A professional who applies statistics and probability theory to advise on insurance risks, pricing of contracts, and administration of pension funds, regulated by the Institute and Faculty of Actuaries in the UK.
Adequacy of Coverage refers to the sufficiency of insurance protection to repay the insured in the event of a loss, ensuring they are adequately compensated and can recover without significant financial detriment.
A guarantee that ensures any advance payments made by a customer will be reimbursed if the company cannot fulfill its contractual obligations.
Adverse selection refers to a scenario in the insurance industry where individuals more prone to filing claims are more likely to seek insurance coverage, leading to potential imbalances for insurance providers.
All Risk or All Peril insurance covers each and every loss except for those specifically excluded, providing the broadest type of property protection available.
Allfinanz, also known as bancassurance, is the partnership or collaboration between a bank and an insurance company, allowing the insurance company to sell its products to the bank's client base.
An American Option is a type of options contract that can be exercised on any business day prior to its expiry date, providing flexibility to the option holder. This contrasts with a European Option, which can only be exercised at its expiration date.
Asset allocation is a strategic approach involving the distribution of investments among various asset classes to optimize returns while minimizing risk. Asset proportions can be adjusted based on market conditions.
An Asset Protection Scheme (APS) is a program designed to safeguard assets, particularly in the banking sector, by providing guarantees against a portion of an institution’s non-performing or risky assets.
A technique of risk management where an individual or business assumes expected losses that are not catastrophic, protecting against catastrophic losses through insurance.
Insurance against an eventuality, especially targeting events that must occur such as death. Commonly related to life assurance, it provides a guaranteed payout upon the occurrence of the insured event.
Audit Command Language (ACL) is an industry-standard computer-assisted audit tool developed by ACL Services Ltd. It enables auditors to analyze large volumes of data in various formats to detect anomalies that may indicate fraud, weak controls, or other areas of concern. The company offers a range of data-analytics software for audit, risk-management, and compliance professionals.
In public companies, a committee of non-executive directors that is responsible for oversight of financial reporting, internal and external audits, compliance with regulatory codes, and risk management. This committee enhances accountability, auditor independence, and public confidence.
A document outlining the strategy for managing inherent and control risks in relation to the financial statements of an audit client.
In risk management, a 'black swan' is a high-impact event that should not be regarded as impossible just because it is highly improbable. These events can disrupt markets and systems and are categorized by their extreme rarity, severe impact, and predictability in hindsight.
Blanket insurance is a single policy that covers multiple kinds or locations of property, providing comprehensive coverage ideal for businesses with assets spread across different locations.
The Borrowing Power of Securities refers to the ability of a client to borrow funds from a financial institution, using the purchased securities as collateral for the loan.
Business Interruption Insurance provides indemnification for the loss of profits and continuing fixed expenses when a disaster, such as a fire, prevents business operations.
Business Liability Insurance provides financial coverage against liability exposures that a business may encounter. This insurance includes various policies tailored to specific areas of operation, ensuring comprehensive protection for different industries.
Coverage providing funds for maintenance of a business as closely to normal as possible in the event of a loss of a key person, owner, or partner.
An insurance policy that combines various risk coverages into one package designed for small to medium-sized businesses.
A critical metric used to evaluate a bank's ability to meet its liabilities, ensuring it maintains a sufficient buffer to absorb potential losses and protect the interests of depositors and creditors.
The Capital Asset Pricing Model (CAPM) is a cornerstone of modern financial theory, providing a framework used to determine the expected return on an investment for a given level of risk.
A measure of possible worst-case losses in excess of the average used in banking to calculate both capital adequacy requirements and certain performance measures, such as risk-adjusted return on capital (RAROC). It is usually based on the value-at-risk (VaR) methodology.
A captive insurance company is a subsidiary company formed to insure the risks of its parent company or a group of companies. This structure allows the parent company to manage and tailor its own risk management strategy, potentially leading to cost savings and more comprehensive coverage.
Cargo insurance is a specialized insurance policy designed to provide financial protection for goods while they are being transported, typically by sea but also by other modes of transport. It covers a single shipment or all shipments under a continual agreement, protecting against most risks associated with the journey.
Catastrophe Hazard refers to circumstances where there is a significant deviation of the actual aggregate losses from the expected aggregate losses, such as a major natural disaster where whole units or blocks of businesses are threatened. These hazards are often uninsurable by commercial insurance companies due to the extremity of the risk involved or the prohibitive actuarial premiums.
A Collateralized Debt Obligation (CDO) is a type of structured financial product that pools together cash flow-generating assets and repackages this asset pool into discrete tranches that can be sold to investors.
The Chartered Property and Casualty Underwriter (CPCU) is a professional designation that signifies expertise in various areas including insurance, risk management, economics, finance, management, accounting, and law. To earn this prestigious designation, candidates must complete 10 national examinations and have at least three years of work experience in the insurance industry or a related field.
The Chief Financial Officer (CFO) is a senior executive responsible for managing the financial actions, planning, and reporting of an organization. This role includes overseeing financial planning, financial risk management, record-keeping, and financial reporting.
A Chief Financial Officer (CFO) is a corporate officer responsible for managing the financial actions of a company, including financial planning, management of financial risks, record-keeping, and financial reporting.
Coinsurance is a provision in insurance policies that mandates the insured to cover a certain percentage of the risk or loss, sharing the burden alongside the insurer. This encourages the insured to maintain adequate coverage corresponding to the property’s value.
A Collateralized Loan Obligation (CLO) is a complex financial tool that repackages pools of loans, often corporate loans, into different classes of securities to be sold to investors. CLOs provide high returns for investors with an appetite for risk while offering a source of financing for companies.
The Combined Code on Corporate Governance, also known as the Corporate Governance Code, sets out standards of good practice for governance practices in UK companies, focusing on board leadership, effectiveness, remuneration, accountability, and stakeholder relations.
A commodity contract is a binding agreement involving the receipt or delivery of a commodity at a future date, often used in trading and risk management.
Conservatism in accounting focuses on understating assets and revenues and overstating liabilities and expenses to provide a prudent and less risky portrayal of a company's financial position. In business, it refers to a cautious and careful attitude, typically avoiding excessive risk. In politics, conservatism promotes limited government spending and lower taxes.
A contingency is a potential event or circumstance that is uncertain but could have either positive or negative consequences on an entity's financial situation or operations. It is often considered in risk management and financial planning.
A contingency fund is an amount reserved for a possible loss, such as those caused by a business setback. Contingency funds and other reserves set aside are not deductible for tax purposes.
Contingency planning is an approach used to anticipate future events that, while unlikely, are possible. It involves creating a plan of action to respond effectively if these events occur. Examples include crisis management and disaster recovery plans.
A possible asset that arises from past events and whose existence will be confirmed only by the occurrence of one or more uncertain future events, beyond the control of the accounting entity.
A contingent liability refers to potential financial obligations that a business may incur due to actions of parties other than its own employees, notably when independent contractors are involved.
A financial derivative that allows traders to speculate on the price movement of underlying assets without owning them.
A Credit Default Option (CDO) is an option that grants the holder the right, but not the obligation, to enter into a credit default swap at a predetermined price on a specified future date. It is a form of swaption and is used to hedge against credit risk.
A credit default swap (CDS) is a financial derivative that allows an investor to swap or offset their credit risk with that of another investor. The buyer of a CDS makes periodic payments to the seller and, in return, receives a payoff if the underlying financial instrument defaults.
Crisis management is a systematic approach to mitigating potentially severe outcomes in various critical situations, including disaster response for aircraft, naval incidents, fire emergencies, and flood protection.
Data Processing Insurance offers coverage for data processing equipment, data processing media such as magnetic tapes and disks, and expenses involved in returning to usual business conditions after a loss. Coverage can be obtained on a specified perils basis or on an all risk/all peril basis.
A decision table is a tool used to aid decision making by listing problems that require actions, alongside the estimated probabilities of outcomes. When probabilities are hard to estimate, criterions like maximax and maximin are used to choose the most favorable action.
Deloitte is one of the 'Big Four' international professional services firms providing audit, consulting, financial advisory, risk management, tax, and related services globally.
Diversification refers to the strategy of spreading investments or business activities across different fields or products to minimize risks and enhance growth.
The practice of spreading investments or a series of business operations across different sectors, asset classes, or geographies to mitigate risks and maximize returns.
An estimate of an investment's potential decline in value, considering the entire range of factors that could affect market price.
The Export Credits Guarantee Department (ECGD), now known as UK Export Finance (UKEF), is the United Kingdom's export credit agency, which is responsible for providing guarantees and insurance to UK-based businesses to help them export goods and services. This government department facilitates international trade by offering financial support and risk management solutions.
An Efficient Portfolio of investments represents a combination that maximizes the expected return for a given level of risk or minimizes the level of risk for a given expected return.
The likelihood of a specific occurrence affecting a given business or investment. Unlike market or systemic risk, which affects all entities within the same class, event risk is particular to an individual company or portfolio.
Expected Monetary Value (EMV) is a statistical technique in risk management used to quantify the potential outcomes of various scenarios based on their probabilities and respective monetary values.
Experience rating is an underwriting method used by insurance companies to determine the correct premium price for a policy by analyzing past loss experience within the insured group to project future claims.
Exposure refers to the level of risk assumed by an individual or entity, measured by the amount that one can potentially lose in finance. In marketing, it describes the extent and frequency of advertisements reaching the target audience across various media channels.
Extenuating circumstances refer to unusual conditions that prevent a policy or project from being carried out correctly on time, often beyond the control of the individual or organization. These might include natural disasters, strikes, or unforeseen personal emergencies.
Extra Expense Insurance is designed to protect businesses by covering additional expenses incurred due to unforeseen emergencies, ensuring continual operations.
Failure analysis is the systematic examination of a function, project, or relationship that did not meet its objectives to identify the reasons for the failure and implement corrective measures for future success.
A fallback option is a pre-designed alternative plan or reserved position that management keeps in place to ensure continuity and stability if the primary option or strategy fails.
An anticipatory financial control approach where managers forecast potential issues and take preventive actions before they manifest. This approach contrasts with feedback control, which addresses issues after they have occurred.
A fidelity bond is an insurance policy that provides coverage against specified losses arising from dishonest acts or defalcations by an employee.
Financial leverage refers to the use of debt in a firm's capital structure to amplify the returns on equity. It is an essential concept in corporate finance that can significantly impact a company's earnings and risk profile.
A financial pyramid is a risk structure many investors aim for, distributing their investments among low-, medium-, and high-risk vehicles. It is designed to minimize risk while maximizing potential returns.
Financial risk refers to the potential for volatility in investment performance due to the use of borrowed money. It indicates the possibility of losing money when investing in financial instruments.
A firewall in a conglomerate is a strategic barrier designed to segregate the organization, funding, and ownership of different business entities within the group, ensuring that challenges faced by one entity do not adversely affect others.
A Fixed-Price Contract is a type of contract where the price is preset and not affected by the actual costs incurred during production or service execution. It ensures cost certainty for the buyer, transferring risk to the seller.
A forward-rate agreement (FRA) is a contractual agreement between two parties that determines the rate of interest to be paid/ranked on a future loan or deposit. This financial instrument allows parties to lock in interest rates for future transactions, providing a hedge against interest rate fluctuations.
Freight insurance provides coverage for goods during shipment on a common carrier, ensuring protection against potential losses or damages during transit.
Insurance cover against the occurrence of certain specified events. The most common examples of general insurance relate to the risks of fire, automobile damage or loss, and theft.
A risk management strategy utilized to balance positions of various business units or with unrelated third parties to mitigate exposure to financial risks.
GRC is an integrated approach to managing an organization's governance, risk management, and compliance activities. It promotes cohesive information sharing and coordination to enhance purpose and efficiency.
Group Credit Insurance is a coverage issued to a creditor on the lives of multiple debtors for outstanding loans. In the event of a debtor's death before repayment, the policy pays the remaining loan amount to the creditor. This type of insurance contract covers an entire group of debtors instead of individual policies for each debtor.
A person or entity that guarantees, endorses, or provides indemnity agreements with respect to debts owed by another party. The guarantor ensures the debt will be repaid, and any losses incurred are deductible when sustained.
Hazard insurance is a form of insurance that protects property owners against damages inflicted by certain risks, such as fires, storms, and other natural disasters.
An important accounting practice designed to manage the impact of volatile financial instruments on a company's profit and loss account through the use of financial derivatives to hedge against risk.
An action taken to reduce or eliminate the risk involved in having an open position in a financial, commodity, or currency market.
A hold harmless agreement involves the assumption of liability through a contractual arrangement by one party, effectively eliminating the liability on the part of another party. These agreements are common in scenarios where one entity wants to minimize their risk exposure.
A Hold Harmless Clause is a provision in a contract where one party agrees to protect another party from claims and liabilities that may arise during the execution of the contract. Such clauses are critical for risk management in various business agreements.
A hybrid annuity is a contract offered by an insurance company that combines the benefits of both fixed and variable annuities, offering a balance between guaranteed returns and potential for higher earnings.
The overall cost of raising additional finance, reflecting the increased risks and required returns for equity and debt funders due to increased financing.
Indemnity is a legal agreement whereby one party agrees to compensate another for any losses or damages that have occurred or might occur in the future. In the context of insurance, it involves securing against potential financial liabilities.
Indemnity refers to the obligation to compensate an individual for loss or damage endured or anticipated. It involves a legal commitment whereby one party agrees to cover the financial consequences caused to another.
An attachment to a property insurance policy that automatically adjusts its coverage according to the construction cost index in a community.
A provision in property insurance policies that extends coverage to conditions inherently associated with explosions.
Inherent vice refers to a defect or innate characteristic of an item that results in its damage or destruction without external intervention, often excluded from cargo insurance policies.
ICSA (Institute of Chartered Secretaries and Administrators) is a global professional body for governance, risk, and compliance professionals, offering certifications, networking opportunities, and thought leadership to advance the highest standards of governance practices.
An institutional lender is a financial intermediary who invests in loans and other securities on behalf of depositors or customers. These institutions are heavily regulated to mitigate risks and play a crucial role in both the primary and secondary markets for loans and securities.
Insurable interest refers to the legal right to insure arising out of a financial relationship, criminal liability, or a connection that warrants protection through an insurance policy for a person or entity.
Insurable risk refers to a risk that meets the criteria set by an insurance company, allowing it to be covered by an insurance policy. This type of risk must be measurable, accidental, standardly classified, and have a premium proportional to the potential loss.
Insurance is a system whereby individuals and companies concerned about potential hazards pay premiums to an insurance company, which reimburses (in whole or part) them in the event of loss. The insurer profits by investing the premiums it receives. Some common forms of insurance cover business risks, automobiles, homes, boats, worker's compensation, and health. Life insurance guarantees payment to the beneficiaries when the insured person dies. In a broad economic sense, insurance transfers risk from individuals to a larger group, which is better able to pay for losses.
An insurance company is a business entity that provides coverage, by contract, wherein the insurer agrees to compensate or indemnify another party (the insured) for specified loss or damage arising from certain risks.
An insurance limit is the maximum amount an insurance company will pay under a policy for a covered loss.
An individual or entity whose interests are protected under an insurance policy designed to indemnify against loss of property, life, health, etc.
An indemnity sold by a financial institution to protect the purchaser against the effects of future interest rate movements. It allows customers to specify the terms of protection.
An internal audit is a self-conducted examination of an organization's operations, intended to evaluate and improve the effectiveness of internal controls, risk management, and governance processes.
An internal auditor is an employee who is responsible for providing independent and objective evaluations of the company's financial and operational business activities. They assess compliance with laws and regulations, ensure policies are effective, and help maintain organizational integrity.
Internal control encompasses measures that an organization implements to reduce opportunities for fraud or misfeasance. Examples include requiring multiple signatures on documents, enhancing security for stock handling, task division, maintaining control accounts, using special passwords, and handling computer files securely. It is crucial for internal audits to ensure the effectiveness of these controls to instill confidence in external auditors and management regarding the integrity of the organization’s operations.
An Internal Control Questionnaire (ICQ) is a structured set of queries used by auditors and management to evaluate the effectiveness of an organization's internal controls.
