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Actuarial Assumption
A financial theory concerned with the study of uncertain future events using mathematical calculations based on a probability
approach and statistical information, applied to calculate insurance risks and premiums to meet the need to manage financial
underwriting risks.
Basel II
The Basel Capital Accord, known as Basel II, sets down the agreement among Central Banks, to apply common minimum
capital standards to the banking industry. The agreement is almost entirely addressed to credit risk, the main risk incurred by
Banks.
Bond Guarantees
The reinsurance of Bond guarantees is underwritten in general where there are existing contractual relationships. They are of
commercial use in the areas of Security Deposit Bonds, Performance Bonds, Release of Retention Money Bonds, Advanced
Payment Bonds, Supply Bonds, and Custom Bonds.
Breach of Contract
An insurance contract protecting an investor against losses arising from the host entity’s breach or repudiation of a contract. In
the event of an alleged breach or repudiation, the investor must be able to invoke a dispute resolution mechanism, such as
arbitration. Based on the underlying contract the investor can obtain an award for damages. If after a specified period of time
the investor has not received payment, or the dispute resolution mechanism fails to function because of actions taken by the
host entity, insurers and reinsurers underwriting the risk will pay compensation to the investor.
Captive Insurance Company
An insurance entity that facilitates the direct (self insurance) underwriting of risks for a parent company’s insurance portfolio
based on risk management, alternative risk financing and investment concepts. A captive insurance company has direct access
to the worldwide reinsurance market to cede its underwritten risks exposures.
Organizations with a common insurable interest can also set up a captive insurance company with the same rights, privileges
and obligations as a single parent captive insurance company.
A “rent a captive insurance company” is owned by an insurance company and rented out to a corporation to insure that
corporation’s risk only. Such rental arrangements are made under specific terms and conditions and only once financial
guarantees have been provided. The renting organization will share the risks and share the profits with the insurer.
Economic Principle Evaluation
A social science concerning behaviour, measuring the value exchange in the field of production consumption and distribution of
goods and services. Economists analyse the process involved and investigate the consequences for the individual, organisations
and society as a whole.
Expropriation
An insurance protecting against loss of the insured’s investment as a result of acts by the host government that may reduce or
eliminate ownership, or control over, or rights to the insured investment. In addition to outright nationalization and confiscation,
“creeping expropriation” - a series of acts that, over time, have an expropriator effect - is also covered. Compensation will be
paid upon assignment to insurer and reinsurance participants underwriting the risk of the investor’s interest in the expropriated
investment, such as equity shares or interest in loan agreements.
Facultative Reinsurance
Facultative reinsurance is the reinsurance of all, or part, of the insurance provided by a single policy. The terms and conditions are
negotiated individually for each policy. The word “facultative” implies that both the original insurer and the reinsurer have the
option of placing/retaining and accepting/rejecting respectively the individual risk. Facultative reinsurance can be affected on
either, pro-rata and non-proportional basis.
Fidelity Guarantees
A guarantee that is given in respect of indebtedness on account of goods or services supplied or money lent and when it is
necessary it is used to find a surety who will guarantee the integrity of an organization..
Financial Modelling
Measures the impact of risks, exposures and economic variables and financial behaviour of an organisation and/or economy.
Compare the elements of different values-at-risk and is a benchmark measure for exposures and estimation to financial risk.
Alternative risk measures apply statistical estimation based on volatility and extreme behaviour.
Financial Reinsurance
A specialized activity concerned with the distribution of risks. It stabilizes the underwriting results of an insurance company. It
is a form of reinsurance which considers the time value of money and includes loss containment provisions. One of its objectives
is the enhancement of the cedant’s financial statements or operating ratios, such as the combined ratio of a loss portfolio and
financial quota share transfers. |
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