A depository institution that accepts deposits from people, businesses, and government agencies and uses those deposits to make loans to people, businesses, and government agencies.
commercial finance company A finance company that extends loans and leases equipment to businesses. Also known as a business finance company. Contrast with consumer finance company.
commercial liability insurance A type of liability insurance that covers bodily injury and property damage liability, personal and advertising injury liability (such as defamation), and medical payments.
commercial mortgage  A loan secured by commercial real estate, such as shopping centers, office buildings, hospitals, factories, and retail stores.
commercial mortgage-backed security (CMBS) A type of mortgage-backed security that is secured by a pool of various commercial mortgages.
commercial paper A financial instrument, consisting of short-term, unsecured promissory notes, a corporation issues to businesses or governments to obtain capital for short-term business needs. It is an alternative to short-term bank loans or other forms of borrowing.
commercial property insurance A type of property insurance that covers buildings and personal property owned by a business and personal property of others in the care of the business.
commingling of funds In insurance sales, the prohibited practice of combining monies belonging to others with a producer’s own funds, even on a temporary basis.
commission In insurance sales, an amount of money, typically a percentage of the premiums paid, that an insurer pays to a producer for selling and servicing an insurance policy or annuity contract. Also known as sales commission. See also first-year commission, renewal commission.
committee underwriting An underwriting approach in which a group of highly qualified people from inside and outside the underwriting function is called together for a case assessment. See also team underwriting.
commodities Primary products traded in bulk on commodities exchanges or in spot markets and comprising natural resources that have been mined or extracted—such as metals, coal, and petroleum—and agricultural products and livestock—such as grains, coffee, sugar, orange juice, and pork.
common costs See indirect costs.
common disaster clause See survivorship clause.
common stock A type of stock that usually entitles the owner to vote on the selection of board directors and on other important company matters and also entitles the owner to receive dividends on the stock, if they are declared. Contrast with preferred stock.
commutation right In an annuity contract’s payout period, the owner’s option to withdraw a lump sum from the contract’s remaining principal and from any growth of the principal of a variable contract, even while the contract owner is receiving annuity payments.
commutative contract A contract under which the parties specify in advance the values that they will exchange, and the parties generally exchange items or services that they think are of relatively equal value. Contrast with aleatory contract.
comorbidity The simultaneous appearance of two or more unrelated illnesses or impairments that may act in conjunction with one another, and combined, create a greater risk.
comparables method A real estate appraisal method that requires estimating the market value of a property by reference to recent selling prices for other properties having similar characteristics.
Compendium of Standards (CoS) Maintained by the Financial Stability Board, a list of various economic and financial standards that are internationally important for financial systems.
compensation and benefits policy A statement of guidelines and objectives for a company’s total package of remuneration to employees.
compensatory damages In a lawsuit, monetary awards intended to compensate the injured party for the amount of the monetary losses that resulted from the defendant’s improper conduct. Also known as actual damages. Contrast with punitive damages.
competition laws See antitrust laws.
competition risk Any risk posed by direct competitors of a company, changes in an industry’s structure, or changes in an industry’s standards for the use of technology.
complaint examiner In the United States, a state insurance department employee who is responsible for handling complaints received from consumers.
Complaints Database System (CDS) In the United States, an information system that is maintained by the National Association of Insurance Commissioners and that provides state insurance departments with access to reports and aggregated data about complaints that have been filed against insurance companies and individuals involved in the business of insurance.
compliance (1) The actions taken by an organization to operate in accordance with all applicable laws and regulations. (2) The functional area within an insurance company responsible for ensuring that the company adheres to applicable laws and regulations in each jurisdiction in which it does business.
compliance audit An audit that verifies that a company’s operations adhere to applicable laws and regulatory requirements and to the company’s policies and procedures.
compliance committee See corporate governance committee.
compliance unit A company department or unit of the legal department that performs a wide variety of activities to ensure that company operations adhere to applicable laws, regulations, and company policies.
composite peer portfolio In connection with peer review analysis of investment portfolios, a hypothetical portfolio having the mean and median asset mix of the sampled peer portfolios.
compound interest Interest earned on both the principal amount of money and the accumulated interest. Contrast with simple interest.
compounding The process of determining a future value when compound interest is applied. Contrast with discounting.
compounding period Each of the interest periods used in future value calculations. Contrast with discounting period.
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.
comprehensive examination See comprehensive market conduct examination.
comprehensive market conduct examination In the United States, a full-scope examination of all nonfinancial aspects of an insurer’s operations conducted by a state insurance department. Also known as comprehensive examination. Contrast with target market conduct examination.
comprehensive personal liability insurance Liability insurance that covers insureds from liability losses they incur that are not the result of practicing their profession or operating a vehicle.
comptroller See controller.
concentration See portfolio concentration.
concurrent beneficiary Two or more life insurance beneficiaries who share the policy proceeds on the death of the insured; shares are distributed evenly unless otherwise provided.
concurrent control An organizational control applied during a business process to monitor the process as it is being performed. Concurrent controls determine whether a process should proceed, requires corrective action, or must be stopped. Contrast with feedback control, steering control.
condition See schedule.
conditional premium receipt A premium receipt that specifies certain conditions that must be met before the temporary insurance coverage provided by the receipt becomes effective. See also approval premium receipt, insurability premium receipt. Contrast with binding premium receipt.
conditionally renewable policy An individual health insurance policy that grants the insurer a limited right to refuse to renew the policy at the end of a premium payment period, as long as the reason for refusal is stated in the policy and is not related to the insured’s health. An insurer can increase the premium rate for any class of conditionally renewable policies. See also cancellable policy, noncancellable policy, guaranteed renewable policy, optionally renewable policy.
conditionally vested commission In insurance sales, a commission that becomes vested only after a producer reaches a certain age or number of years of service with the company.
Conduct Rule 2210 See Advertisement Rule.
Conduct Rule 2310 See Suitability Rule.
Conduct Rule 2821 In the United States, a Financial Industry Regulatory Authority conduct rule that significantly expands the suitability requirements contained in the Suitability Rule.
Conduct Rule 3010 See Supervisory Rule.
conflict of interest A situation where the interests or actions of one entity, such as an employee, are incompatible with the interests or actions of a related entity, such as an employer.
conservation Efforts by a producer or an insurer to ensure that issued policies do not lapse but remain in force for as long as possible.
conservation unit Within an insurance company, a group of personnel specially trained to conserve—or keep in force—insurance policies.
conservative financial strategy A financial management strategy that emphasizes avoiding risks that, while potentially enhancing a company’s profitability, could threaten its solvency. Contrast with aggressive financial strategy.
conservative fund A mutual fund that has the objective of preservation of capital.
conservator See receiver.
conservatorship See receivership.
consideration A requirement for the formation of a valid informal contract that is met when each party gives or promises something that is of value to the other party.
Consolidated Omnibus Budget Reconciliation Act (COBRA) In the United States, a federal law that requires group medical expense insurance plans sponsored by employers with 20 or more employees to allow employees and certain dependents to continue their group coverage for a stated period of time following a qualifying event that causes the loss of group health coverage.
consolidation As it relates to the financial services industry, the combination of financial services institutions within or across sectors.
constructive delivery of a policy An insurance policy delivery that occurs when an insurer releases the policy with intent to be bound by it regardless of whether the policy is physically delivered to the applicant. For example, courts have found that constructive delivery occurs when a policy is mailed to an authorized agent of the insurer.
consumer credit report A report prepared by a consumer reporting agency that (1) bears on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living and (2) is used or collected as a factor in establishing the consumer’s eligibility for insurance or credit. Also known as a consumer report.
consumer finance company A finance company that makes loans to people so that they can buy items such as furniture and appliances, make home improvements, and pay off small debts. Contrast with commercial finance company.
Consumer Price Index (CPI) A number that results from comparing the average price of a “market basket” of goods and services at a specified point in time to the average price of the same market basket items at a different point in time.
consumer report See consumer credit report.
consumer reporting agency A private business that assembles or evaluates information on consumers and furnishes consumer reports to other people and organizations in exchange for a fee.
contact center An organizational unit that provides a company’s customers with a variety of channels for communicating with the company. Also known as call center, customer contact center, customer support center.
contest In the context of insurance claim administration, a court action to determine the validity of a claim.
contestable claim A claim for life insurance policy proceeds following the death of an insured during the policy’s contestable period. See also contestable period.
contestable period The time period (often two years) following policy issuance within which an insurer has the right to void a life insurance contract if the application for insurance contained a material misrepresentation. See also incontestability provision.
contingency plan See business continuance plan.
contingency pricing structure A variation in premium rate structures for individual life insurance products that gives an insurer mechanisms for adjusting its charges for an in-force product to reflect the financial results for the product.
contingency reserves See special surplus.
contingency risks See C (contingency) risks.
contingent annuitant A person who becomes the annuitant of an annuity contract if the primary annuitant dies before annuity payments begin or during the payout period.
contingent beneficiary The party named to receive a life insurance policy's proceeds if the primary beneficiary should die before the insured. Also known as a secondary beneficiary or successor beneficiary. See also primary beneficiary.
contingent deferred sales charge See short-term trading fee.
contingent deferred sales charge (CDSC) See back-end load.
contingent payee (1) The person or party who will receive any life insurance proceeds still payable at the time of the payee’s death. Also known as the successor payee. (2) The person or other entity who will receive any remaining annuity payments upon the death of the payee.
continuation For an insurance policy, an event that occurs either when (1) the provisions of an in-force policy are significantly modified or (2) a policy replaces an existing policy from the same direct writer. Additionally, a continuation of an insurance policy differs from a new policy in at least one of the following ways: the policy is not subject to the company’s new business underwriting requirements; the direct writer does not pay full first-year commissions to the insurance producer; the policy does not introduce a new suicide exclusion period; or the policy does not introduce a new contestable period.
continuation coverage (1) In the United States, group medical expense coverage that qualified employees elect to continue according to the provisions of the Consolidated Omnibus Budget Reconciliation Act (COBRA). (2) The coverage provided to the customers of a failed insurance company under an assumption reinsurance arrangement.
continuation provision A reinsurance agreement policy provision that addresses which reinsurer(s) should provide the reinsurance, the amount of reinsurance, and the effective date of reinsurance for continued policies.
continuous budget See rolling budget.
continuous-premium whole life policy A whole life insurance policy under which premiums are payable until the death of the insured. Sometimes referred to as a straight life insurance policy or an ordinary life insurance policy.
contract A legally enforceable agreement between two or more parties; the agreement consists of a promise or a set of promises.
contract form A standardized legal agreement between an insurer and customers that shows the terms, conditions, benefits, and ownership rights associated with a specific insurance or annuity product. See also policy form.
contract maintenance charge For variable (unit-linked) life insurance and annuity products, a periodic charge assessed to cover general maintenance costs, such as preparation of account and other statements.
contract of adhesion A contract that one party prepares and that the other party must accept or reject as a whole, without any bargaining between the parties as to the terms of the contract. Contrast with bargaining contract.
contract of indemnity An insurance policy under which the amount of the policy benefit payable for a covered loss is based on the actual amount of financial loss that results from the covered event, as determined at the time of the event. For example, many medical expense policies are contracts of indemnity. Contrast with valued contract.
contract owner The person or other entity who owns and exercises all the rights and privileges of an annuity contract.
contract under seal  See formal contract.
contractual benefit expenses See expenses for contractual benefits.
contractual capacity The legal capacity to make a contract.
contractual claim liability The amount of money necessary to pay the claims actually incurred by the group during a specified period, typically one year.
contractual reserve A liability that identifies the amount that, together with future premiums and investment earnings, represents the expected amount of future benefits payable on an insurer’s in-force business. Also known as policy reserve, legal reserve, required reserve, statutory reserve, and tabular reserve. Contrast with noncontractual reserve.
contractual savings institution A financial institution that acquires funds at periodic intervals on a contractual basis.
contrarian investing An investment strategy in which the investor seeks opportunities to buy or sell specific securities when the majority of investors appear to be doing the opposite.
contribution margin The difference between a product’s total revenues and its total variable costs.
contributory plan A group insurance plan under which insured group members must pay part or all of the premium for their coverage. Contrast with noncontributory plan.
control cycle A repetitive process designed to ensure that all areas of a company adhere to the company’s performance standards. See also concurrent control, feedback control, steering control.
controllable expense A cost over which a specified manager or organizational unit has power and influence. Contrast with noncontrollable expense.
controlled business Insurance written to cover a producer or the producer’s family or the producer’s business.
controller The head of a company’s accounting function. Also known as comptroller.
conventional mortgage A mortgage in which the interest rate, term, and periodic payment amounts are all fixed in advance.
conventional mortgage loan A residential mortgage loan that is made on the basis of the borrower’s credit level and the value of the collateral that is the basis for the mortgage.
conversion A new policy that is issued on the basis of the policyowner’s contractual right to change the policy form, as provided in the original policy.
conversion privilege (1) A term life insurance policy provision that allows the policyowner to change (convert) the policy to a cash value policy without providing evidence that the insured is an insurable risk. (2) A group life insurance policy provision that allows a group insured whose coverage terminates for certain reasons to convert her group life insurance coverage to an individual life insurance policy, usually without presenting evidence of her insurability.
convertible bond A type of corporate bond that pays a fixed interest payment but also gives the bondholder the option of surrendering the bond in exchange for a specified number of shares of the issuing company’s common stock.
convertible term insurance policy A term life insurance policy that gives the policyowner the right to convert the term policy to a cash value life insurance policy.
cooling-off provision See free-look provision.
coordination of benefits (COB) provision A group medical expense insurance policy provision that is designed to prevent a group insured who is covered under more than one group medical expense policy from receiving benefit amounts that are greater than the amount of medical expenses the insured actually incurred.
copayment A specified, fixed amount health insurance plan members must pay for specified services at the time the medical services are received.
corporate alignment A consistent targeting of a business organization’s activities, resources, and systems toward achieving the organization’s mission, objectives, and strategies.
corporate bond A bond issued by a corporation. The risk associated with a corporate bond is based on the ability of the bond issuer to make interest payments and to repay the bond principal to the bondholder.
corporate governance The responsibility and authority of a company’s board of directors to direct the organization to properly fulfill its missions on behalf of the company’s legitimate stakeholders in a legal and fiscally responsible manner.
corporate governance committee A standing committee that may handle a variety of corporate issues such as corporate privacy policies, data security and usage policies, licensing, market conduct, or general compliance. Also known as a compliance committee.
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.
corporation A legal entity, separate from its owners, that is created by the authority of a government and that continues beyond the death of any or all of its owners. Contrast with partnership, sole proprietorship.
correlation In descriptive statistics, the degree of relatedness between two sets of values.
correlation coefficient A measure in descriptive statistics that indicates how closely movements in two variables track one another; in investments, a measure used to express the risk correlation for any pairing of assets. Also known as the coefficient of variation, covariance, or correlation factor.
correlation factor See correlation coefficient.
correspondent The person in a group policyholder’s organization who will serve as the liaison with the insurer.
CoS See Compendium of Standards.
cost accounting system An accounting subsystem that accumulates expense data for the dual purposes of effective cost control and accurate product design activities.
cost allocation The accounting process of assigning an indirect cost to a particular cost object according to a formal procedure. Also known as expense allocation.
cost analysis See expense analysis.
cost basis In insurance, the total amount invested in an insurance or annuity contract. (1) For an insurance contract, the sum of all premiums paid, less withdrawals, dividends, and outstanding policy loans. (2) For an annuity contract, the portion of the annuity’s accumulated value on which income tax has already been paid.
cost method A real estate appraisal method that requires estimating the market value of a property by determining the cost of reproducing that property.
cost of benefits For an insurance or annuity product, the value of the contractually required benefits that the product promises to pay. Also known as the cost of insurance.
cost of capital The overall percentage cost the insurer pays for the funds it employs.
cost of insurance See cost of benefits.
cost recovery rule In the United States, a federal income tax rule stating that amounts withdrawn from an annuity are considered a return of the owner's cost basis first, and are therefore nontaxable, until the entire cost basis has been withdrawn. All subsequent withdrawals are considered earnings and are taxed as income. Also known as first-in-first-out rule.
cost-of-living adjustment (COLA) benefit A disability income insurance benefit that provides for periodic increases in the disability income benefit amount that the insurer will pay to a disabled insured; these increases usually correspond to increases in the cost of living.
cost-volume-profit (CVP) analysis A type of cost analysis used to determine how changes in product prices, sales volume, fixed costs, variable costs, and the type of products a company offers affects its profit. Also known as breakeven analysis or profit-volume analysis.
counterparty risk For each party to a contract or business transaction, the potential that the other party to the contract or transaction will fail to fulfill its obligations.
coupon payment An interest payment made by the bond issuer to the bondholder.
coupon rate For a bond, the interest rate that determines the amount of periodic interest payments made to the bondholder.
covariance See correlation coefficient.
covered person See group insured.
CPI See Consumer Price Index.
CPP See Canada Pension Plan.
CRC See Canadian Reinsurance Conference.
credibility factor In group insurance, a percentage that represents the amount of weight given to a group’s actual claim experience for premium rate calculation purposes. See also blended rating.
credit (1) The financial service that enables people to purchase now by giving a promise to pay in the future. (2) A reduction from tax liability. (3) In accounting, a specified change made to the monetary value of a financial account. A credit increases the value of liability accounts, owners’ equity accounts, and revenue accounts, whereas it decreases the value of asset accounts and expense accounts. (4) In the numerical rating system, a proposed insured’s medical and nonmedical characteristics that have a favorable effect on mortality or morbidity and are sometimes assigned “minus” values (such as –25). Contrast with debit.
credit default swap (CDS) A type of derivative security in which the contract writer promises to pay a benefit to the purchaser if the purchaser experiences the credit default defined in the agreement; used primarily to protect the purchaser against credit risk in an investment.
Credit for Reinsurance Model Law A National Association of Insurance Commissioners’ model law that specifies requirements for taking reserve credits.
Credit for Reinsurance Model Regulation A National Association of Insurance Commissioners’ model regulation that specifies how to implement the requirements of the Credit for Reinsurance Model Law.
credit life insurance A type of term life insurance designed to pay the balance due on a loan if the borrower dies before the loan is repaid.
credit products Financial products that enable owners to purchase products and services even if they do not have the entire purchase price on hand, and to either delay payment until funds are available or to spread the payment over time.
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 party’s creditworthiness. For example, a borrower's failure to repay a loan or otherwise meet a contractual obligation. Also known as default risk.
credit risk premium The portion of investment return greater than the risk-free rate, and required to compensate an investor for taking the extra risk in a bond or the credit markets in general.
credit union A nonprofit depository institution that does business only with its depositors—called members—who traditionally shared a common bond, such as an employer or their industry.
credit union group An insured group that consists of the members of one or more credit unions, which are cooperative associations that pool the savings of their members and use those funds to make loans to members.
creditable coverage For purposes of the Health Insurance Portability and Accountability Act, coverage under virtually any type of individual or group health care plan without a break in coverage of 63 days or more.
crediting rate For a fixed deferred annuity or a fixed subaccount of a variable annuity, the interest rate applied to the customer’s accumulation value.
crediting rate formula A formula used in crediting interest to a customer’s fixed deferred annuity account values, typically either the portfolio method or the new money method of crediting interest.
crediting-rate resolution A formal declaration by the board of directors of the rate of interest the insurer will credit on customers’ money held in interest-bearing products.
creditor insurance Life insurance coverage designed to pay for the economic loss suffered by a creditor when a key person of a debtor business dies before the debt is paid.  Also known as loan coverage or debt coverage.
critical illness (CI) benefit See dread disease benefit.
cross-purchase agreement A type of buy-sell agreement in which each partner agrees to purchase a share of a deceased partner’s interest in the partnership by funding the agreement with an insurance policy on the life of each of the other partners. Contrast with entity agreement.
C-share annuity A variable annuity that does not have a front-end or back-end load, but which typically has a higher  mortality and expense risks charge than B-share, L-share, and A-share annuities. Also known as a no load annuity.
CSR See customer service representative.
cumulative dividend A type of preferred stock arrangement in which a company must pay in full any unpaid scheduled dividend on its preferred stock before it may pay any dividend on its common stock.
cumulative preferred stock A type of preferred stock that requires the company to pay in full any unpaid scheduled dividends on its preferred stock before it may pay any dividends on its common stock.
currency of risk The currency in which an insurance policy was issued. Also known as original currency.
currency risk The financial risk that arises from potential changes in currency exchange rates.
currency swap An agreement to exchange principal and interest payments on a particular debt instrument payable in one currency for principal and interest payments on a similar debt instrument payable in another currency.
current assets Assets such as cash and readily marketable assets that can be converted to cash within one year. Also known as short-term assets. Contrast with current liabilities, long-term assets.
current interest rate (1) For an annuity contract, the interest rate, based on the prevailing interest rates in the economy when the annuity is purchased, that an insurer promises to pay for a specified time period—usually one, three, or five years. (2) Generally, the prevailing interest rate in the economy at a given time.
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.
current liabilities Debts that are expected to be paid within the following twelve months. Also known as short-term liabilities. Contrast with long-term liabilities, current assets.
current market value An asset’s selling price under current economic conditions. Also known as fair market value. Contrast with book value.
current mortality rate In universal life (UL) products, the monthly mortality rate actually used to calculate the monthly mortality charge; is generally substantially lower than the guaranteed maximum mortality rate. See also guaranteed maximum mortality rate.
current open claimant In a group insurance plan, a group insured who is receiving short-term or long-term disability income benefits.
current ratio A financial ratio that divides a company’s current assets by its current liabilities to measure its short-term debt-paying ability.
current yield A measure of return on a bond calculated by dividing the bond's coupon rate by the bond's current market price.
custodial account An account set up at a depository institution or other financial  institution for the benefit of a minor or other person who lacks legal capacity.
custodial tasks In the context of a company’s operational control system, job duties that include the physical or electronic handling of assets.
customer contact center See contact center.
customer service representative (CSR) Any employee whose primary job responsibility is to support external customers by conducting two basic types of activities: (1) interacting with customers through face-to-face communications or through communications media, such as the telephone, fax, e-mail, or Internet chat sessions, and (2) processing transactions for customers.
customer support center See contact center.
CVP analysis See cost-volume-profit analysis.
D&O liability insurance See directors and officers liability insurance.
daily benefit amount Under a long-term care insurance policy, the maximum amount the insurer will pay for each day of an insured’s long-term care at a care facility or in the patient’s home.
damages Monetary compensation that may be recovered by a plaintiff who has suffered a loss or injury as a result of a defendant’s wrongful conduct; the basic legal remedy for most civil wrongs. See also compensatory damages, punitive damages.
dashboard In portfolio performance management and control, a technology driven graphical display of the current, real-time status of important investment performance measures.
data governance A quality control discipline for assessing, managing, using, improving, monitoring, maintaining, and protecting organizational information.
date of expiry In reinsurance arrangements, the date upon which the reservation of reinsurance facilities will be cancelled if the reinsurer does not receive a cession or placement information from the direct writer.
Day 1 functionality The administrative and systems processes that must be in place and functioning before an insurance product can be introduced to market.
Day 2 functionality The administrative and systems processes that are necessary at some future date to service and administer an insurance product, but which can be implemented after the product has been launched.
DD benefit See dread disease benefit.
dealer An institution that holds an inventory of securities and is always ready to buy and sell securities from its own account.
death benefit (1) The amount of money paid by an insurer to a beneficiary when the person insured by a life insurance policy dies. Also known as the policy proceeds. (2) An annuity contract feature which states that, if the contract owner dies during the accumulation period, a named beneficiary will receive a benefit of at least as much as the accumulation value at the time of the contract owner’s death. Also known as a survivor benefit or policy proceeds.
death certificate A document that attests to the death of a person and bears the signature—and sometimes the seal—of an official authorized to issue such a certificate.
debenture A bond that is not backed by collateral but only by the full faith and credit of the issuer. Also known as an unsecured bond. Contrast with a secured bond.
debit (1) In accounting, a specified change made to the monetary value of an account; a debit increases the value of asset accounts and expense accounts, whereas it decreases the value of liability accounts, owners’ equity accounts, and revenue accounts. (2) In the numerical rating system, a proposed insured’s medical and personal risk factors that have an unfavorable effect on mortality and are assigned “plus” values (such as +25). Contrast with credit.
debit agent See home service agent.
debit life insurance See home service life insurance.
debt coverage See creditor insurance.
debt curve See yield curve.
debt ratio See debt-to-equity ratio.
debt restructuring An agreement between a debt issuer and a lender, typically representing the lender’s concession to extend the maturity date, accept a lesser amount in repayment of the debt, or otherwise alter the terms of the debt agreement. Also known as rescheduling.
debt security A financial security that represents an obligation of indebtedness owed by a business, government, or an agency. Contrast with equity security.
debt-consolidation loan A loan that combines all of one’s high interest rate credit card debts into one loan that has a lower interest rate than the credit card rates.
debtor-creditor group In group insurance, a group that consists of lending institutions, such as banks, credit unions, savings and loan associations, finance companies, retail merchants, and credit card companies, and their debtors.
debt-to-equity ratio A financial ratio calculated by dividing a company’s total long-term debt by its owner's equity, that is helpful in determining a company’s solvency. See also leverage ratio.
debt-to-service coverage ratio