The goal of an asset manager is to generate a positive return or achieve a minimum target every year (capital preservation, minimum return, maximum loss).
Regional controlling of written accumulation risks.
Underwriting risk that a single trigger event (e.g. an earthquake or hurricane) can lead to an accumulation of claims within a portfolio.
Acquisition Cost Ratio
a) gross: cost (gross) of acquiring new business in proportion to the premiums earned, including savings elements under unit-linked life/annuity insurance.
b) net: cost (net) of acquiring new business in proportion to the premiums earned, not including savings elements under unit-linked life/annuity insurance.
Costs incurred by an insurance company when insurance policies are taken out or renewed (e.g. new business comission, costs of proposal assessment or underwriting).
Acquisition Costs (Life) as a Percentage of Premium Income from New Business
(Net) cost of acquiring new business in proportion to the premium income obtained from that business.
Administrative Expense Ratio
a) gross: cost (gross) of running in-force business in proportion to the premiums earned, including savings elements under unit-linked life/annuity insurance.
b) net: cost (net) of running in-force business in proportion to the premiums earned, not including savings elements under unit-linked life/annuity insurance.
Costs of current administration that are connected with the production of insurance coverage.
Parent or subsidiary companies which are to be included in the consolidated financial statements of a parent company in accordance with the rules of full consolidation.
Non-traditional investments in terms of asset classes and the trading techniques used. They exhibit a minimum correlation to traditional types of assets such as equities or fixed-income securities and can profit from both rising and falling markets.
Annual Premium Equivalent – APE
Industry standard for measuring new business income in life insurance.
Allocation of investments to different asset classes such as participations, equities and fixed-income securities.
Supervision and management of investments according to risk and return considerations.
Asset/Liability Management (ALM)
Harmonized management of liabilities and assets. This approach draws on techniques from the actuarial sciences and investment mathematics.
Asset-Backed Securities (ABS)
Financial securities (debt securities) collateralized by a portfolio of receivables.
Company included in the consolidated financial statement not through full or proportionate consolidation but normally using the equity method and over whose business or company policy a company included in the consolidated financial statement exerts a significant influence.
Valuation using the equity method; companies in which participating interests of 20% - 50% are held are valued in the amount of their proportionate stockholders' equity.
Partnership between a bank/postal service partner and an insurance company for the purpose of selling insurance products through the banking/postal service partner's branches. The linkage between the insurer and the bank is often takes the form of a capital participation or a long-term strategic cooperation between the two partners.
Value arrived at using mathematical methods for future liabilities (present value of future liabilities minus present value of future incoming premiums), especially in life and health insurance.
Black/Scholes Option Pricing Model
Analytical model used to calculate theoretical option prices. It makes allowance for the current price of the underlying stock, the risk-free interest rate, the remaining time until option expiration, the volatility and possible dividend payments within the remaining period.
Block Assumption Transaction (BAT) / Block Business
Proportional reinsurance treaty on a client's life or health insurance portfolio, by means of which the client can realize in advance the future profits in order to efficiently ensure the attainment of corporate objectives, e.g. in the areas of financial or solvency policy.
Hedge instrument securitized in a security. It is used to hedge the reinvestment interest rate if the 5-year mean of the market rate reaches a previously defined level, and approximates the real income of the portfolio.
Netting of the purchase costs with the proportionate equity capital of a subsidiary.
Capital, Reserves and Underwriting Provisions
An insurer's capital and reserves, including the provisions committed to underwriting business and the (claims) equalization reserve. Total maximum funds available to offset liabilities.
Denotes the inflow of liquid funds within a certain period and facilitates assessment of internal financing.
Cash Flow Hedges
Derivatives can be used to hedge against fluctuations in future cash flows; e.g. the interest-rate risk in the case of commitments with floating interest rates. Hedging via an interest rate swap (conversion of the floating-rate commitment to a fixed-rate commitment) would constitute a "cash flow hedge" in the scenario described.
Cash Flow Statement
Statement on the origin and utilisation of cash and cash equivalents during the accounting period. It shows the changes in liquid funds separated into cash flows from operating, investing and financing activities.
Catastrophe Bond (also: Cat Bond)
Instrument used to transfer catastrophe risks of a (re)insurer to the capital market.
Cedant (also: Ceding Company)
Primary insurer or reinsurer which passes on (cedes) shares of its insured or reinsured risks to a reinsurer in exchange for a premium.
Claims and Claims Expenses (Net)
Sum total of paid claims and provisions for loss events that occurred in the financial year; this item also includes the result of the run-off of the provisions for loss events from previous years, in each case after deduction of own reinsurance cessions.
Participation of several insurers in one risk with each insurer assuming a certain amount of the sum insured.
Coinsurance Funds withheld Treaty
Type of coinsurance contract where the ceding company retains a portion of the original premium at least equal to the ceded reserves.
Sum of the loss ratio and expense ratio (net) after allowance for interest income on funds withheld and contract deposits, as a proportion of net premiums earned. In the calculation of the adjusted combined ratio, the interest income on funds withheld and contract deposits is offset against the losses and loss adjustment expenses. This ratio is used by both property/casualty insurers and non-life reinsurers.
Remuneration paid by a primary insurer to agents, brokers and other professional
Statutory regulations and undertaking-specific rules governing the responsible and lawful actions of an undertaking and its employees.
Insurance undertaking that transacts multiple lines of insurance.
Defines the probability with which a defined risk amount will not be exceeded.
The correlation between changes in interest rates and bond prices is not linear, but convex. Convexity is a measure of the curvature of this interest-rate/bond-price curve and facilitates accurate determination of the price change in the event of appreciable interest rate changes.
System that serves to ensure responsible management and supervision of enterprises and is intended to foster the trust of investors, clients, employees and the general public in companies.
Also creditworthiness. Ability of a debtor to meet its payment commitments.
Critical Illness Cover
Personal riders on the basis of which parts of the sum insured which would otherwise only become payable on occurrence of death are paid out in the event of previously defined severe illnesses.
Term denoting the difference between the taxes calculated on the profit reported in the commercial balance sheet and those carried in the tax balance sheet which then evens out in subsequent monts. Deferred taxes are recognised in order to offset this difference in those cases where it is evident hat it will be eliminated over time.
An accounting method originating in US accounting principles for the recognition of short-term and multi-year insurance and reinsurance contracts with no significant underwriting risk transfer.
Financial products derived from underlying primary instruments such as equities, fixed-income securities and foreign exchange instruments, the fair value of which is determined inter alia on the basis of the underlying security or other reference asset. Derivatives include swaps, options and futures.
Orientation of business policy towards various lines of products and services in order to minimize the effects of economic fluctuations and stabilize the result.
Due Diligence Audit
Auditing of a participating interest in the run-up to acquisition or merger. It encompasses, in particular, a systematic analysis of the strengths and weaknesses of the proposition, analysis of the risks associated with the acquisition and a well-founded valuation of the item in question.
Ratio in investment mathematics that represents the average commitment period of the cash value of a financial instrument. The duration can thus also be considered as a measure of the interest rate risk associated with a financial instrument.
Dynamic Financial Analysis (DFA)
Simulation technique based on integrated modeling used to analyze the entire financial and risk situation of an insurance enterprise over a defined period. DFA was developed in property/casualty insurance and is now also assuming growing importance for life insurers. It supports integrated corporate management by considering all risk factors (investments, underwriting side).
Proportion of written premiums attributable to the insurance protection in the financial year.
Non-distribution of the company's profits, leading to a different tax treatment than that applied to distributed profits.
Benchmark used to measure the performance of life insurance enterprises. It is composed of the sum total of free assets (net asset value) plus the present value of the projected stream of future after-tax profits on the in-force insurance portfolio.
Provision constituted to offset significant fluctuations in the loss experience of individual lines over a number of years.
Equity Capital (also: Shareholders' Equity)
Funds belonging to the company or its owners. The capital providers are entitled to a profit share, e.g. in the form of a dividend, in return for making the shareholders' equity available.
Method of accounting used to measure equity investments (associated companies) in the consolidated financial statement.
Expenditure on insurance business (acquisition costs and administrative expenses)
Sum total of commissions, sales, personnel and material costs as well as regular administrative expenses.
Expenditure on Investments
Sum of write-downs and the costs of managing investments.
Ratio of acquisition costs and administrative expenses (net) to the net premium earned.
Level of danger inherent in a risk or portfolio of risks.
Participation on the part of the reinsurer in a particular individual risk assumed by the primary insurer.
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.
Fair Value Hedges
Derivatives can be used to hedge the "fair value" of financial assets; e.g. a bond valuation changes as interest rates rise or fall. Hedging against the price risk associated with a bond by means of a derivative would be considered a "fair value hedge".
Reinsurance with limited potential for profits and losses; the primary objective is to strive for risk equalization over time and to stabilize the cedant's balance sheet.
For Own Account
Funds held by Ceding Companies / Funds held under Reinsurance Treaties
Collateral provided to cover insurance liabilities which an insurer retains from the liquid funds which it is to pay to a reinsurer under a reinsurance treaty. In this case, the insurer shows funds held under a reinsurance treaty, while the reinsurer shows funds held by a ceding company. Interest is payable on such funds helds.
One of the oldest hedge fund strategies characterized by a broad range of strategic options. It is based upon a macroeconomic analysis of major developments in the political and economic spheres. The fund manager seeks to identify at an early stage breaks in trends affecting equity, interest rate or currency movements or shifts in the global economy and to profit from them. A hallmark of Global Macro is the use of derivatives based on crude oil and gold. However, a much more significant use of commodity-based derivatives is the Managed Futures approach.
The amount that a purchaser is prepared to pay – in light of future profit expectations - above and beyond the value of all tangible and intangible assets after deduction of liabilities.
Before deduction of reinsurance.
Guarantee Credit Financing
The guarantee constitutes a loan extended by a bank by standing surety (as per §§ 765 ff. German Civil Code [BGB]) or putting up a guarantee. The bank does not make a monetary amount available, but rather its own credit standing.
Market phase during which it is difficult for some insureds to obtain coverage and where premium levels are typically high. Hard markets arise as a consequence of heavy underwriting losses or extreme price competition. Opposite: soft market
Funds that are subject to virtually no investment restrictions and are free to pursue a highly diverse range of investment strategies (e.g. currency or commodity speculation, shortselling). They can use and combine all types of financial instruments, including derivatives. They are included in the category of alternative investments.
Debt structure which because of its subordination has the character of both debt and equity.
International Financial Reporting Standards
Unscheduled write-down taken if the present value of the estimated future cash flows of an asset falls below the carrying amount.
Incurred Claims and Claims Expenses
Sum of claims and claims expenses paid plus the change in the total loss and loss adjustment expense reserve of the financial year compared to the total loss and loss adjustment expense reserve of the previous year.
Financial instruments used to securitise risks under which the payment of interest and/or nominal value is dependent upon the occurrence and magnitude of an insured event.
Interest Income on Premium Funds and Provisions
Income from investments calculated with a defined interest rate which is shown in the underwriting part of the statement of income; the calculation is based upon certain technical provisions.
Interest Rate Swaps
Swapping of fixed interest rate commitments against floating ones or vice versa on normally identical capital sums with matching currencies.
Rating of BBB or better awarded to an enterprise on account of its low risk profile.
Public entity or private enterprise or public entity that issues securities, e.g. the federal government in the case of German Treasury Bonds or a joint-stock corporation in the case of shares.
Lapse Rate for Life Insurance Products
Sum of cancelled policies and other premature withdrawals in relation to the average business in force (GDV index).
If several (re)insurers participate in a contract, one company assumes the role of leader and normally carries a higher percentage of the risk for own account. The policyholder deals exclusively with this company.
Letter of Credit (LoC)
Bank guarantee. In the United States, for example, a common way of furnishing collateral in reinsurance business.
Collective term covering those types of insurance which are concerned in a broader sense with the risks associated with the uncertainties of life expectancy and life planning. These include death and disability, retirement provision as well as marriage and education.
Lines of business concerned with the insurance of persons, i.e. life, annuity, health and personal accident.
a) gross: sum of the (gross) losses and loss adjustment expenses and the (gross) other technical result as a proportion of gross premiums earned.
b) net: sum of the (net) losses and loss adjustment expenses and the (net) other technical result as a proportion of net premiums earned.
Major Claim (also: Major Loss)
Claims that reaches an exceptional amount compared to the average claim for the risk group in question and exceeds a defined claims amount.
Hedge fund strategy. As in the case of Global Macro funds, Managed Futures funds operate in a broad variety of markets. Managed Futures funds typically make use of commodity-based derivatives, such as cotton or coffee, that have a minimal correlation with traditional types of assets and can thus serve to promote risk minimization as part of an overall investment strategy.
Company that concentrates on administrative services such as fund accounting and reporting. Other investment companies or enterprises transfer their fund administration to them in order to save costs.
Theoretical combination of all separate trusts into a single overall ("master") fund.
Matching Currency Cover
Coverage of technical liabilities in foreign currencies by means of corresponding investments in the same currency in order to avoid exchange-rate risks.
Modified Coinsurance (ModCo) Treaty
Type of reinsurance treaty where the ceding company retains the assets supporting the reinsured reserves by withholding a fund, thereby creating an obligation to render payments to the reinsurer at a later date.
Incidence rate of disease relative to a given population group.
Proportion of the total population dying within a given time interval.
Spreading of funds among various asset managers.
In insurance: used primarily to mean after deduction of reinsurance.
Net return on investments
Investment earnings, not including interest income on funds withheld and contract deposits, in relation to the average investments under own management.
Reinsurance treaty under which the reinsurer assumes the loss expenditure or sum insured in excess of a particular amount.
Income and expenses that are not ascribable to insurance business.
Reinsurance treaty under which the reinsurer participates in a total, precisely defined insurance portfolio of a cedant. Opposite: facultative reinsurance.
Sum total of personnel expenditures, commissions, material costs, distribution costs and regular administrative expenses.
Operating Expenses Ratio
The operating expense ratio states how much of the premiums was used to acquire and administer business. This ratio is calculated gross and net for insurance enterprises.
Operating Profit (EBIT)
Sum of the result of non-underwriting business and the underwriting result before the change (allocation or withdrawal) in the (claims) equalization reserve.
Over the counter. In the case of securities: not traded on a stock exchange.
Existing reinsurance programmes of primary insurers for their own protection against underwriting risks.
Policy Benefits for Life and Health Contracts
Value arrived at using mathematical methods for future liabilities (present value of future liabilities minus present value of future incoming premiums), primarily in life, health and personal accident insurance.
Total amount of shareholders’ equity excluding non-controlling interests, which is comprised of the common shares, additional paid-in capital, retained earnings and cumulative other comprehensive income, as well as the non-controlling interests in shareholders’ equity and so-called hybrid capital, as equity-replacing debt capital that encompasses the subordinated liabilities.
a) All risks assumed by a primary insurer or reinsurer as a totality or in a defined segment.
b) Group of investments categorized according to specific criteria.
Agreed compensation for the risks accepted by the insurer.
Present Value of Future Profits – PVFP
Intangible asset primarily arising in particular from the purchase of life and health insurance companies or individual portfolios. The present value of expected future profits from the portfolio assumed is capitalised and amortised according to schedule. Impairments are taken on the basis of annual impairment tests.
Primary (also: direct) Insurer
Company that assumes risks in return for an insurance premium and maintains a direct contractual relationship with the policyholder (private individual, corporation, organization).
Investment capital raised by private investors in contrast to public equity, i.e. capital raised on the stock exchange.
Insurance enterprises that engage exclusively in reinsurance.
Originally a specialty of the US insurance market, program business is written by insurers working in very close cooperation with reinsurers and highly specialized managing general agents. The segment is typically focused on niche and non-standard coverages and hard-to-place risks. It is now written on other markets too.
All insurance lines with the exception of life insurance and health insurance: all lines in which the insured event does not trigger payment of an agreed fixed amount, but rather the incurred loss is reimbursed.
Reinsurance treaties on the basis of which shares in a risk or portfolio are reinsured
under the prevailing original conditions. Premiums and losses are shared proportionately on a pro-rata basis. This is in contrast to non-proportional reinsurance.
Liability item shown as at the balance sheet date to discharge obligations which exist but whose extent and/or due date is/are not known. Technical provisions, for example, are for claims which have already occurred but which not yet been settled or have only been partially settled (= provision for outstanding claims, abbreviated to: loss reserve).
Provision for Unearned Premiums (also: Unearned Premium Reserve)
Premiums written in a financial year which are to be allocated to the following period on an accrual basis. This item is used to defer written premiums.
Purchase Cost, Amortised
Cost of acquiring an asset item including all ancillary and incidental purchasing costs; in the case of wasting assets less scheduled and/or special amortisation.
Percentage (normally applied to the subject premium) of a reinsured portfolio, which under a non-proportional reinsurance treaty produces the reinsurance premium payable to the reinsurer.
Systematic evaluation of companies by a rating agency or bank with respect to their credit status.
Company that accepts risks or portfolio segments from a primary insurer or another reinsurer in exchange for an agreed premium.
Contractual relationships between insurers and reinsurers are maintained over long periods of time. The treaty terms and conditions are normally modified annually in so-called renewal negotiations, and the treaties are renewed accordingly.
Establishment of loss reserves.
a) In general: business with private customers
b) AmpegaGerling: business involving investment funds that are designed essentially for private, non-institutional investors, although such funds are also open for investments of group companies.
The part of the accepted risks which an insurer/reinsurer does not reinsure, i.e. carries for net. Net written premium in relation to gross written premium (excluding savings elements of premium under unit-linked life and annuity insurance policies).
Ceding by a reinsurer of its risks or shares in its risks to other reinsurers.
Risk Management System
The complete set of rules and measures used to monitor and protect against risks.
Fulfillment of liabilities for which reserves have been constituted.
Secondary Public Offering (SPO)
Secondary placement. Transaction in which a shareholder of a listed enterprise sells a substantial volume of shares in such enterprise from their holding by way of a public offering.
Presentation of asset and income data broken down into business segments and regions.
Representation of the Group in a manner which identifies the origin of business.
Statement of Financial Accounting Standards; standards published by the Financial Accounting Standards Board on accounting and reporting.
Funds provided by the owners of an enterprise for its internal financing or left within the company as earned profit (realised/unrealised). The capital providers are entitled to a share of the profit, e.g. in the form of a dividend, in return for making the shareholders’ equity available. Shareholders’ equity is equal to the total assets of the company less its total liabilities.
Capital components that are economically available but not yet recognised in the balance sheet: the loss reserve discount and the present value of future profits in life business that has not been capitalised, and on the company level the excess loss reserves.
Market phase with oversupply of insurance, resulting in premiums that are not commensurate with the risk; this is in contrast to hard market.
Level of available unencumbered capital and reserves required to ensure that contracts can be fulfilled at all times.
Project of the European Commission to reform and harmonize European insurance regulations.
Level of unrestricted, unencumbered own funds required to ensure the company's
sustained ability to meet contractual obligations.
Transaction of closely defined, homogenous of primary insurance business where the standard insurance functions of business acquisition, underwriting, policy issuance, premium collection, claims handling and administration can be outsourced to independent, specialised, professionally organised Managing General Agents (MGAs) and Third Party Administrators (TPAs).
Dependent on random factors.
Funds provided by the owners of an enterprise for its financing or left within the company as earned profit. The capital providers are entitled to a share of the profit, e.g. in the form of a dividend, in return for making the stockholders' equity available.
Form of scenario analysis used to be able to make quantitative statements about the loss potential of portfolios in the event of extreme market fluctuations.
Subordinated debt issued against granting of profit participation rights.
Legally required, annually determined participation of policyholders in the surpluses generated by life insurers.
Agreement between two counterparties to swap payments at contractually defined conditions and times. Virtually any type of cash flow can be exchanged. This makes it possible to systematically hedge financial risks associated with a portfolio or to add new risks to a portfolio in order to optimise returns.
Joint credit extended by several lenders to one creditor.
Underlying instrument of a forward transaction, futures contract or option contract that serves as the basis for settlement and measurement of the contract.
Process of examining and assessing (re)insurance risks in order to determine a commensurate premium for the risk in question. The purpose of underwriting is to diversify the underwriting risk in such a way that it is fair and equitable for the (re)insured and at the same time profitable for the (re)insurer.
Unearned Premium Reserve
Premiums written in a financial year which are to be allocated to the following period on an accrual basis.
Unit-Linked Life Insurance
Life insurance under which the level of benefits depends on the performance of an investment fund allocated to the policy in question.
These products combine the traditional concept of provision with the earnings opportunities of a flexible investment and offer all the benefits of life insurance.
United States Generally Accepted Accounting Principles. Internationally recognized US accounting principles.
Value at Risk
Potential losses that with a certain probability will not be exceeded in a given period.
Value of In-force Business
Present value of expected future profit flows from the portfolio of in-force retained business, discounted by a currency-specific risk discount rate. It is determined in accordance with local accounting principles.
Measure of variability with respect to stock/bond prices, exchange rates and interest rates and also insurance lines that can have a sharply fluctuating claims experience.