Professionals: Short-term » Glossary

In all contracts of insurance, it is a fundamental principle that the parties must exercise the utmost good faith towards each other. Any material fact which would influence the parties to the contract must be disclosed, otherwise there is ground for avoiding the policy. This applies to both intentional and innocent failure to disclose material facts. The test of materiality is whether that fact would have influenced a prudent insurer in his decision to accept the risk and the premium to charge. The test is considered in view of all circumstances at that time, including the full circumstances of the fact undisclosed.

The mortality experience of individuals who were issued insurance many years ago and have not necessarily been recently approved for insurance. As distinguished from select mortality.

Used in reinsurance treaties to refer to the ceding company’s loss which is reinsured by the treaty. It represents the sum or sums paid by an insurance company in settlement of all losses arising out of one event. It includes any litigation or other expenses incurred in connection therewith, but excludes any charge for the services of any salaried employee of the insurer in connection with the investigation of claims less all recoveries, whether by way of salvage or otherwise, and all sums recoverable under other reinsurance which may accrue to the benefit of the treaty, irrespective of whether or not such reinsurances are actually recovered.

A retirement fund in which several employers not associated with one another participate, managed by a single board of trustees.

A special form of liability policy designed to protect the insured for certain unknown contingencies over and above the normal coverage.

A human fetus conceived but not born

The difference between the possible loss and limit in insurance.

The amount of insurance or reinsurance on a risk that attaches before the next-higher excess layer of insurance or reinsurance attaches.

See base premium.

A share price perceived to be too low or cheap, as indicated by a particular valuation model, e.g. some might consider a particular company's share price cheap if the company's price-earnings ratio is lower than the industry average.

An investment portfolio is termed "underweight" when it holds a below index weighting in a particular share or equity sector.

One who determines the acceptability or retention of business. Loosely, the person involved in setting premiums. The term is also used to denote an insurance company.

The process of examining, accepting, or rejecting insurance risks, and classifying those selected, in order to charge the proper premium for each. The purpose of underwriting is to spread the risk among a pool of insured’s in a manner that is equitable for the insured’s and profitable for the insurer.

The regular pattern of rising profits and increasing premiums and reduced profits (losses), and decreased premiums experienced in short-term insurance. The cycle starts when an insurer’s underwriting standards become more stringent and premiums increase. This happens once underwriting losses reach unacceptable levels.

All expenses of an insurance company which relate to the carrying on of insurance business, other than expenses connected with investments and investment property and expenses of a general nature, such as director’s fees. Also termed management expenses. Underwriting Fund See insurance funds.

An association of insurer’s or reinsurer’s through which particular types of risks are underwritten, with premiums, losses and expenses shared in agreed ratios. Pools are commonly formed to handle specialised or unusual types of risks.

A general term encompassing the provisions for unearned premium, unexpired risks, outstanding claims and claims incurred but not reported.

The underwriting profit or loss ascertained by deducting claims incurred, net commission and management expenses from premiums earned.

A written précis of the contract terms and conditions shown to an underwriter when a risk is offered. It is often referred to as a slip.

The portion of premiums attributable to the periods of risk that relate to subsequent accounting periods and which are carried forward to such subsequent accounting periods.

Property that is not subject to any claims by creditors. For example, securities bought with cash instead of on margin and homes with mortgages paid off.

The risk continuing after the end of a year under contracts entered into before the end of that year. Outside of South Africa this term is commonly used to refer to the unearned premium provision.

The excess of the estimated value of claims and expenses likely to arise after the end of the financial year from contracts concluded before that date, insofar as their estimated value exceeds the provision for unearned premiums (after deduction of any acquisition costs deferred), and any premiums receivable under those contracts.

A unit is an apportioned part of the pooled assets or a segment of the ownership of the entire unitised portfolio. Investors who have a stake in a unitised portfolio own one or more untis that all have the same value. The pool of assets comprising the portfolio is often referred to as the underlying securities. As the value or price of the units is dependent on the value of the underlying securities, the value of the units can vary daily. An investor that holds a unit is referred to as a unitholder. Units are notional assets (imaginary) and find their market value in the total underlying assets.

Its essential feature is that the savings components of premiums paid is distinguished from the part of the premium applied to meet management expenses and the cost of providing death cover. The savings are accumulated in a separate account in the name of the policyowner and interest is periodically credited to the account. Some policies of this type permit the payment, subject to an annual minimum of variable premiums.

Policies issued by life insurance companies for which the savings benefits are determined by reference to a specified pool of assets.

Unit trusts consist of underlying securities which have been apportioned to unitholders in a trust fund. The underlying securities are managed by a unit trust management company on behalf of all the investors who share ownership of the pool of assets (the fund). The pool of assets can consist of listed shares, listed interest-bearing stocks and cash. Most unit trusts are open-ended trusts where the number of units fluctuates depending on the demand and supply by investors. The buying and selling prices of most unit trusts are reflected in the daily press and usually fluctuate daily. Portfolio managers are appointed by the unit trust management company to manage the day-to-day activities of the portfolios. A trustee (a reputable financial institution) protects investors` interests in terms of a trust deed which sets out the fund objectives. The concept of a unit trust is seen as a way of unitising.

The term unitisation refers to assets pooled and owned by more than one person or entity. These persons or entities are the investors and each owns an apportioned part of the pooled assets. The pool of assets is called a unitised portfolio. Segregated portfolios are the opposite of unitised portfolios.

A whole life insurance product whose investment component pays a competitive interest rate rather than the below-market crediting rate.

Universal life with-profit policies are very similar in principle to their reversionary bonus counterparts, but there are significant differences in the way bonuses are added. The benefit on death or maturity is the greater of the sum insured or the investment account. For some policies the sum insured remains constant until the investment account, which is growing in line with declared bonuses, exceeds the sum insured (referred to as the "break-out" point). In other cases the sum insured increases each year as bonuses are added to the investment account. However, in both cases bonuses are distributed by way of an interest addition to the investment account rather than an addition to the sum insured as in the case of reversionary bonus policies. The bonus or interest addition to the investment account is subject to averaging out by the actuaries. As with reversionary bonus policies, this is done to avoid drastic fluctuations in the bonus rates and consequent policy values. The bonus rate is normally declared as (a) a vested or guaranteed bonus, and (b) a non-vested bonus, which represents capital appreciation. The non-vested bonus is not guaranteed and may be adjusted in line with capital appreciation or depreciation. Universal life policies are nowadays the most commonly sold policies. The components of these policies are an investment account and a life cover element (if applicable). The investment account represents the savings component of the policy. Premiums are paid into the investment account. All charges are deducted from the investment account and bonuses are credited to this account. The charges include the cost of life cover, rider (i.e. supplementary) benefits and expense charges. The investment account is identifiable as belonging to the policyholder, representing one of the key differences from conventional policies.

Used to describe the entire market.

Circumstances where, following an accident or loss, payment under the terms of an insurance policy will be demanded from an insurance company but notice of the claim has not yet been received. Insurance companies are required to set up provisions for unreported claims (IBNR).

A policy where the sum insured represents the limit of liability. The amount to be paid is determined after the loss.

A method of calculating the unearned premium provision and earned premium revenue (for annual premiums when they are to be spread evenly over the policy term). This method assumes that all premiums are written in the middle of the month, with the result that in the first month, one twenty fourth of the premium is earned, in the second month, three twenty fourths is earned, and so on.

A method of calculating the unearned premium provision and earned premium revenue (for annual premiums when they are to be spread evenly over the policy term) by reference to the actual day from which the risk commenced. Sometimes called the date of attachment of risk method.

The potential or likelihood of a portfolio outperforming its benchmark.

The US department responsible for managing the finances of the US government.

Laws limiting the amount of interest that can be charged on loans.