IAI SA2 flashcards
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35 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Level premium whole life
- A whole life policy with premiums that remain constant over the policy term. Early premiums exceed the cost of mortality, building a reserve that funds rising mortality costs in later years.
- Unit-linked policy
- A life insurance contract whose benefit is linked to the value of underlying investment funds. The policyholder bears investment risk; the insurer retains mortality, expense, and persistency risk.
- With-profits fund
- A pooled fund where premiums accumulate and surplus is distributed through reversionary and terminal bonuses. Smoothing of returns is a key feature, subject to estate and guarantee rules.
- Treating customers fairly
- A regulatory principle requiring insurers to deliver fair outcomes across product design, sales, servicing, and claims. It includes clear disclosure of charges, risks, and policy terms.
- Contractual service margin
- Under IFRS 17, the unearned profit in an insurance contract. It is recognised in profit or loss as coverage is provided over the contract period.
- Embedded value
- The sum of adjusted net worth and the present value of future shareholder profits from in-force business. It is a common life insurance valuation metric.
- Analysis of surplus
- A reconciliation of opening and closing surplus by source, including mortality, expenses, investment return, and new business strain. It explains changes in the financial position.
- New business strain
- The reduction in surplus when writing new business because acquisition costs and required reserves exceed the first-year premium load. It is a key constraint on growth.
- Net premium reserve
- A reserve equal to the present value of future benefits minus the present value of future net premiums, using valuation mortality and interest assumptions.
- Gross premium valuation
- A reserve calculation that includes future expenses as well as benefits, discounted using valuation assumptions. It reflects the full cost of maintaining the contract.
- Profit signature
- The pattern of profit emergence over the life of a contract. Its shape determines new business strain and the return earned by shareholders.
- Adverse selection
- The tendency for higher-risk individuals to buy or retain insurance more than lower-risk individuals. It is controlled through underwriting, waiting periods, and exclusions.
- Solvency capital requirement
- The capital needed to absorb losses at a defined confidence level over a specified horizon, often 99.5% over one year, under prescribed stress scenarios.
- Risk margin
- An addition to the best-estimate liability to compensate for the cost of holding capital against non-hedgeable risks. It is required in market-consistent valuations.
- Appraisal value
- The sum of embedded value and the value of new business expected from future sales. It reflects the franchise value of the insurer.
- Own funds tiers
- A classification of available capital by loss absorbency and permanence. Higher tiers qualify more fully toward solvency capital requirements.
- Duration gap
- The difference between asset duration and the liability-weighted duration. A zero gap immunises the balance sheet against small parallel interest rate shifts.
- Immunisation
- An asset-liability matching technique that aligns the sensitivity of asset and liability values to interest rate changes, protecting surplus from rate movements.
- Reinvestment risk
- The risk that maturing assets are reinvested at lower yields than assumed. It is managed by laddering assets and matching cash flow profiles.
- Liquidity risk
- The risk of being unable to meet cash outflows, such as surrender spikes or collateral calls, without incurring losses from forced asset sales.
- ORSA
- The own risk and solvency assessment. It is a board-owned process linking the insurer's risk profile, capital needs, and business plan over a forward horizon.
- Three lines of defence
- A governance model where business units own risk, a risk function oversees it, and internal audit provides independent assurance. It structures risk accountability.
- Stop-loss reinsurance
- A treaty that covers aggregate claims above a specified threshold. It protects the insurer against accumulation of many small claims or a severe event.
- Mass lapse risk
- The risk that a large number of policyholders surrender simultaneously, forcing asset liquidation and crystallising losses on front-loaded products. It is a key life insurance risk.
- Free surplus
- Available capital minus required capital. It represents the amount available for distribution to shareholders or investment in new business.
- Capital allocation
- The process of assigning required capital to business units or products using risk-based measures. It informs pricing, performance measurement, and strategic decisions.
- Hybrid capital
- A capital instrument combining debt and equity features. It must defer coupons or absorb losses to qualify as tier 1 or tier 2 under solvency rules.
- Reverse stress testing
- A technique that identifies scenarios severe enough to breach capital thresholds. It informs contingency planning and risk appetite setting.
- Due diligence
- The investigation of a target company before acquisition, covering reserves adequacy, asset quality, reinsurance recoverables, litigation, and regulatory status.
- Transfer of engagements
- A court-sanctioned process transferring a life insurer's policies and liabilities to another insurer. It requires regulatory and often policyholder approval.
- Demutualisation
- The conversion of a mutual insurer into a stock company. Policyholders typically receive shares or cash, and the entity gains access to equity capital markets.
- Value of new business
- The present value of future shareholder profits from business written in a period. It is a key measure of growth and profitability.
- Persistency
- The proportion of policies that remain in force over time. High lapse rates reduce profitability, so persistency is a key performance indicator.
- Professional scepticism
- An attitude of questioning and verifying management assertions and data sources rather than accepting them at face value. It is a core actuarial professional value.
- Conflict of interest
- A situation where professional judgement could be influenced by personal or commercial interests. It must be disclosed and managed to protect objectivity.