Tanzania » Glossary

That portfolios with low P/E stocks exhibit higher average risk-adjusted returns than those with high P/E stocks.

Actual claim payments made during a particular period.

A life insurance policy on which, at the request of the insured, premiums are no longer being paid but which remains in force (with benefits appropriately reduced) in preference to being surrendered.

In certain instances a policy may be made paid-up in stead of surrendering it. It means that the policy will not lapse, although it is free of further premiums. Note that a policy can only be made paid-up if it has a surrender value.

 The notional value of a security. Coupon and redemption payments on fixed-interest securities are usually expressed as a percentage of par values.

A loss of less than the entire value of the property insured.

Descriptive of a smoothed bonus portfolio that allocates some of the bonus immediately every year but reserves the right to retain the rest of it.

There are three classes of with-profit policies: (i) The so-called conventional contract that, like the non-profit contract, provides a guaranteed benefit (the sum insured) and then offers the benefit of this guaranteed sum insured being increased by participation in the surplus created by the insurer. This surplus is distributed by way of regularly declared "reversionary bonuses" that are added to the sum insured and paid in full when there is a claim on death or on maturity. The amount of surplus distributed at any given bonus declaration is subject to averaging out by the actuaries. The purpose of this averaging out is to avoid any drastic fluctuation within the reversionary bonus rates. Most life insurers do this, and it is expected by the public that significant movements - particularly downward movements - are avoided in the reversionary bonus rates. While bonus rates are in no way guaranteed, they have shown, since 1945 at least, an increasing tendency. These bonuses can build up policy benefits substantially. In recent years many life offices have offered another kind of bonus, aimed at sharing with the policyholder some of the capital appreciation of the underlying investments. These bonuses are called terminal or final bonuses, because the amount is payable only at the time of the policy becoming a claim or maturing. This bonus is payable only if there is a capital appreciation of the underlying investments. These bonuses can be eliminated or reduced if investment performance has been poor or below expectations. (ii) 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. (iii) The linked or market-related contract provides a benefit that, to a greater or lesser extent, is determined by the investment performance of the underlying investments. The "underlying investments" may be specific investments that are demarcated to support those linked or market-related policies and may even be of a particular type, for example a property investment. Then the profits or bonuses accruing under the linked or market-related systems are not subject to averaging. The rates of accrual therefore vary far more greatly from year to year. Generally speaking the mechanics of a linked or market-related policy are as follows. A portion of the premium is taken to provide for the benefit on death - very similar in principle to a term insurance policy. The balance remaining after deducting expenses is invested in the assets that support the linked or market-related policies. Guaranteed minimum values are sometimes offered by life insurance companies to underpin the quantum of benefits to be provided by these linked or market-related policies. Such guarantees will reduce the chances of financial loss to policyholders. A wide variety of market-related policies are offered by life insurers. The underlying investment may be in unit trusts, shares, property, fixed-interest instruments or a specified managed fund that may be split between several kinds of investment outlets. An advantage of these linked or market-related policies is that they enable the policyholder to participate directly in the investment performance of a portfolio of his choice. Also, most linked or market-related policies provide some flexibility regarding maturity dates, which may be extended. Early surrender of the policy is also possible. This enables the policyholder to orchestrate his withdrawal from the policy to coincide with beneficial investment conditions.

An employer that establishes and continues to make employer – pension fund contributions to a fund for the benefit of his employees.

A life insurance policy entitling the policyholder to share or ‘participate’ in surpluses and profit which may be distributed by the company. Participation in surplus and profits is by way of ‘bonuses’ which reflect the difference between premium charged and mortality experience.

See proportional reinsurance.

A partnership is the legal relationship which arises when at least two people contribute something (be it money, skill or labour) to a business enterprise with the object of making and sharing profits.

Cover in a motor or in an aviation policy for airline operators against being sued for negligently causing the injury or death of a passenger.

The opposite of active management, it refers to a manager that holds a portfolio representing a broad-based market index. The manager does not attempt to add further value through trading in and out of the market.

Credit given to an employee for past service with an employer prior to joining a pension scheme.

A clause in a direct short-term insurance policy, other than a personal lines policy, that the direct insurer is not liable towards the insured for a claim until such a time as the reinsurance recovery on the claim has been received by the direct insurer.

Other asset managers used within Investment Solutions’ portfolios with equivalent mandates.

A periodic (weekly, monthly or quarterly) payment to a retired member of a pension fund.

A funding arrangement as defined in the Pension Funds Act 1956 to provide pension and/or other benefits for members on retiring and, after a member’s death, for his or her dependents or nominees. At least two-thirds of the benefits due at retirement must be taken as a pension in terms of the Income Tax legislation.

This is the legislation governing the retirement fund industry. This Act was drafted in 1956 and has been amended periodically since then. The Act is in the process of being redrafted.

A person that is currently entitled to a pension from a pension fund.

A number signifying the proportion of numbers in a range that lie below the specified percentile. Hence, all numbers lie below the 100th percentile; three-quarters lie below the 75th percentile, half below 50th percentile, etc.

A policy which guarantees that a contractor will perform in accordance with its original contract terms. Also known as a performance bond.

Possible loss occurrences against which insurance cover is obtained. For example, fire, windstorm, collision, hail, bodily injury, property damage, loss of profits etc.

Disability which prevents a person from working in their normal occupation. This may be total or partial (able to still work but not in the same occupation).

Insurance providing specified benefits against the risk of incapacity through accident, sickness or infirmity for a period of at least five years or until normal retirement age where the insurance is not cancelable by the insurer or is cancelable only in special specified circumstances.

Life insurance where, because of the savings element in the premiums, the sum insured is always payable on death of the life insured or on prior maturity of the policy.

The percentage of life insurance policies remaining in force after a specified period, usually one year. The term can also be used for short-term policies with the same meaning.

A class of insurance which provides a fixed payment in the event of an insured being injured in an accident or killed in an accident. The amount paid varies according to the nature of the injury, for example, loss of a finger, loss of an arm.

A term used in all risks insurance to describe articles generally carried or worn by a person.

A form of liability insurance effected by an individual in a personal capacity which excludes all liability arising out of his/her business or profession.

Generic term referring to insurance of individuals and their personal property. The term is used in short-term insurance.

A Pension Fund Circular issued by the Financial Services Board. It is a practice note which has no binding power in law.

Premiums written but not reported to the undertaking by the balance sheet date.

Rain insurance. Insurance against an event being cancelled due to rain, for example, an open air boxing match.

A term used to indicate that liability attached to the reinsurer in respect of policies issued and renewed by the ceding company during the period of the reinsurance contract.

The legal document, issued by the insurer to the policyholder, that outlines the conditions and terms of the insurance. Also called the contract.

A policy benefit is much the same as its proceeds, but whereas proceeds refer more directly to investment policies, benefits relate more to risk policies, life or disability. Both have to do with the policy \'paying out\'.

In life insurance this refers to bonuses received under a Participating Policy. In short-term insurance this refers to amounts payable in terms of a pre-determined formula applied to the underwriting and investment results achieved on a policy. In a short-term environment policy bonuses are used to encourage insured to apply sound risk management.

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

An amount added to the basic premium to reflect the cost of issuing the policy.

The amounts which are required to be held at any particular time which, together with future premiums and interest income less future expenses, will enable a life insurance company to meet all future obligations to the existing policyowners.

A loan made by a life office to a policyholder on the security of the surrender value of his or her policy. In cases where a policyowner forgets, or neglects, to pay one or more premiums on a life policy which has a surrender value, the company will, depending on the policy terms, ‘advance’ the unpaid premium and create a non-forfeiture loan. Forfeiture of the policy only occurs when amounts advanced exceed the surrender value.

The proceeds of a policy refers to the combination of your investment, either by way of recurring premiums or a single premium investment, plus the investment growth that is paid out to you after the policy term, usually five or ten years with new generation policies, but may be longer, as in the case of certain endowment policies or retirement annuities.

The funds that the insurer holds specifically for the fulfillment of its policy obligations. Reserves are required to be calculated so that, together with future premium payments and interest earnings, they will enable the insurer to pay all future claims

The tabulated portion of a policy giving particulars of the policyowner, life insured, sum insured, period of cover, agency details and similar information. In-house copies record additional statistics and information. Copies of the policy schedule may be used by the accounting, statistical and underwriting departments.

The year in which a policy was issued or renewed. The policy year is a special accounting unit, unique to the insurance industry, analogous to a cost accounting unit used in manufacturing industries. This unit is used for development of exact loss costs and loss ratios to relate losses under a selected group of policies to the exposure, and to the policy premiums

Claims incurred on all policies issued in a particular policy year compared with the premiums derived from those policies.

The policyholder is the person in whose name the policy is registered. It may or may not be the same person as the one who stands to benefit from it. For example, one may take out a life policy and although you are the policyholder that policy will eventually be paid out to someone else. Most policies are payable to the policyholder but he or she has the right to make it payable to someone else.

A set of ruled defined by the Insurance Acts with the aim to enable a policyholder to make informed decisions in regard to insurance products and to ensure that the parties involved conduct business fairly and with due care and diligence.

An expression used to denote politically motivated acts causing damage. In South Africa covered by SASRIA.

See underwriting pool.

An investment contract by means of which a life insurance company offers investment participation in one or more funds operated on similar lines to unit trusts. Another more common meaning is an investment fund in which a number of unrelated employers participate.

The collection of shares, bonds, money market securities and other financial instruments or types of assets which make up the investor’s assets.  

Amounts payable in respect of the transfer between a cedent and a reinsurer of the liability under a reinsurance contract for claims outstanding prior to a fixed date.

Used in the context of general equities. Professional responsible for the securities portfolio of an individual or institutional investor, such as a mutual fund, pension fund, profit-sharing plan, bank trust department, or insurance company. In return for a fee, the manager has the fiduciary responsibility to manage the assets prudently and choose which asset types are most appropriate over time.

Amounts payable in respect of the transfer between a cedent and a reinsurer of the liability for the unexpired portions of the premiums at a date.

Reinsurance on a bulk basis. Occurs frequently at the inception or termination of a reinsurance treaty. Also used as a means by which a company may retire from a particular agency, territory, class of insurance business or from the insurance business entirely. All business in force of the type, line or class which the company desires to reinsure is usually reinsured by the payment of the unearned premium reserve to the reinsurer less an agreed commission. The reserve for unpaid losses at the time of the transaction may also be paid over to the reinsurer and the reinsurer will then be charged with all loss payments made after the effective date.

Reinsurance of an entire portfolio of outstanding liabilities and outstanding claims.

Underwriting after a risk has been accepted, for example HIV testing every five years. This underwriting has the effect of changing the policy.

A written authorization allowing a person to perform certain acts on behalf of another, such as moving of assets between accounts or trading for a person\'s benefit.

The debiting of a renewal premium at a rate of premium not yet agreed to by the agent or insured on the due date for policy renewal.

Illness or disability for which a life or health insurance applicant was treated or advised about within a stipulated period before making application for the insurance. Non-disclosure may result in the cancellation of the policy.

Used to describe shares ranking in some way ahead of the ordinary shares either for payment of dividends or for capital liquidation. A class of share capital that receives a fixed rate of return.

Life insurance issued only in large policies, and sometimes to specially selected risks, at premiums lower than those for the company’s regular insured.

The monetary consideration which the policyowner pays to the insurance company for a contract of insurance.

Premium Amount description

See earned premium.

The aggregate of the premiums on all policies in force on a given date.

An additional premium over and above the standard life insurance premium for the sum insured to allow for additional inherent risk regarding the life to be insured. Premiums are loaded for hazardous occupations, for physical impairments, for imperfect health and for abnormal risks. See extra premium.

Amount borrowed against the cash value of a life policy.

See unearned premium provision.

Gross premiums written less premiums on policies cancelled and all return premiums during a given period

See yearly premium.

The period within which action must be taken by one party against another to secure fulfillment of an obligation.

The amount of cash today that is equivalent in value to payments to be received in the future. To determine the present value, each future cash flow is multiplied by a present value factor.

Used to preserve or "park" retirement money without it being taxed when people move between jobs. A preservation fund may be either a pension or provident fund.

The provision by one or more sources of real-time prices, in a given market.

Fluctuations in the market value of individual asset classes.

Compares a stock\'s market value to the value of total assets less total liabilities (book value). Determined by dividing current stock price by common stockholder equity per share (book value), adjusted for stock splits.

Shows the multiple of earnings at which a stock sells. Determined by dividing current stock price by current earnings per share (adjusted for stock splits). Earnings per share for the P/E ratio are determined by dividing earnings for past 12 months by the number of common shares outstanding. Higher multiple means investors have higher expectations for future growth, and have bid up the stock\'s price.

Determined by dividing current stock price by revenue per share (adjusted for stock splits). Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares outstanding.

A beneficiary who is the first person entitled to benefit upon the occurrence of the event for which a beneficiary was designated. This is as distinguished from a contingent beneficiary.

A ground-up working layer in a short-term insurance policy where the majority of claims are expected to occur.

Traditionally the rate of interest charged by commercial banks when lending money.

A person appointed in terms of Section 8 of the Pension Funds Act that may also be a member of the trustee board of the fund. The Principal Officer is the interface between the Financial Services Board and the fund, and holds duties similar to a company secretary.

The amount specified in some accident, disability and sickness policies to be paid in the event of certain major losses.

Claims ratio above which the direct insurer is able to claim against a reinsurer in a stop loss treaty.

Insurance taken out by manufacturers, wholesalers, distributors and sometimes retailers against claims arising out of the consumption, handling or use of a product or goods away from the premises where the goods are manufactured or sold. Product recall is also written under this heading if specified.

Insurance covering the professional against his or her legal liability to pay damages to persons who have sustained loss due to the professional’s negligence in the conduct of his or her profession.

An underwriter whose business is confined solely to carrying on reinsurance business and the peripheral services offered by a reinsurer to its customers. This is as opposed to a primary insurer who exchanges reinsurance or operates a reinsurance department as an adjunct to its basic business of writing direct insurance business

The commission payable to a ceding company in addition to the normal commission allowance. It is an agreed percentage of the net profits of the reinsurance ceded, calculated in accordance with a stipulated formula.

A risk financing insurance policy wherein the insured shares profits with the insurer based on his/her control of losses arising from the policy.

An unconditional order in writing between parties to pay on demand or at a fixed time a certain sum of money to a specified person.

Evidence required from a policyholder that a loss occurred e.g. a death certificate in a life insurance claims.

Property can also refer to anything that can be owned, but in investment terms it means land or buildings - what the Americans call "real estate".

A contract which, in consideration of the payment of an annual premium, indemnifies the policy owner for loss by fire, storm, wind and water, impact by aircraft, impact by road vehicles and cattle, earthquake, earth-tremor and subsidence and landslide. Property fire losses of a private or domestic nature are covered by houseowners’ and householders’ policies. Loss of profits insurance are also generally included with property insurance business for reporting purposes. Property insurance policies can be broadly divided into the following different types: _ Specific policy: a policy which insures a particular item of property for a specific amount. _ Blanket or general policy: A policy covering different classes of property which are grouped and insured for one fixed amount. The value of any particular item is not stated separately. _ Floating policy: A policy insuring property (eg. trading stock) which may be situated at various locations. _ Declaration policy: A policy insuring trading stock which may vary to a great degree in quantity and value during the period covered by the policy. _ Replacement and/or reinstatement policy: A policy designed to protect the insured against the effect of inflation in property values.

A type of short-term insurance or reinsurance policy that covers risks relating to the use, ownership, loss of or damage to movable or immovable property.

A term describing all forms of quota share and surplus reinsurance in which the reinsurer’s share of the ceding company’s losses are in the same proportion as its share of the premiums.

A request for insurance submitted to the insurer by or on behalf of the insured. The proposal usually includes sufficient facts for the insurer to determine whether or not it wishes to accept the risk.

The formula in an insurance or reinsurance contract for determining the reinsurance premium for a specified period on the basis, in whole or in part, of the loss experience of a prior period. See spread-loss reinsurance.

A policy reserve computed as the excess of the present value of future benefits provided by the policy over the present value of future premium payments.

Any fund (other than a pension fund, benefit fund or retirement annuity fund) that is approved by the Commissioner of Inland Revenue and is registered under the provisions of the Pension Funds Act. The total benefit at retirement may be taken as a cash lump sum.

A provision is a liability of uncertain timing or amount.

The direct, dominant or specific cause of a loss or the uninterrupted chain of events that brought about the loss.

Prudential funds have to conform to legislation governing retirement funds (regulation 28 of the Pensions Fund Act) which lays down certain guidelines. The act restricts their exposure to equities to 75 percent of total assets, in order to reduce the risk and volatility of these funds. Prudential funds aim for a balance between income and capital appreciation, while maintaining a moderate level of risk. Fund managers have to make two choices; which asset class will produce the best returns and which shares will outperform relative to the market. This is particularly difficult in volatile marketswhen you don`t know if bonds and cash will remain favourable investments or whether the tide will turn in favour of equities. There is no benchmark yet.

Legislated investment guidelines intended to ensure a conservative investment spread for retirement funding products, to protect the investor from loss of value due to risky investment selection.  

A loss adjuster that represents the claimant rather than the insurer.

A prescribed class of insurance business covering liability exposures of individuals and businesses for damage to property and injury to individuals.

Companies listed on the JSE Securities Exchange.

Premium Update Facility description

A pure endowment is a policy that only pays out a benefit at the end of a specified term. It can therefore also be called a savings policy. Should the policyholder die during this term the policy will only pay out the accrued value up to that point in time.

See burning cost

Put options are securities that give the holder the option of selling the specified stock. It refers to the right to sell specified stock at a specified price at specified times. A "put" facility on a bond would give the holder the right to repay the loan.

An option contract that gives the holder the right (although not the obligation) to sell a specified number of shares of a specified stock at strike, on or before the date of expiration of the contract.

A deal giving the holder the right, without the obligation, to sell a particular underlying asset at the strike price any time before the expiration date.

A deal giving the holder the right, without the obligation, to sell a particular underlying asset at the strike price on the expiration date

An illegal, fraudulent scheme in which a con artist convinces victims to invest by promising an extraordinary return but instead simply uses newly invested funds to pay off any investors who insist on terminating their investment.