IAI SA2 key terms

A pooled life insurance fund where policyholders share in profits through bonuses, while the insurer smooths returns across years and retains discretion over bonus declarations and investment policy.

A regular bonus added to the guaranteed sum assured of a with-profits policy, normally declared annually and vesting once declared, so it cannot subsequently be removed.

A one-off, non-guaranteed addition paid when a with-profits policy matures or is surrendered, intended to bring the payout closer to the policy's asset share.

The accumulated value of premiums paid into a with-profits policy, after deductions for expenses, risk charges and tax, rolled up with actual investment returns on the fund.

A life policy where premiums buy units in an investment fund chosen by the policyholder, so the benefit fluctuates with unit price and investment risk sits mainly with the customer.

The price at which units in a linked fund are created or cancelled; the gap between the higher offer price and lower bid price covers dealing costs and initial charges.

A contractual right allowing a policyholder to convert accumulated pension savings into an annuity at a rate fixed when the contract was written, regardless of prevailing market rates.

Life cover paying a lump sum on death, either for a fixed term with no maturity value or for the whole of life, priced mainly against mortality and lapse experience.

The present value of expected future benefit payments and expenses less future premiums, discounted using risk-free rates and projected on realistic assumptions without prudential margins.

An additional liability amount added to the best estimate so that the portfolio could be transferred to another insurer at a price reflecting the cost of holding required capital.

The point at which an insurer can reprice or refuse to renew a contract, determining which future cash flows belong in the valuation of the existing insurance obligation.

An actuarial measure of the value of existing life insurance business, formed from the present value of future shareholder profits plus the net assets backing the business.

The expected present value at point of sale of future shareholder profits arising from business written in a period, usually expressed as a margin over annual premium equivalent.

The reduction in solvency capital or embedded value when a new policy is written, because acquisition costs and required reserves exceed the initial premium received.

A traditional reserving method valuing future premiums less benefits and expenses on prudent assumptions, implicitly holding a margin rather than separately identifying a risk margin.

The risk that actual deaths among insured lives exceed the level assumed in pricing, raising claim costs for protection business and potentially reducing profits on annuity business.

The risk that annuitants live longer than assumed, so that annuity payments continue for more years than priced, increasing the cost of pension and annuity obligations.

The periodic comparison of actual outcomes, such as deaths, lapses and expenses, against the assumptions used, used to reset pricing and reserving bases.

The risk that policyholders terminate or stop paying premiums at a different rate than assumed, affecting profitability and the recovery of acquisition costs.

The amount of capital an insurer must hold to absorb a specified severe adverse scenario over one year, often calibrated to a one-in-200 probability of ruin.

An insurer's internal forward-looking assessment of the risks it faces, its capital needs and whether its overall solvency position is adequate under its own business plan.

A formal document setting out the amount and type of risk an insurer is willing to accept in pursuing its objectives, with limits and escalation triggers for each risk category.

The coordinated management of assets and liabilities so that cash flows, durations and sensitivities match, controlling interest rate, credit and liquidity risk for the insurer.

The difference between the interest rate sensitivity of assets and liabilities; a positive gap exposes the insurer to falling interest rates and to reinvestment risk.

The risk that an insurer cannot meet obligations when due because assets cannot be sold quickly or only at a discount, for example after a mass surrender event.

The value of embedded policyholder rights, such as guaranteed annuity rates or minimum investment returns, which behave like financial derivatives and must be reserved for.

Structuring benefits, bonus mechanics, charges and surrender terms so that policyholder expectations, guarantees and the insurer's capital constraints are all satisfied.

Projecting premiums, claims, expenses, reserves and investment returns for a contract to measure expected profit, internal rate of return and breakeven year before launch.

The capital an insurer calculates internally as needed to survive its chosen adverse scenarios, often exceeding the regulatory minimum and used for risk-adjusted performance measurement.

A profitability measure comparing profit generated to the capital tied up in supporting the business, used to decide which products and segments create shareholder value.

Arrangements such as quota share, surplus or excess of loss treaties under which an insurer cedes part of its risk and premium to a reinsurer to reduce volatility and free capital.

Planning and controlling the sources and uses of capital, including dividend policy, reinsurance, subordinated debt and hedging, to keep solvency adequate at reasonable cost.

Borrowing that ranks behind policyholder and senior creditor claims, counted as regulatory capital because losses can be absorbed before ordinary creditors are paid.

An estimate of an insurer's total worth, combining embedded value of existing business with the value placed on future new business the distribution and franchise can generate.

The structured investigation by an acquirer into a target insurer's reserves, asset quality, contracts, systems and liabilities before agreeing price and warranty terms.

A strategic choice between closing a portfolio to new business and managing it down, or continuing to write business; each changes capital needs, valuation and staff requirements.

The conduct standard requiring insurers to deliver outcomes customers reasonably expect, covering product design, disclosure, claims handling and fair treatment of vulnerable customers.

A situation where a person's duty to the insurer or policyholder competes with personal or commercial interest, requiring disclosure, recusal or other management action.

The reasoned selection of assumptions and methods where data are limited or ambiguous, which must be documented, communicated to stakeholders and open to independent challenge.