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Definition of Reinsurance
Process in which the risk of potential loss is shared between two or more insurers.
An insurance company that accepts the risk transferred from another insurance company in a reinsurance transaction.
Provides additional financial security should an insured person be dismembered or lose the use of a limb as the result of an accident.
Refers to the reduction of debt by regular payments of interest and principal in order to pay off a loan by maturity.
The amount of total risk that can be eliminated by diversification by
The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.
The probability of not achieving a portfolio expected return.
The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for
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.
risk of a firm measured from the standpoint of an investor who holds a highly diversified portfolio.
Large and creditworthy company.
A consumer who borrows money from a lender.
the Process of combining information technology to create new and more effective
The risk that the cash flow of an issuer will be impaired because of adverse economic
The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.
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.
The difference between the net cost of a security and the net sale price, if that security is sold at a loss.
The negative difference between the adjusted cost base of an investment held as a capital property and the proceeds of disposition you receive when you sell it. When you sell such an investment for less than you paid, you incur a capital loss.
A transaction where exchange is immediate, as contrasted to a forward contract, which
Child Insurance Rider (CIR)
insurance or insurability provided on current or future children of insured.
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.
Refers to the fact that the merger of two firms decreases the probability of default on
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.
The risk that a foreign debtor will be unable to pay its debts because of business events,
Assets acquired to create money. May include plant, machinery and equipment, shares of another company etc.
company cost of capital
Expected rate of return demanded by investors in a company, determined by the average risk of the company’s assets and operations.
Related: Unsystematic risk
See asset-specific risk
The risk that a project will not be brought into operation successfully.
Conflict between bondholders and stockholders
These two groups may have interests in a corporation that
any reduction in units that occurs uniformly
Corporate processing float
The time that elapses between receipt of payment from a customer and the
cost-benefit analysis the analytical process of comparing the
relative costs and benefits that result from a specific course
Cost company arrangement
Arrangement whereby the shareholders of a project receive output free of
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.
The risk that the other party to an agreement will default. In an options contract, the risk
Country financial risk
The ability of the national economy to generate enough foreign exchange to meet
Country risk General
Level of political and economic uncertainty in a country affecting the value of loans or
A loan receivable that has proven uncollectible and is written off.
The risk that an issuer of debt securities or a borrower may default on his obligations, or that the
Financial and moral risk that an obligation will not be paid and a loss will result.
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.
Refers to the volatility of returns on international investments caused by events associated
Related: Exchange rate risk
Currency risk sharing
An agreement by the parties to a transaction to share the currency risk associated with
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.
Also referred to as credit risk (as gauged by commercial rating companies), the risk that an
Depository Trust Company (DTC)
DTC is a user-owned securities depository which accepts deposits of
A conception of the way a stock's price changes that assumes that the price takes on all
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.
a reduction in units that occurs at a specific
Related: unsystematic risk.
In project financing, the risk that the project's output will not be salable at a price that will
Equilibrium market price of risk
The slope of the capital market line (CML). Since the CML represents the
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.
The risk that the ability of an issuer to make interest and principal payments will change because
Exchange rate risk
Also called currency risk, the risk of an investment's value changing because of currency
The variability of a firm's value that results from unexpected exchange rate changes or the
Export Credit Insurance
The granting of insurance to cover the commercial and political risks of selling in foreign markets.
Extraordinary Gain or Loss
Gains and losses that are judged to be both unusual and nonrecurring.
extraordinary gains and losses
No pun intended, but these types of gains
A type of mortgage pipeline risk that is generally created when the terms of the loan to be
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.
FIFO method (of process costing)
the method of cost assignment that computes an average cost per equivalent
company engaged in making loans to individuals or businesses. Unlike a bank, it does not receive deposits from the public.
The risk that the cash flow of an issuer will not be adequate to meet its financial obligations.
risk to shareholders resulting from the use of debt.
See:diversifiable risk or unsystematic risk.
Flat price risk
Taking a position either long or short that does not involve spreading.
Force majeure risk
The risk that there will be an interruption of operations for a prolonged period after a
Foreign exchange risk
The risk that a long or short position in a foreign currency might have to be closed out
Related: interest rate risk
risk that arises when an issuer has policies concentrated within certain geographic areas,
Publicly owned stock in a firm is replaced with complete equity ownership by a
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.
Guaranteed insurance contract
A contract promising a stated nominal interest rate over some specific time
Health Insurance Portability and Accountability Act of 1996 (HIPAA)
A federal Act expanding upon many of the insurance reforms created by
The risk of loss in foreign exchange trading that one party will deliver foreign exchange but the counterparty financial institution will fail to deliver its end of the contract. It is also referred to as settlement risk.
High-Risk Small Business
Firm viewed as being particularly subject to risk from an investors perspective.
Highly leveraged transaction (HLT)
Bank loan to a highly leveraged firm.
A corporation that owns enough voting stock in another firm to control management and
Unsystematic risk or risk that is uncorrelated to the overall market risk. In other words,
A special, nonrecurring charge taken to write down an asset with an overstated
In-house processing float
Refers to the time it takes the receiver of a check to Process the payment and
insurance that is offered to individuals rather than groups.
Also called purchasing-power risk, the risk that changes in the real return the investor will
The risk that a firm will be unable to satisfy its debts. Also known as bankruptcy risk.
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.
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.
The law of averages. The average outcome for many independent trials of an experiment
Loan made by one unit of a corporation to another unit of the same corporation.
transaction carried out between two units of the same corporation.
Interest rate risk
The risk that a security's value changes due to a change in interest rates. For example, a
Interest Rate Risk
Possibility that interest rates will rise during the term of a loan thereby increasing the annual cost of borrowing.
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