Consumers: Investment » Glossary

This measures the volatility of an investment portfolio's absolute return as opposed to its return relative to a benchmark.

A notification by an insurance company to an applicant that the company is willing to accept the risk.

The period of time after the inception of a contract during which the investor may withdraw from the contract without any penalties.

An unforeseen and unintended event.

A type of short-term insurance or reinsurance policy where the contract covers a disability, health or death event contemplated in the contract.

Accident cover can be taken out as either a separate policy or as a rider benefit on a life assurance policy. It insures you against the effects of accidents or violent situations in which you may lose a limb, your eyesight, your hearing or even your life. It differs from disability cover in that should you for instance lose a limb and you are not permanently disabled; you will still be paid out the benefits of the policy.

One of the traditional operating departments into which short term insurance companies often organise themselves, the others being the fire / property, marine, engineering and motor departments. As well as handling accident insurance business, the accident department of some insurance companies also handle insurance of a general or liability nature such as burglary, fidelity guarantee, all risks, cash in transit, windstorm, rain and crop insurance.

The rate of occurrence of accidents. For example, in motor insurance, the yearly number of accidents per thousand cars insured.

A contract of insurance to provide for loss sustained through an accident, or as compensation for personal injuries. Various types of policies are included within the category of accident insurance. These include personal accident and health insurance.

A loss ratio computed by comparing losses arising from accidents or events occurring during a twelve month period with premiums earned during the same twelve month period.

A measurement of the seriousness of the results of accidents. For example, money value of losses per thousand cars insured.

The financial year in which an accident or loss occurs.

A compilation of losses incurred as a result of accidents occurring during a twelve month period, along with premiums earned during the same twelve month period.

An additional benefit included in, or added to, a life insurance policy providing for payment of an additional death benefit in event of death as a result of accident. Also known as double indemnity.

Insurance that, by itself, would not be acceptable to an insurer, but is written due to the possibility of securing other desirable business.

This is the period in respect of which the financial statements are prepared and is usually one year.

The benefits for service up to a given point in time. This may be calculated in relation to current pensionable earnings or projected final pensionable earnings. A member is not necessarily entitled to receive accrued benefits should he leave the scheme prior to retirement. Another common meaning is the benefits that would be payable if all the members left service.

Another term for unitised with-profits

Method of buying units in a unit trust fund through relatively small, regular purchases.

Costs incurred in the acquisition of new (and renewal of) insurance contracts. Acquisition costs include those costs that vary with, and are primarily related to, the acquisition of insurance contracts (for example, commissions, certain underwriting and policy issue costs and inspection fees).

An event caused by the forces of nature

A member of a pension scheme that is currently contributing or on whose behalf the employer is contributing and is accruing benefits under the scheme. It excludes pensioners and deferred pensioners.

A strategy that uses available information and forecasting techniques to seek better performance than a buy and hold portfolio.

 The difference between the portfolio weighting and the benchmark weighting.

See the definition for "Alpha".

Quantifies the maximum negative return that can be expected in any given month with a 90% level of confidence.

also known as "Tracking Error". This is a measure of the volatility of a portfolio relative to a benchmark, which gives insight into how much the return of the portfolio will vary over time, relative to the corresponding benchmark. Active risk can be positive or negative.

The sum of money that the insured property would have realized in cash, at the market price, at the time and place that it was destroyed or damaged by the hazard covered. It is taken to be the actual loss suffered at the time of the loss rather than at the time the policy was issued.

A statement of assets and liabilities of a life insurer drawn up according to the financial soundness basis of valuation.

A series of indices which monitor the general trend of share market prices in the different market sectors on the JSE. There are over 30 such indices on the JSE covering the gold, industrial and other sectors. The formulae for calculating the indices, which have been developed by the Actuarial Society of South Africa, give the shares in a sector a certain weighting in proportion to their market capitalisations.

A person professionally trained in the mathematical and technical aspects of insurance and related fields, particularly in the calculation of premiums, reserves and other values

Members of retirement funds have the benefit of life and disability cover added to their retirement benefits. Some of these benefits may be taken out without any medical tests up to certain limits. Because retirement funds are operated on a group basis the costs involved for providing these benefits are somewhat cheaper than what it would otherwise be.

An entity in addition to the named insured, who, having an interest in the subject matter of the insurance, is entitled to protection under a policy either by virtue of the wording of the basic policy or because the policy has been altered to protect that interest

A provision for compensating the insured for living expenses incurred as a result of damage to property which the insured had the benefit of use.

The premium due from the insured arising from an endorsement.

Contributions over and above a member’s normal contributions (pension fund) contributions, if any, that a member elects to payin order to secure additional benefits.

The Adjudicator's purpose is to dispose of complaints lodged in terms of section 30B of the Pension Funds Act in a procedurally fair, economical and expedient manner. The office of the Pension Fund Adjudicator is established in terms of the Pension Funds Act.

An insurance or reinsurance contract where a provisional premium is payable at inception and adjusted after expiry.

The Adjusted Free Float Share Index is a hybrid of the Financial & Industrial Index (FINDI) and the Resources Index (RESI). The Resources component has been reduced to provide more optimal risk-return characteristics, especially as regards single stock weightings

A person who acts on behalf of an insurer, or an insured, to investigate the circumstances of a loss and to recommend the amount to be paid. Also known as a loss assessor or loss adjuster.

The premium determined after expiration of the policy based on the declaration of details such as wages, stock values, etc, or the losses experienced under the policy.

A company appointed by a fund in terms of an administration agreement who the trustees delegate to assume all the administrative functions of a fund. Administrators are not permitted to control the assets of the fund other than operating the fund's bank account and keeping safe custody of documents.

Assets available to meet the liabilities and margin of solvency of a life insurer after valuation in accordance with the Long-term Insurance Act. Also known as admitted assets.

Premiums paid to the insurance company by policyholders in advance of the premium due dates. An interest discount is sometimes allowed to the policyholder for such advance payments. Advance premiums are subject to withdrawal or refund and hence are accounted for as deposits.

The tendency for poorer risks (less-desirable insureds) to seek insurance, to continue insurance, or to select options of settlement that are favourable to them, to a greater extent than do good risks (more desirable insureds). See anti-selection and selection against.

The short-term and long-term insurance committees promulgated by the Insurance Acts may on its own initiatives, or at the request of the Minister or Registrar, investigate and report or advise concerning any matter relating to short-term or long-term insurance.

Weighted index of 25 leading Dutch stocks traded on the Amsterdam Stock Exchange.

The Adjusted Free Float Share Index is a hybrid of the FTSE/JSE ALSI and the FTSE/JSE Financial & Industrial Index (FINDI). The Resource component of the AFFSI has been reduced to provide more optimal risk/return characteristics, especially regarding single-share weightings.

Alexander Forbes Money Market Index.

The age, expressed as an integral number of years, of an insured policyholder, which spreads over the period from six months prior to a birthday to six months after a birthday. For example, an individual is ‘age 35 nearest birthday’ from the time he is thirty-four and six months of age until the time he is thirty-five and six months of age. Life insurance premiums are usually based on the ages nearest birthday of the individuals affected.

The age of the life insured on the effective date of the policy. This is frequently the age nearest birthday on the effective date

A system of obtaining business through a network of agents. Such agents have a contract to represent the company.

A representative of an insurer who obtains business for the insurer. He may be an independent contractor or an employee.

A statement of the month’s business showing, for each policy transaction, the policy number, the insured’s name, the premium or return premium in the appropriate column, commission, policy fee, and other financial information including the balance due to the company or to the agent.

Premium balances, less commission payable thereon, due from agents and brokers

A form of excess of loss reinsurance which indemnifies the loss reinsurance ceding company against the amount by which its losses incurred during a specific period (usually 12 months) exceed either: _ a predetermined amount expressed in monetary terms, or _ a percentage of its subject premiums for the specific period. This type of reinsurance is a variation of a stop-loss cover.

This clause is used in connection with liability and professional indemnity reinsurance to provide additional cover in respect of the liability incurred by a ceding company for losses on risks where there is an aggregation or accumulation of policies involved in the same loss (whether issued to the same insured or not). If required by the ceding company, the reinsurance treaty is extended by an aggregate extension clause to protect it against losses which in aggregate exceed the deductible applicable to an individual loss.

The total amount of money an insured company will pay under an insurance policy for claims which arise

A fund designed for maximum capital appreciation, that places its money in companies with high growth rates. Within such a portfolio, the investment manager tries to maximise perceived short-term opportunities by frequently switching between investments.

A method of portfolio management attempting to achieve maximum return. Aggressive investors place a high percentage of their assets in equities than in safer debt securities. Aggressive investors typically have quite a few years before retirement, they take risks that most of us wouldn\'t.

Association of Investment Management and Research based in the USA. It provides the code of ethics and reporting standards for the global investment-management industry.

All Bond Index.

An all risks policy covers the insured against all risks of loss or damage to the property insured other than loss or damage specifically excluded.

Risks associated with a fire policy including flood, earthquake and landslip. See property insurance

Also known as Active Return. The return above a benchmark's return / a measure of the investment manager's contribution to performance, in relation to share selection.

All Share Index.

A term used on reinsurance slips indicating that unles cancelled by either party, the proposed contract will remain current

The second-largest stock exchange in the US after the New York Stock Exchange (NYSE). Smaller companies' stocks and bonds tend to be traded on the AMEX, as opposed to those on the NYSE.

The process of writing off an amount over a certain period

This is an annexure to the will in which a variety of items are specified to be divided among specific heirs.

The yearly recurrence of the policy date. The policy date is a date specified in the policy from which premium payment dates are reckoned, the date from which incontestable and suicide clause time limits are measured, and the date from which policy years for non-forfeiture loans and paid-up policy purposes are measured. The policy date is frequently called the date of issue of the policy and is usually the date of execution, unless a binding receipt was issued and the policy was dated prior to execution.

In terms of the Pension Funds Act, every registered fund must submit annual financial statements to the Registrar of Pension Funds within six months of the fund's year-end.

The amount of premium which must be paid annually to meet the contractual requirements of the policy and keep it fully in force.

There are many ways of calculating the annual rate of return. If the rate of return is calculated on a monthly basis, we sometimes multiply this by 12 to express an annual rate of return. This is often called the annual percentage rate (APR). The annual percentage yield (APY), includes the effect of compounding interest.

An individual who has paid a sum of money to a fund for which he receives an income in the form of an annuity (sometimes referred to as a ‘pension’).

An annuity payable for a specified number of years

An annuity that pays a specific amount on a monthly basis for a set amount of time.

An annuity with a first payment one full period hence, rather than immediately.

An annuity that will begin on a future date, either at the expiration of a fixed number of years or at the attainment of a stated age.

An annuity, purchased with a single payment, that begins immediately.

The tendency for poorer risks (less-desirable insureds) to seek insurance, to continue insurance, or to select options of settlement that are favorable to them, to a greater extent than do good risks (more desirable insureds).

A type of working cover reinsurance normally on an excess of loss basis designed to protect the ceding company’s liability on an individual risk. This arrangement is usually subject to an aggregate limit in order to limit the reinsurer’s catastrophe exposure.

A statement of information made by a person applying for insurance. It identifies the plan and amount applied for, the life insured and the beneficiary, and provides other data useful in evaluating the risk. Also referred to as a proposal.

Term used to denote those who distribute products for only one life insurer.

Where more than one insurance contract covers a loss, the determination of the extent to which each insurer is liable to meet the loss

A fund registered by the Registrar of Pension Funds and approved by Inland Revenue.

Any proportional and non-proportional short-term reinsurance policy which remains in force until the liabilities under the policies reinsured has expired. A foreign reinsurance policy will only be regarded as approved if the reinsured has: _ received a deposit from the reinsurer or has retained a deposit against balances owing to the reinsurer; or _ received from a local bank an irrevocable guarantee in the form prescribed by the Registrar; or _ received from a local bank a letter of credit in favour of the reinsured. A Lloyd’s reinsurance policy is, however, not regarded as a foreign policy.

The simultaneous buying and selling of a security at two different prices in two different markets, resulting in profits without risk. Perfectly efficient markets present no arbitrage opportunities. Perfectly efficient markets seldom exist, but, arbitrage opportunities are often precluded because of transactions costs.

A clause in an insurance contract which is designed to resolve differences between an insurer and the insured without litigation. It usually provides for the appointment of two arbitrators (each party having the privilege of appointing one), who in turn appoint an umpire (usually agreed upon before arbitration proceedings begin). The wording of the clause may vary, but its general purpose is to enable difficulties to be settled equitably rather than on a strictly legal basis.

The malicious or fraudulent burning of property.

An asset can be almost anything that has a monetary value where such an asset has a tendency to hold its real value in times of unexpected high inflation. Usually it means physical, tangible assets such as gold or property.

These funds invest in a flexible combination of international equities, bonds, money or property markets, to maximise returns over the long term. They are often aggressively managed.

Asset Allocation funds used to be called balanced funds or managed funds. Essentially, these funds take away the need for you to decide how to allocate your assets to shares, bonds or cash, unlike other investments, where you have to make this choice. They were one of the first categories of funds to be launched in South Africa. They were originally designed as ideal long-term investment vehicles for people who wanted to invest their pension and retirement money and be sure that their money would be managed quite conservatively. Today, however, the risk levels of asset allocation funds can vary quite a lot, but the idea is still to maximise total returns (capital and income growth) over the long term. Asset Allocation funds are divided into sub-categories of Flexible Funds and Prudential Funds.

Securities issued on the basis that the value of the security is backed by the value of an underlying asset.

Categories of assets, such as equities, bonds, property, and foreign investments. Asset classes have different characteristics and risk/return profiles so they behave differently in the same market conditions.

See "Fund Manager".

SA Reserve Bank arrangement which allowed offshore investments by means of international partners investing the same amount in SA, as the local institution invested abroad. This was replaced by legislation governing foreign investments.

The projection or forecasting of an investment portfolio into the future, in order to devise an optimal investment strategy.

The transfer of an interest under an insurance policy from one entity to another. Assignment may require the consent of the insurance company concerned.

A long-term policy in respect of which the value of the policy benefits or the amount of premiums paid in respect of an annuity benefit does not exceed R10 000.

An insurance company established by a professional or trade association to provide insurance cover to members of that association.

To accept all or part of a ceding company’s insurance or reinsurance on a risk or exposure

Other persons nominated by the executor to be appointed as co-executor to assist the Executor of the estate or to represent him.

A term commonly used to distinguish life (long-term)n) ‘assurance’ from short-term (i.e. short-term, property and casualty (US) or general) ‘insurance’.

Used alternatively to insured to designate a person who takes out a life insurance policy on his life or the life of someone else.

The Assurer is the relevant Life Office.

An analysis performed to find from where investment returns have originated.

Certain retirement funds that are exempted from submitting audited financial statements to the Registrar per Regulation 2 of the Pension Funds Act 24 of 1956.

A policy on which an audit of the insured’s books or records must be made in order to ascertain the insurance premium due. The premium, usually based on the insured’s payroll, is determined from the audit.

The amount of insurance a broker is able to accept on an insurer’s behalf. Also, the limit of authority for a claim adjuster or broker in settling losses on their own initiative.

Subject to contractual terms, additional property or other risks are covered by an existing contract without specific request by the insured.

A procedure whereby a life company, if previously requested to do so, will make automatic loans against the cash value of a policy in order to pay premiums that have not otherwise been paid by the end of the grace period.

A reinsurance procedure whereby the reinsuring company binds itself unconditionally to accept reinsurance for specified amounts in proportion to the amount retained at its own risk by the direct writing company. This permits the direct writing company to issue a policy at once if the amount of insurance is within its own retention plus the automatic coverage. See reinsurance.

An arithmetic mean return of selected stocks intended to represent the behaviour of the market or some component of it.

A clause in a policy requiring that, where assets are insured for less than their full value, the insured is required to bear a proportion of any loss. The proportion is the amount by which the assets are under insured, expressed as a percentage of its indemnity value, at the time of the loss. In marine insurance it refers to loss.

A percentage rate of tax being the proportion that the amount of tax payable bears to the person’s taxable income.  

Insurance of aircraft and related aircraft activities. One aspect of aviation insurance is aircraft hull which is analogous to marine hull. Another aspect is aircraft operators carrying fare paying passengers which may incur public liability for which aircraft liability insurance is required. The compensation schedules that airlines are required to pay in respect of death or bodily injury to passengers is at present limited by the International Air Transport Association. Airports can also incur liability, this is termed airport owners and operators liability insurance. Aviation insurance is included under transportation policy for non-liability covers and liability policy for liability covers.