Definition of Actuary

Actuary

One who uses statistical information to evaluate the probability of future events and prices insurance products.

Accidental Dismemberment: (Credit Insurance)

Provides additional financial security should an insured person be dismembered or lose the use of a limb as the result of an accident.

All or none

Requirement that nOne of an order be executed unless all of it can be executed at the specified price.

All-or-none underwriting

An arrangement whereby a security issue is canceled if the underwriter is unable
to re-sell the entire issue.

Amortization (Credit Insurance)

Refers to the reduction of debt by regular payments of interest and principal in order to pay off a loan by maturity.

Asymmetric information

information that is known to some people but not to other people.

At-the-money

An option is at-the-mOney if the strike price of the option is equal to the market price of the
underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at-the-mOney.

Base probability of loss

The probability of not achieving a portfolio expected return.

Beneficiary (Credit Insurance)

The person or party designated to receive proceeds entitled by a benefit. Payment of a benefit is triggered by an event. In the case of credit insurance, the beneficiary will always be the creditor.

Borrower (Credit Insurance)

A consumer who borrows mOney from a lender.

Call money rate

Also called the broker loan rate , the interest rate that banks charge brokers to finance
margin loans to investors. The broker charges the investor the call mOney rate plus a service charge.

Canadian Deposit Insurance Corporation

Better known as CDIC, this is an organization which insures qualifying deposits and GICs at savings institutions, mainly banks and trust companys, which belong to the CDIC for amounts up to $60,000 and for terms of up to five years. Many types of deposits are not insured, such as mortgage-backed deposits, annuities of duration of more than five years, and mutual funds.

Canadian Life and Health Insurance Association (CLHIA)

An association of most of the life and health insurance companies in Canada that conducts research and compiles information about the life and health insurance industry in Canada.

Child Insurance Rider (CIR)

insurance or insurability provided on current or future children of insured.

Co-insurance

In medical insurance, the insured person and the insurer sometimes share the cost of services under a policy in a specified ratio, for example 80% by the insurer and 20% by the insured. By this means, the cost of coverage to the insured is reduced.

Coinsurance effect

Refers to the fact that the merger of two firms decreases the probability of default on
either firm's debt.

Commercial Business Loan (Credit Insurance)

An agreement between a creditor and a borrower, where the creditor has loaned an amount to the borrower for business purposes.

Component

Raw materials or subassemblies used to make either finished goods
or higher levels of subassembly.

Cost of Insurance

The cost of insuring a particular individual under the policy. It is based on the amount of coverage, as well as the underwriting class, age, sex and tobacco consumption of that individual.

Creditor (Credit Insurance)

A lender or lending institution that offers financing and loans to a borrower, for the purpose of acquiring a commodity.

Critical Illness Insurance

Coverage that provides a lump-sum payment should you be diagnosed with a critical illness and survive a pre-determined period of time. There are no restrictions on how you use your benefit.

Critical Illness Insurance (Credit Insurance)

Coverage that provides a lump-sum payment should you become seriously ill with a specified illness. The payment is made to your creditors to pay off your debt owing.

Cumulative probability distribution

A function that shows the probability that the random variable will
attain a value less than or equal to each value that the random variable can take on.

Currency future

A financial future contract for the delivery of a specified foreign currency.

Dead Peasants Insurance

Also known as "Dead Janitors insurance", this is the practice, where allowed, in several U.S. states, of numerous well known large American Corporations taking out corporate owned life insurance policies on millions of their regular employees, often without the knowledge or consent of those employees. Corporations profiting from the deaths of their employees [and sometimes ex-employees] have attracted adverse publicity because ultimate death benefits are seldom, even partially passed down to surviving families.

Debt (Credit Insurance)

MOney, goods or services that someOne is obligated to pay someOne else in accordance with an expressed or implied agreement. Debt may or may not be secured.

Deferred futures

The most distant months of a futures contract. A bond that sells at a discount and does not
pay interest for an initial period, typically from three to seven years. Compare step-up bond and payment-inkind
bond.

Disability Insurance

insurance that pays you an ongoing income if you become disabled and are unable to pursue employment or business activities. There are limits to how much you can receive based on your pre-disability earnings. Rates will vary based on occupational duties and length of time in a particular industry. This kind of coverage has a waiting period before you can begin collecting benefits, usually 30, 60 or 90 days. The benefit paying period also varies from 2 years to age 65. A short waiting period will cost more that a longer waiting period. As well, a long benefit paying period will cost more than a short benefit paying period.

Disability Insurance (Credit Insurance)

Group insurance designed to cover monthly obligations due to a borrower being unable to work due to sickness or injury.

Dow Jones industrial average

This is the best known U.S.index of stocks. It contains 30 stocks that trade on
the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest
U.S.companies are performing. There are thousands of investment indexes around the world for stocks,
bonds, currencies and commodities.

Dow Jones Industrial Average

Index of the investment performance of a portfolio of 30 “blue-chip” stocks.

economic components model

Abrams’ model for calculating DLOM based on the interaction of discounts from four economic compOnents.
This model consists of four compOnents: the measure of the economic impact of the delay-to-sale, monopsony power to buyers, and incremental transactions costs to both buyers and sellers.

Equity-based insurance

Life insurance or annuity product in which the cash value and benefit level fluctuate according to the performance of an equity portfolio.

Errors and Omissions Insurance

insurance coverage purchased by the agent/broker which provides protection against loss incurred by a client because of some negligent act, error, oversight, or omission by the agent/broker.

European Monetary System (EMS)

An exchange arrangement formed in 1979 that involves the currencies
of European Union member countries.

Events of default

Contractually specified events that allow lenders to demand immediate repayment of a debt.

Expected future cash flows

Projected future cash flows associated with an asset of decision.

Expected future return

The return that is expected to be earned on an asset in the future. Also called the
expected return.

Expected value of perfect information

The expected value if the future uncertain outcomes could be known
minus the expected value with no additional information.

Export Credit Insurance

The granting of insurance to cover the commercial and political risks of selling in foreign markets.

Extrapolative statistical models

Models that apply a formula to historical data and project results for a
future period. Such models include the simple linear trend model, the simple expOnential model, and the
simple autoregressive model.

Federal Deposit Insurance Corporation (FDIC)

A federal institution that insures bank deposits.

Federal Insurance Contributions Act of 1935 (FICA)

A federal Act authorizing the government to collect Social Security and Medicare payroll taxes.

Fiat Money

Fiat MOney is paper currency made legal tender by law or fiat. It is not backed by gold or silver and is not necessarily redeemable in coin. This practice has had widespread use for about the last 70 years. If governments produce too much of it, there is a loss of confidence. Even so, governments print it routinely when they need it. The value of fiat mOney is dependent upon the performance of the economy of the country which issued it. Canada's currency falls into this category.

Financial future

A contract entered into now that provides for the delivery of a specified asset in exchange
for the selling price at some specified future date.

Future

A term used to designate all contracts covering the sale of financial instruments or physical
commodities for future delivery on a commodity exchange.

Future investment opportunities

The options to identify additional, more valuable investment opportunities
in the future that result from a current opportunity or operation.

Future-Oriented Financial Information

information about prospective results of operations, financial position and/or changes in financial position, based on assumptions about future economic conditions and courses of action. future-oriented financial information is presented as either a forecast or a projection.

Future value

The amount of cash at a specified date in the future that is equivalent in value to a specified
sum today.

Future Value

The amount a given payment, or series of payments, will be worth
at the end of a specified time period, if invested at a given rate

future value

the amount to which One or more sums of
mOney invested at a specified interest rate will grow over
a specified number of time periods

Future value

The value that a sum of mOney (the present value) earning
compound interest will have in the future.

future value

Amount to which an investment will grow after earning interest.

Future Value

The amount to which a payment or series of payments will grow by a given future date when compounded by a given interest rate. FVIF future value interest factor.

Futures

A term used to designate all contracts covering the sale of financial instruments or physical
commodities for future delivery on a commodity exchange.

Futures commission merchant

A firm or person engaged in soliciting or accepting and handling orders for
the purchase or sale of futures contracts, subject to the rules of a futures exchange and, who, in connection
with such solicitation or acceptance of orders, accepts any mOney or securities to margin any resulting trades
or contracts. The FCM must be licensed by the CFTC. Related: commission house , omnibus account

Futures contract

Agreement to buy or sell a set number of shares of a specific stock in a designated future
month at a price agreed upon by the buyer and seller. The contracts themselves are often traded on the futures
market. A futures contract differs from an option because an option is the right to buy or sell, whereas a
futures contract is the promise to actually make a transaction. A future is part of a class of securities called
derivatives, so named because such securities derive their value from the worth of an underlying investment.

futures contract

Exchange-traded promise to buy or sell an asset in the future at a prespecified price.

Futures Contract

A contract in which the seller agrees to provide something to a buyer at a specified future date at an agreed price.

Futures contract multiple

A constant, set by an exchange, which when multiplied by the futures price gives
the dollar value of a stock index futures contract.

Futures market

A market in which contracts for future delivery of a commodity or a security are bought or sold.

Futures option

An option on a futures contract. Related: options on physicals.

Futures price

The price at which the parties to a futures contract agree to transact on the settlement date.

Group Life Insurance

This is a very common form of life insurance which is found in employee benefit plans and bank mortgage insurance. In employee benefit plans the form of this insurance is usually One year renewable term insurance. The cost of this coverage is based on the average age of everyOne in the group. Therefore a group of young people would have inexpensive rates and an older group would have more expensive rates.
Some people rely on this kind of insurance as their primary coverage forgetting that group life insurance is a condition of employment with their employer. The coverage is not portable and cannot be taken with you if you change jobs. If you have a change in health, you may not qualify for new coverage at your new place of employment.
Bank mortgage insurance is also usually group insurance and you can tell this by virtue of the fact that you only receive a certificate of insurance, and not a complete policy. The only form in which bank mortgage insurance is sold is reducing term insurance, matching the declining mortgage balance. The only beneficiary that can be chosen for this kind of insurance is the bank. In both cases, employee benefit plan group insurance and bank mortgage insurance, the coverage is not guaranteed. This means that coverage can be cancelled by the insurance company underwriting that particular plan, if they are experiencing excessive claims.

Guaranteed insurance contract

A contract promising a stated nominal interest rate over some specific time
period, usually several years.

Health Insurance Portability and Accountability Act of 1996 (HIPAA)

A federal Act expanding upon many of the insurance reforms created by
COBRA. In particular, it ensures that small businesses will have access to
health insurance, despite the special health status of any employees.

High-Powered Money

See mOney base.

Hot money

MOney that moves across country borders in response to interest rate differences and that moves
away when the interest rate differential disappears.

In-the-money

A put option that has a strike price higher than the underlying futures price, or a call option
with a strike price lower than the underlying futures price. For example, if the March COMEX silver futures
contract is trading at $6 an ounce, a March call with a strike price of $5.50 would be considered in-the-mOney
by $0.50 an ounce.
Related: put.

Individual Insurance

insurance that is offered to individuals rather than groups.

information

bits of knowledge or fact that have been carefully
chosen from a body of data and arranged in a meaningful way

Information asymmetry

A situation involving information that is known to some, but not all, participants.

Information Coefficient (IC)

The correlation between predicted and actual stock returns, sometimes used to
measure the value of a financial analyst. An IC of 1.0 indicates a perfect linear relationship between predicted
and actual returns, while an IC of 0.0 indicates no linear relationship.

Information-content effect

The rise in the stock price following the dividend signal.

information content of dividends

Dividend increases send good news about cash flow and earnings. Dividend cuts send bad news.

Information costs

Transaction costs that include the assessment of the investment merits of a financial asset.
Related: search costs.

Information-motivated trades

Trades in which an investor believes he or she possesses pertinent
information not currently reflected in the stock's price.

Information services

Organizations that furnish investment and other types of information, such as
information that helps a firm monitor its cash position.

Informational efficiency

The speed and accuracy with which prices reflect new information.

Informationless trades

Trades that are the result of either a reallocation of wealth or an implementation of an
investment strategy that only utilizes existing information.

Insider information

Relevant information about a company that has not yet been made public. It is illegal for
holders of this information to make trades based on it, however received.

Insurance Act

In Canada, a general statute that contains most of the insurance law of a common law province, and regulates the conduct of insurers and insurance agents within the province.

Insurance Company

A firm licensed to sell insurance to the public.

Insurance Policy (Credit Insurance)

A policy under which the insurance company promises to pay a benefit of the person who is insured.

Insurance principle

The law of averages. The average outcome for many independent trials of an experiment
will approach the expected value of the experiment.

International Monetary Fund

An organization founded in 1944 to oversee exchange arrangements of
member countries and to lend foreign currency reserves to members with short-term balance of payment
problems.

International Monetary Fund (IMF)

Organization originally established to manage the postwar fixed exchange rate system.

International Monetary Market (IMM)

A division of the CME established in 1972 for trading financial
futures. Related: Chicago Mercantile Exchange (CME).

Job Loss Insurance (Credit Insurance)

Coverage that can pay down your debt should you become involuntarily unemployed. The payment is made to your creditors to reduce your debt owing.

Law of one price

An economic rule stating that a given security must have the same price regardless of the
means by which One goes about creating that security. This implies that if the payoff of a security can be
synthetically created by a package of other securities, the price of the package and the price of the security
whose payoff it replicates must be equal.

law of one price

Theory that prices of goods in all countries should be equal when translated to a common currency.

Lease (Credit Insurance)

Contract granting use of real estate, equipment or other fixed assets for a specified period of time in exchange for payment. The owner or a leased property is the lessor and the user the lessee.

Lender (Credit Insurance)

Individual or firm that extends mOney to a borrower with the expectation of being repaid, usually with interest. Lenders create debt in the form of loans. Lenders include financial institutions, leasing companies government lending agencies and automobile dealers.

Level Premium Life Insurance

This is a type of insurance for which the cost is distributed evenly over the premium payment period. The premium remains the same from year to year and is more than actual cost of protection in the earlier years of the policy and less than the actual cost of protection in the later years. The excess paid in the early years builds up a reserve to cover the higher cost in the later years.

Life Insurance

insurance that provides protection against an economic loss caused by death of the person insured.

Life Insurance (Credit Insurance)

Group Term life insurance that pays or reduces the balance due on a loan if the borrower dies before the loan is repaid.

London International Financial Futures Exchange (LIFFE)

A London exchange where Eurodollar futures
as well as futures-style options are traded.

London International Financial Futures Exchange (LIFFE)

London exchange where Eurodollar futures as well as futures-style options are traded.

management information system (MIS)

a structure of interrelated elements that collects, organizes, and communicates
data to managers so they may plan, control, evaluate
performance, and make decisions; the emphasis of the
MIS is on internal demands for information rather than external
demands; some or all of the MIS may be computerized
for ease of access to information, reliability of input
and processing, and ability to simulate outcomes of
alternative situations

Market prices

The amount of mOney that a willing buyer pays to acquire something from a willing seller,
when a buyer and seller are independent and when such an exchange is motivated by only commercial
consideration.

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