III IC-26 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Prospective reserve

The present value of future benefits minus the present value of future net premiums, measured at the valuation date using the contract's valuation mortality and interest assumptions.

Retrospective reserve

Accumulated past net premiums minus accumulated past benefits and expenses, with interest. It equals the prospective reserve only when actual and valuation assumptions coincide.

Net premium

The level premium whose present value equals the present value of benefits, excluding expense loading. It is the premium used in net premium reserve calculations.

Gross premium

The premium actually charged: net premium plus loading for per-policy expenses, per-unit expenses, percentage-of-premium expenses, and profit or contingency margin.

Terminal reserve

The reserve at the end of a policy year, computed as the prior reserve accumulated with interest plus the net premium minus the expected death benefit for that year.

Full preliminary term

A reserve modification that sets the first-year terminal reserve to zero, effectively charging first-year acquisition costs against the first year's premium and raising later reserves.

CRVM

Commissioners Reserve Valuation Method, a minimum reserve standard allowing a modified preliminary term for a limited period, producing lower early reserves than the net premium method.

Reserve deficiency

The shortfall when a policy's actual reserve is below the regulatory minimum standard reserve; it must be recognized and funded, reducing surplus.

Net amount at risk

Death benefit minus the reserve. It declines over time for level-premium permanent policies, which is why cost-of-insurance rates rise with attained age.

Cash surrender value

The reserve minus any surrender charge. It is the amount paid to a policyholder who terminates a permanent policy with nonforfeiture value.

Asset share

The accumulated fund attributable to a block of policies: premiums less claims, expenses, and cost of insurance, credited with interest. Compared with cash values to test pricing adequacy.

Profit test

A projection of distributable earnings by policy year, discounted at a hurdle rate. Its internal rate of return is compared with the required return on capital.

Distributable earnings

After-tax cash flow available to shareholders: premiums minus claims, expenses, and the increase in required reserves and capital, with releases in later years.

Hurdle rate

The minimum risk-adjusted return on capital a product must earn in a profit test for the pricing to be considered acceptable by the insurer.

Statutory reserve

A conservative liability computed on regulatory valuation mortality tables and maximum valuation interest rates, designed to protect solvency rather than reflect best-estimate expectations.

GAAP reserve

A reserve under financial reporting standards using best-estimate assumptions and locked-in or updated assumptions depending on the standard, producing different earnings timing than statutory reserves.

DAC amortization

The systematic expensing of deferred acquisition costs, generally in proportion to premium revenue or gross profits, matching acquisition cost against the earnings it generates.

Risk-based capital

A regulatory capital formula combining asset, insurance, interest-rate, business, and affiliate risk components; the ratio to the authorized control level determines regulatory action.

C3 risk

The interest-rate and market risk component of risk-based capital, reflecting exposure of surplus and reserves to changes in interest rates and asset values.

Universal life account value

The policy fund credited with interest and reduced by cost of insurance and expense charges. It grows tax-deferred and determines the death benefit under option structures.

No-lapse guarantee

A secondary guarantee keeping a universal life policy in force regardless of account value, provided specified premiums are paid; its cost depends on funding adequacy.

Modified endowment contract

A life policy failing the seven-pay test; distributions are taxed gain-first, and a 10% penalty applies to taxable amounts before age 59½.

Policyholders' surplus account

A tax-deferred account for a portion of a life insurer's gain from operations; balances are taxed when distributed or on specified triggering events.

Small life insurance company deduction

A graduated deduction from taxable income for qualifying small life insurers, phased out as taxable income rises above the statutory threshold.

Duration gap

The difference between asset and liability durations. Surplus change from a rate shift is approximately the negative of the duration gap times assets times the rate change.

Immunization

Matching present value, duration, and convexity of assets and liabilities so surplus is protected against small parallel interest-rate shifts, with periodic rebalancing.

Interest maintenance reserve

A statutory liability that defers realized capital gains and losses arising from interest-rate movements and amortizes them into income over the remaining asset life.

Asset valuation reserve

A statutory reserve that absorbs credit-related investment losses and defaults, protecting surplus from volatility in the asset portfolio.

Embedded value

Adjusted net worth plus the present value of future profits from in-force business, using best-estimate assumptions and a risk discount rate.

Value of new business

The present value of profits expected from policies sold in a period, a key measure of whether new production creates shareholder value.

Lapse-supported pricing

Pricing that assumes a portion of policies surrender before claims are paid, so surrendering policyholders subsidize those who persist; excessive lapses threaten solvency.

Mortality improvement assumption

An expectation that death rates decline over future years, reducing projected claims for annuities but increasing the cost of death-benefit guarantees and reserves.