Description:
Accident year basis: accounting figures – for instance, claims incurred – are based on the accidents occurring within the accounting period. [Related definitions: Claims incurred] [Source: IAIS Standard on fit and proper requirements and assessment for insurers, October 2005]
Accumulation annuity: a contract that accumulates, with interest, either a single premium or a series of premiums and which provides a maturity benefit at some point in the future or provides an option to convert to a payout annuity. [Source: IAIS Issues paper on asset-liability management, October 2006]
Accumulation risk: the risk that arises when a large number of individual risks are correlated such that a single event will effect many or all of these risks. [Related definitions: Catastrophic risk] [Source: IAIS Issues paper on solvency, solvency assessments and actuarial issues, March 2000]
Actual solvency margin: see Available solvency
Actuary: an actuary is a professional trained in evaluating the financial implications of contingency events. Actuaries require an understanding of the stochastic nature of insurance and other financial services, the risks inherent in assets and the use of statistical models. In the context of insurance, these skills are, for example, often used in establishing premiums, technical provisions and capital levels. [Source: IAIS Guidance paper on the use of actuaries as part of a supervisory model, October 2003]
Actuary’s report: written information provided by the actuary on the company’s calculation of premiums and/or technical provisions etc. [Source: IAIS Guidance paper on the use of actuaries as part of a supervisory model, October 2003]
Admissible capital item: see Eligible capital element
Affiliated investment risk: the risk that an investment in a member company of the same conglomerate or group may be difficult to sell, lose its value or create a drain on the financial resources of the insurer. [Source: IAIS Guidance paper on investment risk management, October 2004]
Affiliation contracts: contract through which a joint-stock company subjects itself to the management of another company (e.g. holding company), or commits itself to transfer its profits to that company. [Source: IAIS Standard on licensing, October 1998]
Aggregate excess of loss reinsurance (Stop-loss): This method provides reinsurer indemnification to the ceding company for the aggregate amount of losses during a specific time frame up to a predetermined limit or percentage. For these situations, the ceding company will be expected to provide documentation to the reinsurer of the premiums collected and the losses sustained. [Source: IAIS Guidance paper on risk transfer, disclosure and analysis of finite reinsurance, October 2006]
Allocated investment income: allocated investment income is the investment income from prepaid premiums and payment of claims in arrears. [Related definitions: Operating ratio] [Source: IAIS Standard on fit and proper requirements and assessment for insurers, October 2005]
Alternative risk transfer (ART): Any form of risk transfer that include at least an element of insurance risk, opposed to pure financial risk, other than a pure insurance contract . Possible features of ART include, but are not restricted to:
The definition of ART includes, but is not restricted to, financial reinsurance and securitisation of insurance risks.
[Related definitions: Reinsurance] [Source:
CEA-GC, Solvency II Glossary, November 2006]
Annual accounts: financial statement of a company set up according to commercial law or generally accepted accounting principles, ie. not particularly drawn up for supervisory purposes. In some countries the annual accounts / shareholders’ accounts might also be used for submission to the supervisory authority. [Equivalent terms: Shareholder’s accounts] [Source: IAIS Standard on on-site inspections, October 1998]
Arm’s length: business relationships and transactions undertaken between two related or affiliated parties that are conducted on normal market terms and conditions, so that there is no question of an unfair advantage being gained by one party at the expense of the other. [Related definitions: Control, Related party(ies)]. [Source: IAIS Guidance paper on combating the misuse of insurers for illicit purposes, October 2005]
Asset-liability management: the practice of managing a business so that decisions and actions taken with respect to assets and liabilities are coordinated. ALM can be defined as the ongoing process of formulating, implementing, monitoring and revising strategies related to assets and liabilities to achieve an organisation’s financial objectives, given the organisation’s risk tolerances and other constraints. ALM is relevant to, and critical for, the sound management of the finances of any organisation that invests to meet its future cash flow needs and capital requirements. [Source: Society of Actuaries, Specialty Guide on ALM, 2003, cited in IAIS Standard on asset-liability management, October 2006 and IAIS Issues paper on asset-liability management, October 2006]
Assets-liabilities matching: see Asset-liability management
Assumption reinsurance agreement: the ceding entity is relieved of responsibility for the policies reinsured, and the contracts are accounted for by the assuming entity in the same manner as direct business. The reinsurer assumes all of the obligations formerly assumed by the ceding entity. Typically, regulatory and policyholder approval is required. When a company intends to enter into an assumption reinsurance transaction, an indemnity reinsurance agreement may be used for those policies not yet covered by the assumption agreement. [Source: IAIS Guidance paper on risk transfer, disclosure and analysis of finite reinsurance, October 2006]
Auditor’s report: written information provided by the auditor on his examination of the company’s annual accounts. [Source: IAIS Guidance paper on the use of actuaries as part of a supervisory model, October 2003]
Automatic life reinsurance: is similar to non-life “treaty” reinsurance. In automatic reinsurance, the ceding company is able to bind the reinsurer on a risk without submitting an application for reinsurance provided certain conditions are met. These conditions vary by agreement, but typically obligate the ceding company to keep retention on the life, limit the amount of insurance on a life that may be ceded, and limit the overall amount of insurance that may be in force on the life issued by all life insurers. The ceding company may be required to notify the reinsurer of automatic reinsurance arrangements through specific cessions (i.e., “cession reporting”), otherwise it is called “bordereau reporting.” This type of reinsurance will be typically offered to broad segments of a insurer’s business, such as all issues of a specified policy form. [Source: IAIS Guidance paper on risk transfer, disclosure and analysis of finite reinsurance, October 2006]
Available solvency: surplus of assets over liabilities, both evaluated in accordance with domestic regulation (either in accordance with rules of public accounting or with special supervisory rules) and taking into account domestic requirements as regards
Eligible capital element
, i.e. the amount of capital appropriate to cover the required solvency margin in accordance with domestic law or supervisory regulations.
Let
A
be the total amount of assets on the balance sheet,
Ad
the amount (included in A) to be deducted for prudential reasons (e.g. intangible items, percentage of market value),
TP
the total amount of technical provisions on the balance sheet evaluated in accordance with domestic regulation (either public accounting or supervisory rules),
TPd
the amount included in TP representing an eligible capital element to cover the required solvency margin (e.g. the free profit reserve),
OL
the total amount of other liabilities (provisions) not directly linked to obligations under insurance contracts,
OLd
the amount included in OL representing an eligible capital element (to cover the required solvency margin (e.g. subordinated loans),
F
the total amount of free capital (i.e. balance sheet items not belonging to TP or OL),
Fd
the amount included in F to be deducted (e.g. share capital not paid up), and
I
the implicit (off–balance sheet) elements eligible to cover the required solvency margin (e.g. hidden reserves, future profits estimated in accordance with domestic law).
Then the available solvency, AS, is equal to
AS = [A – Ad] – [(TP – TPd) + (OL – OLd)] – Fd +
I.
(the “solvency formula”)
As,
F = A – TP – OL,
by definition, the formula could be simplified to:
AS = F – Ad + TPd + OLd – Fd + I.
This may be interpreted as available solvency on the balance sheet, adjusted for any off–balance sheet item, or as appropriate under supervisory rules.
[Equivalent terms: Available solvency margin, Actual solvency margin, Statutory solvency margin, Available surplus capital, Eligible capital, Regulatory capital, Free capital , Total adjusted capital, Policyholder surplus, Statutory surplus]. [Related definitions:
Eligible capital element, Required solvency margin
] [Source: IAIS Issues paper on solvency, solvency assessments and actuarial issues,
March 2000
]
Available solvency margin: see Available solvency
Available surplus capital: see Available solvency
Average clause: a coinsurance clause: a clause requiring an insured to purchase insurance for a stipulated portion of the entire value of the thing insured. [Related definitions: Funds withheld]. [Source: IAIS Guidance paper on risk transfer, disclosure and analysis of finite reinsurance, October 2005]
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