1035 exchange

See IRS Form 1099.

1099

See Section 1035 Exchange.

20 percent rule

See percentage-of-income rule.

401(k) plan

In the United States, a special type of profit-sharing plan, savings plan, or retirement plan that is established by employers for the benefit of employees and that allows both employers and employees to make specified contributions to the plan on a tax-deferred basis.

403(b) plan

In the United States, an arrangement that allows not-for-profit employers and their employees to make contributions to a tax-deferred retirement savings plan established for the benefit of employees.

457 plan

In the United States, an arrangement that allows state and local governments and their employees to make contributions to a tax-deferred retirement savings plan established for the benefit of employees.

5498

See IRS Form 5498.

AADLs

See advanced activities of daily living.

ABC

See activity-based costing.

absolute assignment

An irrevocable transfer of complete ownership of a life insurance policy or an annuity from one party to another. Contrast with collateral assignment.
See also assignment.

ACB

See adjusted cost basis.

Accelerated Benefits Model Regulation

In the United States, a National Association of Insurance Commissioners (NAIC) model regulation designed to regulate accelerated death benefit provisions and to impose disclosure standards on insurers that provide such benefits.

accelerated death benefit

A benefit included in a life insurance policy or added to a life insurance policy through a policy rider that gives the policyowner the right to receive a portion-usually between 50 and 80 percent-of the policy's death benefit during the insured's lifetime when the insured is terminally ill as defined in the policy. Also known as terminal illness (TI) benefit.

acceptable alternative mechanism

For purposes of the Health Insurance Portability and Accountability Act (HIPAA) in the United States, a state-approved plan that provides health insurance coverage to all eligible individuals without imposing preexisting conditions exclusions and gives eligible individuals a choice of health insurance coverage.

accident insurance

A type of health insurance coverage that only provides benefits for an insured’s death, dismemberment, disability, or medical care that results from the insured being in an accident. See also health insurance.

accidental death and dismemberment (AD&D) benefit

A supplementary life insurance policy benefit that provides for an amount of money in addition to the policy’s basic death benefit. This additional amount is payable if the insured dies as the result of an accident or if the insured loses any two limbs or the sight in both eyes as the result of an accident.

accidental death benefit (ADB)

A supplementary life insurance policy benefit that provides a death benefit in addition to the policy’s basic death benefit if the insured’s death occurs as the result of an accident. See also double indemnity benefit.

account

The basic tool that a company uses to record, group, and summarize similar types of financial transactions.

account fee

In unbundled variable insurance products, an annual charge to customers generally expressed as the lesser of a specified dollar amount or a percentage, such as 2 percent of the account value.

account form

The presentation format of a balance sheet in which asset accounts appear on the left side and liabilities and owners’ equity accounts appear on the right side.

account payable

A liability account that represents a contractual promise of payment by the holder of the account to another party.

account receivable

An asset account that represents a contractual promise by another party to pay an amount to the holder of the account.

accounting

A system or set of rules and methods for collecting, recording, summarizing, reporting, and analyzing a company’s financial information.

accounting controls

The policies and procedures used to authorize financial transactions, safeguard assets, and provide reliable, timely, and fairly presented financial information about a company.

accounting entry

A record of a financial transaction that includes at least one debit and one credit and shows the monetary value of the transaction in balance on a specified date. See also credit and debit.

accredited reinsurer

A reinsurance company that is not licensed in the ceding company’s jurisdiction, but meets specified financial and reporting requirements of that jurisdiction and holds a license in and is domiciled in at least one other jurisdiction.

accrual-basis accounting

An accounting system in which a company records revenues when they are earned and expenses when they are incurred, even if the company has not yet received the revenues or paid the expenses.

accrued income

(1) In accounting, income that has already been earned, but which is not receivable until a specified date in the next accounting period. (2) In investments, the amount of interest that has been earned on a bond, but which is not yet payable to the bondholder as of the financial reporting date.

accumulated cost of insurance

For a life insurance product at a specified point in time, the total amount the insurer has paid in benefits, accumulated at interest.

accumulated value

The total of an amount of money invested plus the interest earned by that money.

accumulated value of an annuity

At any given date during the accumulation period of a fixed deferred annuity, the net amount paid for the annuity, plus interest earned, less the amount of any withdrawals or surrender charges. The accumulated value of a variable, deferred annuity is calculated based on the value of the contract owner’s interest in the separate accounts used to fund the annuity. Also known as accumulation value of an annuity and account value of an annuity.

accumulated value of net premiums

For a life insurance product at a specified point in time, the total of the net premiums collected, accumulated at interest.

accumulation at interest dividend option

An option, available to the owners of participating insurance policies, that allows a policyowner to leave policy dividends on deposit with the insurer and earn interest. See also dividends and policy dividend options.

accumulation period

For a deferred annuity contract, the time period between the date that the contract owner purchases the annuity and either (1) the date that periodic income payments begin or (2) the date that the contract’s surrender value is paid. During the accumulation period, the accumulation value of the annuity account grows.

accumulation unit

A unit of measurement that represents an ownership share in a selected subaccount of a variable deferred annuity during its accumulation period. After the accumulation period ends, the accumulation units are used to buy annuity units. See also accumulation period and annuity units.

ACLF

See adult congregate living facility.

ACLI

See American Council of Life Insurers.

acquisition-cost concept

See cost concept.

acquisition expenses

Costs that are directly attributable to the production of new business. See also policy acquisition expenses.

actively-at-work provision

A group insurance policy provision which states that, in order to be eligible for coverage, an employee must be actively at work—rather than ill or on leave—on the day the coverage is to take effect. If the employee is not actively at work on that day, the group insurance coverage does not become effective until the next day that the employee is actively at work.

active management strategy

An investment strategy in which an asset manager views any security in a portfolio as potentially tradable, if doing so would improve the portfolio’s performance. See also portfolio and security.

activities of daily living (ADLs)

In long-term care insurance, activities such as eating, bathing, and dressing that an insured must be unable to perform in order to demonstrate a need for long-term care and, thus, qualify for long-term care benefits.

activity-based costing (ABC)

An accounting method for estimating the price of a product or service that links costs to products based on the activities consumed in producing the products or services. See also activity cost.

activity cost

In activity-based costing (ABC), the cost attributable to a specified activity, such as telephone charges in an insurer’s customer call center. See also activity-based costing (ABC).

activity ratios

Financial ratios, measuring the speed with which various assets are converted into sales or cash, that gauge the productivity and efficiency of a company. Also known as operating efficiency ratios.

actual cash value insurance

A type of homeowner’s insurance that pays the policyholder an amount equal to the replacement cost of the property minus an amount for depreciation.

actual net debt

For purposes of determining the benefit payable under a consumer credit insurance policy, the lump-sum amount needed on any given date to pay off the debt, excluding unearned interest and any other unearned finance charges.

actuarial assumptions

The estimated values—for such elements of insurance product design as mortality rates, investment earnings, expenses, and policy lapses—on which an insurer bases its product pricing and policy reserve calculations.

actuarial cost method

A formal approach used for preparing valuations of defined benefit pension plan liabilities in order to ensure that the plan is adequately and systematically funded. Also known as actuarial funding method and pension plan valuation method.

actuarial function

The area of an insurance company responsible for seeing that the company’s operations are conducted on a mathematically sound basis. In conjunction with other departments, it designs and revises a company’s insurance products, establishes premium and dividend rates, determines what a company’s reserve liabilities should be, and establishes nonforfeiture, surrender, and loan values. It also does the research needed to predict mortality and morbidity rates, to establish guidelines for selecting risks, and to determine the profitability of the company’s products.

actuarial funding method

See actuarial cost method.

actuarial liabilities

See reserves.

actuarial memorandum

A report, required in many U.S. policy form filings, which demonstrates that the policy in question complies with all state insurance laws and regulations that apply to the actuarial (mathematical) soundness of the policy.

Actuarial Opinion and Memorandum Regulation (AOMR)

Under the Standard Valuation Law in the United States, a requirement for insurers to (1) submit an actuarial opinion to state in essence that the insurer’s reserves and associated assets make adequate provision for anticipated cash flows arising from the insurer’s contractual obligations and (2) prepare an actuarial memorandum in support of the opinion. This memorandum is not submitted unless requested by an insurance department.

actuarial opinion statement

In the United States, a separate document that must be submitted along with the Annual Statement by insurance companies that issue interest-sensitive products; this document represents an independent analysis of an insurance company’s financial data.

actuarial valuation of pension plan benefits

The outcome or process of finding the actuarial present value, as of a specified valuation date, of a defined benefit pension plan’s future benefit payments.

actuarial valuation

A determination by an actuary, based on statistical probability, of the value of assets and/or liabilities.

actuary

A technical expert in insurance, annuities, and financial instruments who applies mathematical knowledge to industry and company statistics to calculate an insurance company’s mortality rates, morbidity rates, lapse rates, premium rates, policy reserves, and other financial values. See also product actuary, valuation actuary, and appointed actuary.

ADA

See Americans with Disabilities Act.

ADB

See accidental death benefit.

AD&D

See accidental death and dismemberment benefit.

additional insured rider

See second insured rider.

additional term insurance option

An option available to owners of participating insurance policies under which the insurer uses a policy dividend as a net single premium to purchase one-year term insurance on the insured’s life. Also known as fifth dividend option. See also dividend and policy dividend options.

ADEA

See Age Discrimination in Employment Act.

adjustable life insurance

A form of life insurance that allows policyowners to vary the type of coverage provided by their policies as their insurance needs change.

adjusted cost basis (ACB)

A measure of the cost of a life insurance policy at a given time.

adjusted premium

An amount used in the calculation of cash values for life insurance; this amount is equal to the policy’s valuation net annual premium plus an amount added to account for an insurer’s expenses.

adjusting entry

An accounting entry that a company makes to record internal financial transactions or correct errors that occur in one or more accounting periods.

adjustment methods provision

In an annuity contract, a written statement describing the steps the insurer will take to correct any material misstatement of age or sex. See also misstatement of age or sex provision.

ADLs

See activities of daily living.

administrative fee

For annuities, a fee charged by insurers to cover costs such as issuing a fixed or variable annuity, making administrative changes to the annuity contract, and preparing the contract owner’s statement. In the case of some fixed annuity contracts, fees are not charged separately but have been included in the premiums charged for the contract. In other cases, a stated, flat dollar amount is automatically deducted from the customer’s annuity account value each year. For variable annuities, the fee may be expressed as a percentage of the assets in the investment subaccounts. Also known as administration charge, administration expense fee, and contract fee.

administrative services only (ASO) contract

A contract under which an insurer or other organization, such as a third-party administrator, agrees to provide administrative services for an employer that is self-funding an insurance benefit plan rather than purchasing group insurance. See also third-party administrator (TPA).

Administrative Supervision Model Act

In the United States, a National Association of Insurance Commissioners (NAIC) model law that authorizes the insurance commissioner of an insurer’s state of domicile to place the insurer under administrative supervision. See also administrative supervision.

administrative supervision

A legal condition under which an insurer in the United States may be required to obtain the permission of the insurance commissioner of its domiciliary state before the insurer takes any of a variety of specified actions. See also Administrative Supervision Model Act.

admitted assets

For an insurer, assets whose full value can be reported on the Assets page of the U.S. Annual Statement. Contrast with nonadmitted assets.

admitted reinsurer

See authorized reinsurer.

adult congregate living facility (ACLF)

In long-term care insurance, a type of assisted living facility designed mostly for middle- to lower-income groups, with less spacious living quarters than continuing care retirement communities and meals served in a central dining room.

adult day care

In long-term care insurance, care provided to adults in a group setting during hours when primary caregivers are working.

advance and arrears system

A premium accounting method used in the home service distribution system under which the home service company charges the individual agent with the amount of all premiums due on the policies the agent services. When the agent sends the collected premiums, the company credits the agent with the amount of premiums collected. See also home service system and industrial insurance.

advanced activities of daily living (AADLs)

In long-term care insurance, vocational, social, or recreational activities that reflect personal choice and add meaning and richness to a person’s life. The AADLs include working; attending church; going out to dinner, a theater, or a concert; playing cards; participating in physical recreational activities; and driving an automobile.

advanced underwriting department

A department within an insurance company that assists agents with estate planning and business insurance cases; this department prepares proposals based on the information the agent has collected; accompanies the agent, if requested, on sales presentations; provides computer support services; and conducts seminars and counsels agents regarding tax laws and methods of using insurance products to solve estate planning problems.

adverse action

According to the Fair Credit Reporting Act in the United States, (1) a denial or revocation of credit, a change in the terms of an existing credit arrangement, or a refusal to grant credit in substantially the amount or on substantially the terms requested; or (2) a denial or cancellation of insurance, an increase in any charge for insurance, a reduction in coverage, or any other adverse or unfavorable change in the terms or amount of existing insurance or coverage applied for by a consumer.

adverse deviation

In insurance product design, a difference between actual and assumed product values that produces a decrease in actual product profitability relative to assumed product profitability. Contrast with favorable deviation.

adverse selection

See antiselection.

adverse underwriting decision

An underwriting decision in which an insurer refuses to issue insurance coverage to an applicant, terminates existing coverage, or offers to provide an applicant with insurance at higher than standard premium rates.

advertisement

According to the National Association of Insurance Commissioners (NAIC) Rules Governing the Advertising of Life Insurance, any material designed (1) to create public interest in life insurance or annuities, an insurer, or an insurance producer or (2) to induce the public to purchase, increase, modify, reinstate, borrow on, surrender, replace, or retain a policy.

affiliate reinsurer

A type of captive reinsurer that is established for use by a group of affiliated insurers. See also captive reinsurer.

after-tax dollars

Money after taxes have been paid on it.

Age Discrimination in Employment Act (ADEA)

A United States federal law that protects workers age 40 and older from being discriminated against because of their age.

age provision

An annuity contract provision that specifies a maximum issue age for annuitants, typically between 70 and 85 years old.

agency

A legal relationship in which one party, known as the principal, authorizes another party, known as the agent, to act on the principal’s behalf. See also agent and principal.

agency administration

All of the activities performed by an insurer’s home office employees or by field office personnel to provide support and service to the insurer’s field force. See also field force.

agency agreement

A written contract that spells out the rights and duties of a principal and an agent and the scope of the agent’s actual authority. Also known as agency contract. See also agent and principal.

agency-building distribution system

A type of insurance sales distribution system wherein companies recruit and train their salespeople, and provide them with financial support and office facilities. Four general types of agency-building distribution systems are ordinary agency distribution systems, multiple-line agency (MLA) systems, salaried sales distribution systems, and location-selling distribution systems. Contrast with nonagency building distribution system. See also location-selling
distribution systems, multiple-line agency (MLA) systems, ordinary agency distribution systems, and salaried sales distribution systems.

agency contract

See agency agreement.

agency distribution plan

A document that describes an insurance company’s goals and objectives for product distribution and serves as a guide for each field office’s own operating plan.

agency system

See agency-building distribution system.

agent

(1) In agency law, a party who is authorized by another party, the principal, to act on the principal’s behalf in contractual dealings with third parties. See also principal. (2) In insurance, any person or entity representing an insurance company and selling insurance. See also agent-broker, broker, general agent (GA), and personal producing general agent (PPGA).

agent-broker

A career insurance agent who places business with a primary company and with other insurance companies.

agents’ debit balances

Amounts that sales agents have collected from customers and owe to an insurer.

agent’s statement

A portion of the insurance application that contains the agent’s comments about or impressions of the proposed insured and the risk involved; this statement is usually not made a part of the policy contract.

aggregate level cost allocation methods

Pension plan valuation methods that measure costs directly for an entire pension plan without attribution to individual plan participants. Also known as aggregate level-premium cost methods. Contrast with individual level cost allocation methods.

aggregate level-premium cost methods

See aggregate level cost allocation methods.

aggregate stop-loss coverage

A type of stop-loss insurance coverage purchased by self-insured employers that provides benefits to the employer when total group health claims exceed a stated dollar amount within a stated period of time. See also individual stop-loss coverage.

aggregation rule

A United States federal income tax rule stating that all deferred annuity contracts that were entered into after October 21, 1988, and that were issued by the same insurer to the same contract owner during the same calendar year, will be treated as one contract for purposes of determining the amount of any withdrawal that is included in income.

aggressive financial strategy

A financial management strategy that places an unusually strong emphasis on profitability and de-emphasizes solvency.

AICPA

See American Institute of Certified Public Accountants.

AIR

See assumed investment return.

aleatory contract

A contract in which one party provides something of value to another party in exchange for a conditional promise, which is a promise that the other party will perform a stated act upon the occurrence of an uncertain event. Insurance contracts are aleatory because the policyowner pays premiums to the insurer, and in return the insurer promises to pay benefits if the event insured against occurs. Contrast with commutative contract.

alien corporation

From the point of view of any state in the United States, a company that is incorporated under the laws of another country. Contrast with domestic corporation.

allied medical practitioner

A licensed health care provider who is not a licensed medical doctor; for example, chiropractors, osteopaths, or nurse midwives.

allocated pension funding contract

A type of pension plan contract in which all of the plan sponsor’s contributions are credited to individuals in a manner that gives the individual-participants a legally enforceable claim to the benefits attributable to those contributions. Contrast with unallocated pension funding contract.

allowable expenses

According to the coordination of benefits provision included in most group medical expense insurance policies, those reasonable and customary expenses that the insured incurred and that are covered under at least one of the insured’s group medical expense plans.

allowance

In a reinsurance arrangement, the reinsurer’s proportionate share of the agent commissions, underwriting costs, administration costs, policy issue costs, and other expenses that an insurer incurs in acquiring a policy.

all-risk policy

A type of homeowner’s insurance that covers losses caused by all perils other than those excluded in the policy.

ALM

See asset/liability management.

alpha split

See alphabetic split.

alphabetic split

A method insurance companies use to transfer excess risk to two or more reinsurers by assigning cases to each reinsurer according to policyowners’ last names. Also known as alpha split. See also reinsurance.

alternate care benefits

In long-term care insurance (LTC) plans, benefits for nonconventional services developed cooperatively by a physician and an insurer to substitute for more expensive nursing home care. May include special medical care and treatments, different sites of care, or even medically necessary modifications to an insured person’s home.

amendment

A provision added to a contract that modifies an existing provision.

American Academy of Actuaries

A professional organization of actuaries in the United States.

American Council of Life Insurers (ACLI)

A U.S. organization that collects and disseminates data on life insurance markets.

American Institute of Certified Public Accountants (AICPA)

A professional association of U.S. Certified Public Accountants (CPAs) that directly influences accounting practice in the United States in a variety of ways, including the development of generally accepted auditing standards (GAAS).

Americans with Disabilities Act (ADA)

A U.S. federal law that protects disabled individuals against all types of discrimination, including employment discrimination.

amortized cost

An asset’s historical cost, less any adjustment, such as depreciation or amortization, to the asset’s book value.

analytical phase of IRIS.

The second phase of the Insurance Regulatory Information System (IRIS) used in the United States to monitor the financial condition of insurers. IRIS was established and is operated by the National Association of Insurance Commissioners (NAIC). During this phase, NAIC examiners apply qualitative and quantitative standards to further analyze the Annual Statement data of insurers that had a number of unusual ratios during the first phase of IRIS analysis. See also Insurance Regulatory Information System (IRIS) and statistical phase of IRIS.

annual annuity

An annuity that provides for a series of annual benefit payments.

annual percentage rate (APR)

See effective interest rate.

annual policy report

A statement an insurer issues at the end of each policy year to a policyowner to provide a summary of policy transactions that year.

annual report

(1) A financial document that an incorporated business issues to its stockholders, and other interested parties, to report the business’s activities and financial status for a specified period, which is usually the preceding year. (2) A report that an insurer must provide to variable insurance contract owners describing the investment performance of subaccounts for the preceding year.

annual reset method

A method for crediting excess interest to an equity-indexed annuity that involves comparing the value of the index at the start of the contract year with its value at the end of the contract year. The starting value for the next year is reset to the value of the index at the end of the current contract year. The insurer determines the amount of excess interest by averaging the results for each contract year of the contract term. Also known as ratchet method.

Annual Return

In Canada, an accounting report that presents information about an insurer’s operations and financial performance which every company subject to federal regulation must file with the Office of the Superintendent of Financial Institutions.

Annual Statement

A financial report that every insurer in the United States must file at least annually with the National Association of Insurance Commissioners (NAIC) and the insurance regulatory organization in each state in which the insurer conducts business. Regulators use the information in the report to evaluate an insurance company’s solvency and its compliance with insurance laws.

annualized premium

In the home service insurance distribution system, the amount of premium scheduled to be paid to an insurer for all the insurance policies in an agent’s book of business during the course of one year.

annually renewable term (ART) insurance

See yearly renewable term (YRT) insurance.

annuitant

The person whose lifetime is used to measure the length of time periodic income payments are payable under an annuity contract and who usually receives the annuity benefit payments.

annuitization period

See payout period.

annuitization

An annuity contract payout option that provides annuity benefit payments that are tied to the life expectancy of the annuitant.

annuity

(1) A series of periodic payments. (2) A financial contract between an insurer and a customer under which the insurer promises to make a series of periodic benefit payments to a named individual—the payee—in exchange for the contract owner’s payment of a premium or series of premiums to the insurer. See also annuity certain, annuity due, deferred annuity, ordinary annuity, and straight life annuity.

annuity beneficiary

The person or party named to receive any survivor benefits that are payable during the accumulation period of a deferred annuity. See also survivor benefits.

annuity certain

A type of annuity contract that pays periodic income benefits for a stated period of time, regardless of whether the annuitant lives or dies. Also known as period certain annuity. Contrast with straight life annuity. See also payout options.

annuity contract

See annuity.

annuity conversion cost

The amount that a deferred annuity contract owner pays to obtain a specified dollar amount of periodic income payment upon annuitization of the contract. Contrast with annuity purchase cost.

annuity cost

A monetary amount that is equal to the present value of future periodic income payments under an annuity. See also gross annuity cost, net annuity cost, and income date.

annuity cost factor

A factor provided for use in determining the price or cost for a given amount of periodic income payment under an annuity payout option. An annuity conversion factor is the type of annuity cost factor used for converting a deferred annuity to an immediate annuity. An annuity purchase factor is the type of annuity cost factor used when a new customer purchases an immediate annuity.

annuity date

See income date.

Annuity Disclosure Model Regulation

In the United States, a National Association of Insurance Commissioners (NAIC) model regulation that requires insurers to provide prospective purchasers of specified types of annuities with information to help them select an annuity appropriate to their needs.

annuity due

series of periodic payments for which the payment occurs at the beginning of each payment period. Also known as annuity in advance. Contrast with ordinary annuity.

annuity immediate

See ordinary annuity.

annuity in advance

See annuity due.

annuity in arrears

See ordinary annuity.

annuity mortality table

A chart that shows the projected mortality rates for persons purchasing annuities. Actuaries use annuity mortality tables to calculate premiums and reserves for annuities. Annuity mortality tables usually project lower rates of mortality than do mortality tables that are used for life insurance. See also mortality rate and mortality table.

annuity payee

See payee.

annuity period

The time span between each of the payments in a series of periodic annuity payments; for example, if benefits are payable monthly, then the annuity period is one month.

annuity purchase cost

Amount paid by the owner of an immediate annuity contract to obtain a specified dollar amount of periodic income payment upon annuitization of the contract. Contrast with annuity conversion cost.

annuity unit

A share in an insurer’s variable subaccounts that determines the size of an annuitant’s benefit payments during the payout period of a variable deferred annuity. See accumulation unit, payout period, and subaccount.

antiselection

The tendency of individuals who suspect or know they are more likely than average to experience loss to apply for or renew insurance to a greater extent than people who lack such knowledge of probable loss. Also known as adverse selection and selection against the company.

antitrust laws

In the United States, federal and state laws designed to protect commerce from unlawful restraints of trade, price
discrimination, price fixing, and monopolies.

AOMR

See Actuarial Opinion and Memorandum Regulation.

APL provision

See automatic premium loan provision.

apparent authority

Authority that is not expressly given to an agent, but that a principal either intentionally or negligently allows a third party to believe the agent possesses.

applicant

In the insurance industry, the person or business that applies for an insurance policy or annuity contract.

appointed actuary

An actuary who has been duly appointed by an insurer’s board of directors to render an official opinion as to the insurer’s financial condition. See also actuarial memorandum.

appointment

A written statement from an officer of a licensed insurer that accompanies the application for an agent’s license and that indicates that the insurer appoints the applicant as an agent to sell a particular line or lines of insurance for the insurer.

appropriated surplus

See special surplus.

APR

See effective interest rate.

APS

See attending physician’s statement.

ART insurance

See yearly renewable term insurance.

articles

In reinsurance, the standard provisions found in many reinsurance treaties.

articles of incorporation

In the United States, the document that organizers of a company seeking incorporation must file with a state agency. The document contains the essential features of a proposed company, including its name, the location of its principal place of business, the kind of business it will transact, and the names of its original directors. See also certificate of incorporation.

ASA

See Associate of the Society of Actuaries.

ASO contract

See administrative services only contract.

assessment method

A historical method of funding life insurance in which the participants in an insurance plan prepaid an equal portion of the estimated annual cost of the plan’s death benefits. If actual costs were less than expected, then participants received refunds. If costs were more than expected, then participants paid an additional amount. See also mutual benefit method.

asset allocation

The process of investing money in predetermined proportions in different types of assets to create a collection of assets with the desired expected return and the desired expected risk characteristics.

asset-based commissions

For annuities, commissions calculated on the basis of an annuity contract’s accumulated value and growth, after an initial commission was paid upon the initial premium at the inception of the contract. Also known as trail commissions.

asset class

A group of similar investment instruments linked by related risk and return features.

asset fluctuation reserve

In the United States, a statutory reserve designed to absorb gains and losses in an insurer’s investment portfolio. See also asset valuation reserve and interest maintenance reserve.

asset-liability management (ALM)

A system that coordinates the administration of an insurer’s obligations to customers with the administration of the insurer’s investment portfolios so as to achieve the best possible financial effects.

asset management fee

A fee insurers charge for variable annuities to cover the costs of managing and operating the investment funds underlying the variable subaccounts. Asset management fees are generally a percentage of the dollar amount invested in each fund, with the percentage varying for each fund.

asset risk

See C-1 risk.

assets

The items of value owned by an individual or a company. Examples of assets include cash, computer equipment, investments, buildings, furniture, and land. See also intangible assets and tangible assets.

asset share

For an annuity or a life insurance product at a given time, the net amount of cash that the product has accumulated per unit of product. The applicable units of product differ for annuities and life insurance so that, for an annuity product at a given time, the asset share is the net amount of cash that the annuity product has accumulated per unit of annuity premium. For a life insurance product at a given time, the asset share is the net amount of cash that the product has accumulated per unit of face amount.

asset-share model

A mathematical simulation model that insurance companies use to illustrate how a product’s assets, liabilities, and surplus would change from year to year under given sets of conditions. See asset share.

asset valuation reserve (AVR)

A reserve account that insurers in the United States use to absorb changes in the value of assets caused by credit-related factors. Capital gains increase the AVR, while capital losses decrease the AVR.

assigned surplus

See special surplus.

assignee

A person or party to whom a property owner transfers some or all of the property owner’s rights in a particular property by means of an assignment. See also assignment and assignor.

assignment

An agreement under which one party—the assignor—transfers some or all of his ownership rights in a particular property, such as a life insurance policy or an annuity contract, to another party—the assignee. See also absolute assignment and collateral assignment.

assignment of benefits

A statement on a medical expense claim form that, if signed by the claimant, directs an insurer to pay benefits directly to a health care provider rather than to the claimant.

assignment provision

An individual life insurance and annuity policy provision that describes the roles of the insurer and the policyowner when the policy is assigned.

assignor

A property owner who transfers some or all of the ownership rights in a particular property to another party by means of an assignment. See also assignment and assignee.

assisted living facility

In long-term care (LTC) insurance, a residential facility designed to meet (LTC) needs by providing accommodations and access to medical services.

Associate of the Society of Actuaries (ASA)

A professional designation that an actuary may use upon completion of a specified series of examinations administered by the Society of Actuaries.

association examination

A method for examining the operations of multi-state insurance companies that was developed by the states and is recommended by the National Association of Insurance Commissioners (NAIC). According to this system, each insurer is domiciled within one of four geographic zones and examiners representing various states in a zone are responsible for conducting examinations of insurers within that zone. See also financial condition examination, market conduct examination, and on-site regulatory examination.

association group

A type of group that generally is eligible for group insurance and that consists of members of an association of individuals formed for a purpose other than to obtain insurance coverage, such as teachers’ associations and physicians’ associations.

assumed investment return (AIR)

For variable annuity contracts, the total return that the subaccount investments must earn in order for annuity payments to remain the same from period to period under a variable payout option.

assuming company

See reinsurer.

assumption

In reinsurance, an insurer’s act of accepting an
insurance risk from another insurer.

assumption certificate

An insurance certificate issued to an insurer’s existing policyowners to show that a reinsurer has assumed from the issuing company all of the risk under the policies. See also assumption reinsurance.

assumption reinsurance

A type of reinsurance that involves the total and permanent transfer of risk from the issuing company to a reinsurer. In assumption reinsurance, a reinsurer purchases a block of in-force insurance, creating contractual relationships with all insureds and assuming responsibility for policy
administration and all liabilities. Contrast with indemnity and reinsurance. See also reinsurance.

Assumption Reinsurance Model Act

In the United States, a National Association of Insurance Commissioners (NAIC) model law designed to regulate insurers that assume or transfer risks under an assumption reinsurance agreement.

attachment point

In nonproportional reinsurance, an amount over which a reinsurer agrees to start paying benefits. See also nonproportional reinsurance.

attained age

For insurance purposes, the current age of an insured.

attained age conversion

The conversion of a term life insurance policy to a permanent plan of insurance at a premium rate that is based on the insured’s age when the coverage is converted. Contrast with original age conversion. See also conversion provision.

attending physician

For underwriting purposes, a physician who has given or is giving medical care to a proposed insured. Contrast with examining physician.

attending physician’s statement (APS)

A written statement from a physician who has treated, or is currently treating, a proposed insured or an insured for one or more conditions. The statement provides the insurance company with information relevant to underwriting a risk or settling a claim.

audit

The process of examining and evaluating a company’s records and procedures to ensure that accounting records and financial statements are accurate and reliable, the company maintains quality assurance, and operational procedures and policies are effective and legally compliant.

auditor’s opinion

A statement, prepared by an independent public accounting company, that attests that the information contained in a company’s annual report fairly represents the operations of the company and that the audit was conducted in accordance with generally accepted auditing standards (GAAS).

audit trail

A chronological, sequential set of accounting records and reports from the beginning to the end of a business transaction.

authorization to release information

A section of a claimant’s statement that permits an insurer to obtain claim-specific information from medical caregivers and institutions, government agencies, other insurers, consumer reporting agencies, and other sources.

authorized reinsurer

A reinsurance company that is licensed or otherwise recognized by the insurance department in the jurisdiction of a ceding company. Also known as admitted reinsurer. See also reinsurer.

automatic binding limit

Under an automatic reinsurance agreement, the maximum dollar amount of risk the reinsurer will accept on a life without making its own underwriting assessment of the risk.

automatic dividend option

For participating life insurance policies, a specified policy dividend option that an insurance company will apply if the policyowner does not choose an option. The specified option typically is the paid-up additional insurance option.

automatic dollar cost averaging

A process whereby a variable annuity contract owner deposits premiums directly into a fixed account or money market account, and the insurer transfers a portion of this money on a regular basis into one or more of the insurer’s variable subaccounts.

automatic nonforfeiture benefit

The specified nonforfeiture benefit that becomes effective automatically when a renewal premium for a permanent life insurance policy is not paid by the end of the grace period and the insured has not elected another nonforfeiture option. The most typical automatic nonforfeiture option is the extended term insurance benefit.

automatic premium loan (APL) provision

A permanent life insurance policy nonforfeiture provision that allows an insurer to automatically pay an overdue premium for a policyowner by making a loan against the policy’s cash value as long as the cash value equals or exceeds the amount of the premium due. See also nonforfeiture options.

automatic rebalancing provision

A variable annuity contract provision which states that values automatically will be transferred between specified accounts to maintain the asset allocation percentages designated by the contract owner.

automatic reinsurance

A type of reinsurance under which a reinsurer agrees to automatically accept, within limits, the risks transferred by a ceding company. In this agreement, the ceding company assumes full underwriting responsibility for all cases reinsured. Contrast with facultative reinsurance. See also reinsurance.

automobile insurance

A type of insurance that protects an insured from financial losses arising from the operation of a vehicle.

AVR

See asset valuation reserve.

LOMA's Glossary of Insurance and Financial Services Terms Copyright © 2002 LOMA (Life Office Management Association, Inc.). Used with permission from the publisher. All right reserved. Copying or downloading this information without permission from the publisher is a violation of federal and international law. For information on purchasing a copy of the Glossary or for additional information on LOMA and its educational programs, visit LOMA's Web site at www.loma.org. LOMA is a registered service mark of the Life Office Management Association, Inc.