Kenya » Glossary

Portfolio strategy that allows active departures from the normal asset mix according to specified objective measures of value. Often called active management. It involves forecasting asset returns, volatilities, and correlations. The forecasted variables may be functions of fundamental variables, economic variables, or even technical variables.

A clause within a reinsurance contract which excludes cessions on nominated major risks such as: _ Certain high value risks, for example bridges, tunnels, art collections, which produce very large capacity problems in the insurance market. _ Large hazardous risks on which insurance is difficult to place. _ A large complex of structures or buildings. Technical provisions Include unearned premium provision, unexpired risk provision, claims outstanding and claims incurred but not reported.

The Financial Sector Charter provides for the financing or investment in targeted investment and Black Economic Empowerment transactions. These include investment in South African projects relating to financing of transformational infrastructure; agricultural development; low income housing for households and black small and medium enterprises.

Income tax is levied on your income at a certain rate; either your average tax rate or your marginal tax rate. One\'s average tax rate is the actual amount of tax paid, divided by your taxable income, and multiplied by 100. Your marginal tax rate would be the percentage of tax you pay on any additional income you earn. Your average tax rate is the friendlier one.

The 12-month period an individual uses to report income for income tax purposes. For most individuals, their tax year is the calendar year.

The use of price history to try and forecast future prices, often using charts of historic data

The accounting and statistical records which deal with and record the insurance underwriting activities of life and short-term insurance companies.

These funds focus on companies whose primary business activity involves science and technology and changes to technology. These funds are more volatile and risky than funds that invest across all sectors of the JSE. There is no benchmark yet.

See term life insurance.

The percentage of a portfolio\'s total net assets or equity holdings in its ten largest securities positions. As this percentage rises, a portfolio\'s returns are likely to be more volatile because they are more dependent on the fortunes of fewer companies.

The period of time for which an insurance policy remains in force.

This insurance (or policy) can be for a fixed sum insured or for a sum insured that reduces over the term of the contract. It is not really a method of saving (as there is not usually a payout at the end of the term), but a cost-efficient way of providing for dependants on the death of the breadwinner. The insurance runs for a specified number of years (the term), during which the policyholder is required to pay premiums. The life office is liable to pay the sum insured on the death of the person whose life is insured. If the life insured survives the term of the policy, the policy has no further force, and all obligations on insurance company and policyholder alike fall away. Because these policies are designed to provide protection against the financial consequences of death within a given period only, they provide high life insurance cover for relatively low premiums and are suitable for specific needs or circumstances, e.g. to provide protection where money is outstanding on the mortgage bond of a family home. A conversion option can be added to the policy whereby the life insured may convert the term insurance to one of a more permanent nature without further evidence of insurability being required (other than a negative HIV test).

Provides a death benefit only, no build up of cash value.

A contract that provides a death benefit but no cash build up or investment component. The premium remains constant only for a specified term of years, and the policy is usually renewable at the end of each term.

The time remaining on a bond's life, or the date on which the debt will cease to exist and the borrower will have completely paid off the amount borrowed.

A bonus declared in respect of policies on which a claim has been made or which are approaching maturity. The bonus, in fact, represents a distribution to policyholders, who will be making a claim on their policies, of part of the unrealised capital appreciation of the company’s property and investment portfolios.

In general it is the failure to renew an insurance contract. Involuntary terminations include death, expirations and maturities of contracts. Voluntary termination of life insurance contracts include lapses with or without cash surrender value and contract modifications that reduce paid-up whole-life benefits or term-life benefits.

The rate at which insurance contracts fail to be renewed. Termination rates are usually expressed as a ratio of the number of contracts, on which insured’s fail to pay premiums during a given period, to the total number of contracts at the beginning of the period from which those termination occur. The complement of the termination rate is persistency, which is the renewal quality of insurance contracts, i.e. the number of insured’s that keep their insurance in force during a period.

The geographical area within which an insured event must occur to be covered in terms of the policy.

Any person, not a party to the insurance contract, who has an alleged or actual right of action for injury or damage against the person insured under the policy.

Provides cover for legal liability for damaging third party (under motor vehicle insurance) property from the use of a motor vehicle.

Cover for liability due to losses inflicted on the property damage insurance of others.

An indexing strategy that is linked to active management through the emphasis of a particular industry sector, selected performance factors such as earnings momentum, dividend yield, price-earnings ratio, or selected economic factors such as interest rates and inflation.

Deposits made for a pre specified time period

The idea that a rand today is worth more than a rand in the future, because the rand received today can earn interest up until the time the future rand is received.

A return which calculates performance excluding the effect of the cash flow.

Investment style that begins with an assessment of the overall economic environment and makes a general asset allocation decision regarding various sectors of the financial markets and various industries. The bottom-up manager, in contrast, selects specific securities within the particular sectors.

Investment returns that fall within the top 25% of the returns of the investment-manager universe.

Total disability that is assumed to be permanent in character. Frequently, total disability is presumed to be permanent (for the purpose of beginning benefits) if it has persisted and has been total for a specified period of time.

Loss entailing the payment of the total sum insured under an insurance policy.

A measure of the closeness with which a portfolio follows a representative market index. Tracking error measures the likelihood, based on historical data or an equity risk model, of actual returns differing from index returns.

Entering into contracts to buy/selling listed or unlisted securities, or derivative contracts based on those securities.

One of several related securities offered at the same time. Tranches from the same offering usually have different risk, reward, and/or maturity characteristics.

This is the movement of member/s into and out of a registered fund and requires a Section 14 certificate (which is an approval from the Financial Services Board).

A payment made by one pension fund to another in terms of a scheme, for example, when a business of the employer is acquired by another employer, to enable the receiving pension fund to accommodate the new members.

A type of short-term insurance or reinsurance policy that covers risks relating to the possession, use or ownership of vessels, aircraft or other craft for the conveyance of persons or goods by air, space, land or water, or to the storage,treatment or handling of these goods.

An arrangement that covers all risks written within agreed guidelines. The insurer cedes or is obliged to cede and the reinsurer is obliged to accept these risks. This type of arrangement covers different risks that have certain characteristics in common. Individual risks are not normally negotiated. Commission is paid to the cedent by the reinsurer only on proportional treaties.

A document attached to and forming part of a standard form (i.e. pre-printed) reinsurance treaty listing all variable factors such as commissions, rates of premium, commencement and termination dates, reinsurer’s proportion etc.

An organisation that acts as a fiduciary and administers trusts.

An elected or appointed member of a board of trustees whose responsibilities are outlined in the Pensions Fund Act and the rules of the Fund.

A legal concept that involves property/assets being held by one or more persons for the benefit of others.

The frequency with which portfolio assets are traded, expressed as a percentage. A high turnover rate and regular trading of shares can result in high transaction costs, as brokerage costs must be paid out of the investment portfolio.

Inducing a policyowner to discontinue an insurance policy with one insurer and to replace it by insurance with another insurer. Generally used in connection with life insurance business.