Loma 307 Business And Financial Concepts For Insurance Professionals

Front 1

accumulated value

Back 1

For a fixed deferred annuity, the net amount paid for the
annuity, plus interest earned, less the amount of any withdrawals or fees

Hint 1

[6

Front 2

acquisition expense

Back 2

An expense an insurer incurs to obtain and issue new
business

Hint 2

[5

Front 3

activity ratio

Back 3

A ratio that measures the rate at which a company’s various assets
are converted (turned over) into sales or cash

Hint 3

Sometimes called an operating
efficiency ratio or a turnover ratio

Front 4

adverse deviation

Back 4

In product operations, a difference between actual and assumed
product values that produces a decrease in actual product profitability relative
to assumed product profitability

Hint 4

Contrast with favorable deviation

Front 5

annual report

Back 5

A document that a company’s management sends to interested
parties—such as stockholders and investors—to report on the company’s financial
performance during the past year; helps users assess a company’s profitability

Hint 5

Contrast with Annual Statement

Front 6

Annual Statement

Back 6

A financial report that every insurer in the United States must
file annually, as well as on a quarterly basis, with the National Association of
Insurance Commissioners (NAIC) and the insurance regulatory organization
in each state in which the insurer conducts business; helps regulators assess a
company’s solvency

Hint 6

Contrast with annual report

Front 7

annuity

Back 7

For the purposes of financial analysis, any series of equal payments made
at regular intervals over a specified period of time

Hint 7

[4

Front 8

annuity due

Back 8

An annuity in which the periodic payments are made at the beginning
of each payment period

Hint 8

Contrast with ordinary annuity

Front 9

asset

Back 9

Any item of value owned by a company

Hint 9

[3

Front 10

asset accumulation product

Back 10

A product that enables customers to increase the
amount and/or value of their assets over time

Hint 10

[1

Front 11

asset-based commission schedule

Back 11

For annuity sales, a commission schedule in
which commissions are calculated as a percentage of the accumulated value of
a deferred annuity contract’s funds

Hint 11

Contrast with deposit-based commission
schedule

Front 12

asset concentration risk

Back 12

The risk of the excessive concentration of assets in any
single category

Hint 12

[3

Front 13

asset portfolio

Back 13

In asset-liability management, the portfolio which holds the
insurer’s securities and other invested assets

Hint 13

See portfolio and asset-liability
management

Front 14

asset protection product

Back 14

A product that protects owners against the risk of
financial loss from unforeseen events such as natural disasters, theft, accidents,
illnesses, and death

Hint 14

[1

Front 15

audit

Back 15

A systematic examination and evaluation of a company’s records, procedures,
and controls

Hint 15

[2

Front 16

authority

Back 16

The right an employee has to make decisions, take action, and direct
others

Hint 16

[2

Front 17

balance sheet

Back 17

A financial document that lists the values of a company’s assets,
liabilities, and capital and surplus as of a specific date

Hint 17

See asset, liability,
capital, and surplus

Front 18

balanced scorecard

Back 18

A strategic performance management tool used to monitor a
company’s performance in key areas

Hint 18

[9

Front 19

basic accounting equation

Back 19

An equation which states that a company’s assets
equal the sum of its liabilities and its capital and surplus

Hint 19

See balance sheet,
asset, liability, capital, and surplus

Front 20

basis point (bp)

Back 20

1/100th of a percent, or 0.0001

Front 21

benchmarking

Back 21

A process which consists of (1) identifying the best outcomes that
other companies have achieved for a specific activity or process and the practices
that produced those outcomes, and (2) implementing the best practices to
equal or surpass the best outcomes

Hint 21

[5

Front 22

board of directors

Back 22

Elected by a company’s owners, this group of individuals
serves as the company’s primary governing body

Hint 22

[2

Front 23

bond

Back 23

A security that represents a debt that the borrower (the issuer of the bond)
owes to the bondholder (the person or company that buys the bond)

Hint 23

[1

Front 24

bottom-up budgeting

Back 24

A budgeting approach that starts at the bottom of a company,

with lower-level managers generating budgets for their areas,which are

then presented in the form of recommendations to senior management.

Front 25

budget surplus

Back 25

In fiscal policy, a budget in which government revenues exceed
government expenditures in a given time period

Hint 25

See fiscal policy

Front 26

budgeting

Back 26

An accounting process that includes creating a financial plan of action
designed to help an organization achieve its goals

Hint 26

[7

Front 27

business cycle

Back 27

A recurring pattern of fluctuations in the economic activity of a
nation over a specified period of time, generally a year or more

Hint 27

See expansion,
contraction, recession, recovery, and depression

Front 28

business process reengineering (BPR)

Back 28

A comprehensive and systematic analysis
and redesign of an organization’s work processes

Hint 28

Also known as reengineering

Front 29

business risk

Back 29

The risk that changes in a company’s external environment will
affect its operations

Hint 29

Also known as marketplace risk

Front 30

capital

Back 30

In the context of minimum capital standards, refers to the excess of an
insurer’s assets over its liabilities

Hint 30

On a balance sheet, refers to the amount of
money invested in a company by its owners, usually through the purchase of
the company’s stock

Front 31

capital and surplus

Back 31

On a balance sheet, the amount remaining after liabilities are
subtracted from assets

Hint 31

See capital and surplus

Front 32

capital and surplus ratio

Back 32

A solvency ratio that describes the relationship between
a company’s capital and surplus and its liabilities

Hint 32

[8

Front 33

capital appreciation

Back 33

An increase in the value of invested assets

Hint 33

[1

Front 34

capital budget

Back 34

A budget which shows a company’s plans for the financial management
of its long-term, high-cost investment proposals

Hint 34

[7

Front 35

capital budgeting

Back 35

The process that companies undertake to analyze decisions
about investing in long-term projects or assets

Hint 35

[7

Front 36

Cash

Back 36

The amount of currency onhand or on deposit at an insurer’s bank.

Front 37

cash budget

Back 37

A budget which projects a company’s beginning cash balance, cash
inflows, cash outflows, and ending cash balance for a specified accounting
period, typically by quarter

Hint 37

[7

Front 38

cash disbursements budget

Back 38

A schedule showing the timing and amount of all
cash disbursements (cash outflows) expected during an accounting period

Hint 38

[7

Front 39

cash equivalent

Back 39

A short-term asset that is not cash but can be converted to cash
within 90 days with little or no risk of losing value

Hint 39

[3

Front 40

cash flow statement

Back 40

A financial statement that provides information about a
company’s cash receipts (cash inflows), cash disbursements (cash outflows), and
net change in cash during a specific accounting period

Hint 40

Also called a statement
of cash flows

Front 41

chain of command

Back 41

The structure of authority that travels downward through an
organization from higher levels to lower levels

Hint 41

[2

Front 42

circular flow diagram

Back 42

A diagram that illustrates the flow of funds through an
economy

Hint 42

[1

Front 43

coincident indicator

Back 43

A statistical variable that tends to change about the same

time that gross domestic product (GDP) changes

Front 44

collateralized mortgage obligation (CMO)

Back 44

A bond secured by a pool of residential
mortgage loans

Hint 44

See residential mortgage

Front 45

commercial mortgage

Back 45

A loan secured by commercial real estate, such as shopping
centers, office buildings, hospitals, factories, and retail stores

Hint 45

[3

Front 46

commercial paper

Back 46

A financial instrument that consists of short-term, unsecured
promissory notes issued to businesses or governments by corporations as an
alternative to short-term bank loans or other forms of borrowing

Hint 46

[1

Front 47

commission

Back 47

Payment for services rendered; usually calculated as a percentage of
the transaction amount

Hint 47

[1

Front 48

committee

Back 48

A group of people chosen to consider, investigate, or act on specified
issues

Hint 48

[2

Front 49

common stock

Back 49

Stock that entitles its owner to share in the issuing corporation’s

dividends and provides its owner with the right to vote on certainmatters,

such as voting for the company’s board of directors

Front 50

competition risk

Back 50

Any risk posed by direct competitors of a company, changes
in an industry’s structure, or changes in an industry’s standards for the use of
technology

Hint 50

[3

Front 51

component bar chart

Back 51

A bar chart that combines the component values from two
or more data sets into a single set of bars and indicates the percentage of the
total attributable to each set

Hint 51

[9

Front 52

compound interest

Back 52

Interest earned on both the principal and accumulated interest

Hint 52

Contrast with simple interest

Front 53

concurrent control

Back 53

A control that addresses a company’s current activities and

systems by continuously monitoring activities as they are performed.

Front 54

conditionally vested commission

Back 54

A commission that becomes vested only
after a producer reaches a certain age or number of years of service with the
company

Hint 54

[5

Front 55

contraction

Back 55

The phase in the business cycle in which unemployment begins to
rise and real GDP decreases from an earlier quarter

Hint 55

Also known as a downturn

Front 56

contractionary fiscal policy

Back 56

The type of fiscal policy that is used to decrease
aggregate demand in order to slow down the economy

Hint 56

Also known as a restrictive
fiscal policy

Front 57

contractual reserve

Back 57

A liability which represents the amount that, together with
future premiums and investment earnings, the insurer estimates it needs to pay
benefits on in-force policies as they come due

Hint 57

[3

Front 58

contractual savings institution

Back 58

A financial institution that acquires funds at
periodic intervals on a contractual basis

Hint 58

[1

Front 59

control

Back 59

The process of monitoring, evaluating, and regulating how effectively
and efficiently a company and its employees are performing the activities necessary
for achieving the company’s goals

Hint 59

[2

Front 60

control cycle

Back 60

A repetitive process designed to ensure that all areas of a company
adhere to the company’s performance standards

Hint 60

[2

Front 61

controllable expense

Back 61

A cost over which a specified manager or organizational
unit has power and influence

Hint 61

Contrast with noncontrollable expense

Front 62

corporate bond

Back 62

A bond issued by a corporation

Hint 62

[3

Front 63

corporate objective

Back 63

A statement of a long-termresult a company plans to achieve.

Front 64

corporate strategy

Back 64

A long-term method that a company intends to use to achieve
its objectives

Hint 64

[2

Front 65

corporation

Back 65

A legal entity, separate from its owners, that is created by the authority
of a government and that continues beyond the death of any or all of its
owners

Hint 65

[2

Front 66

cost accumulation

Back 66

The process of capturing all of a company’s costs and categorizing
them in meaningful ways

Hint 66

[5

Front 67

cost of benefits

Back 67

For an insurance or annuity product, the value of the contractually
required benefits that the product promises to pay

Hint 67

Also known as the cost
of insurance

Front 68

coupon rate

Back 68

For a bond, the interest rate that determines the amount of theperiodic

interest payments made to the bondholder.

Front 69

credit risk

Back 69

The possibility that a borrower could be late with payments orcould

entirely fail to pay its obligations.

Front 70

current interest-crediting rate

Back 70

For a fixed deferred annuity, the rate of interest
that an insurer declares and pays; this rate of interest is generally higher than
the guaranteed minimum interest-crediting rate

Hint 70

See guaranteed minimum
interest-crediting rate

Front 71

current ratio

Back 71

A solvency ratio that compares a company’s current assets to its
current liabilities

Hint 71

[8

Front 72

cyclical variation

Back 72

A variation that results from changes that affect more than one

phase in the business cycle over a period of several years.

Front 73

dashboard

Back 73

In a business context, an information system application that combines
performance information from multiple sources into a single, easy-toread
format

Hint 73

[9

Front 74

debt-to-equity ratio

Back 74

A type of leverage ratio that compares long-term debt to

owners’ equity.

Front 75

default

Back 75

A failure to meet a financial obligation

Hint 75

See credit risk

Front 76

deflation

Back 76

A fall in the general pricelevel.

Front 77

demutualization

Back 77

The conversion of a mutual insurance company to a stock insurance
company

Hint 77

[2

Front 78

dependent variable

Back 78

A variable that reacts to outside influences

Hint 78

Contrast with
independent variable

Front 79

deposit-based commission schedule

Back 79

For annuity sales, a commission schedule
that pays commissions only on premium payments made by annuity owners

Hint 79

Contrast with asset-based commission schedule

Front 80

depository institution

Back 80

A financial institution that specializes in accepting deposits
and making loans

Hint 80

[1

Front 81

depression

Back 81

An economic condition in which real GDP declines drastically and,
for a period of at least two years, unemployment is unusually high, prices for
most goods and services are unusually low, and there is a general inability to
purchase goods and services relative to the amount that could be produced using
current resources and technology

Hint 81

See business cycle and real GDP

Front 82

descriptive statistics

Back 82

Statistics that summarize or describe a complete set of
collected data, known as a population, or data set

Hint 82

Contrast with inferential
statistics

Front 83

development expense

Back 83

An expense an insurer incurs in designing, testing, and
implementing a new product or product line

Hint 83

[5

Front 84

direct expense

Back 84

A product expense incurred for or physically traceable to a specified
life insurance or annuity product

Hint 84

Also known as a traceable cost

Front 85

disinflation

Back 85

A decrease in the rate of inflation

Hint 85

See inflation

Front 86

disintermediation

Back 86

A process in which large numbers of people withdraw funds
from financial intermediaries, such as banks, savings and loan associations, and
insurance companies, in order to directly invest in instruments yielding higher
returns

Hint 86

Contrast with intermediation

Front 87

diversifiable risk

Back 87

A risk that is specific to an individual asset or issuer

Hint 87

Also
known as a nonsystematic risk

Front 88

diversification

Back 88

A technique for spreading risk by investing in different assets
with different characteristics

Hint 88

[3

Front 89

dividend

Back 89

A share of a company’s profits payable to owners of the company’s
stock

Hint 89

[1

Front 90

economic indicator

Back 90

A statistical variable that demonstrates the direction of an
economy

Hint 90

See leading indicator, coincident indicator, and lagging indicator

Front 91

economics

Back 91

The study of how societies and individuals allocate limited resources
among competing, unlimited wants

Hint 91

See want

Front 92

economy

Back 92

The part of the environment that includes all of the elements affecting
the production, distribution, and consumption of goods and services

Hint 92

[1

Front 93

effective interest rate

Back 93

The type of interest rate that includes the effects of compounding

Hint 93

Contrast with nominal interest rate

Front 94

enterprise risk management (ERM)

Back 94

A system that identifies and quantifies

risks from both potential threats and potential opportunities andmanages these

risks in a coordinated approach that supports the organization’sstrategic objectives.

Front 95

equity risk

Back 95

Market risk that applies to the stock market

Hint 95

See market risk

Front 96

Exception Report

Back 96

A report produced automatically by an insurance company’s

management information system (MIS) when certain predeterminedconditions

or exceptions in operating performance occur.

Front 97

exchange

Back 97

A transaction in which one party gives something of value to another
party and receives something of value in return

Hint 97

[1

Front 98

expansionary fiscal policy

Back 98

The type of fiscal policy that is used to increase aggregate
demand in order to increase the pace of the economy

Hint 98

See fiscal policy

Front 99

expense

Back 99

An amount that a company spends in the course of conducting business

Hint 99

See income statement

Front 100

expense budget

Back 100

A type of operational budget that presents a schedule of expenses
expected during an accounting period

Hint 100

See expense and operational budget

Front 101

expense risk

Back 101

The risk that actual expenses will be higher than expectations, causing
the insurer to lose money on its products; a type of pricing risk

Hint 101

[3

Front 102

expenses for contractual benefits

Back 102

The total amount that an insurer must pay to
fulfill the terms of its insurance and annuity contracts

Hint 102

[5

Front 103

fact

Back 103

A piece of objectiveinformation that can be proven to be true. [

Front 104

favorable deviation

Back 104

In product operations, a difference between actual and

assumed product values that produces an increase in actual productprofitability

relative to assumed product profitability.

Front 105

Federal Reserve System (the Fed)

Back 105

In the United States, the central banking system
and monetary authority

Hint 105

[6

Front 106

feedback control

Back 106

A control that is used to compare actual performance or output
with established standards

Hint 106

[2

Front 107

fiduciary

Back 107

A financial institutionthat holds a special position of trust or confidence

Front 108

final good

Back 108

A good that is consumed rather than a good used to produce another
product

Hint 108

See gross domestic product

Front 109

Financial Analysis and Solvency Tracking (FAST) System

Back 109

In the United States,
a system used to evaluate the solvency of insurers; based on (1) ratio analysis
of an insurer’s most recent financial statements and (2) analysis of a five-year
history of specific aspects of the insurer’s financial statements

Hint 109

[8

Front 110

financial (capital) market

Back 110

A market in which money is transferred from savers
to borrowers

Hint 110

[1

Front 111

financial audit

Back 111

An evaluation of whether a company’s financial information,
financial statements, and source documents comply with accounting standards
and are a fair and consistent depiction of the company’s financial condition and
performance

Hint 111

[2

Front 112

financial reporting

Back 112

The process of presenting financial data about a company’s
financial position, its operating performance, and its flow of funds during a
specified period of time

Hint 112

[7

Front 113

financial statement

Back 113

A report that summarizes a company’s financial situation or
major monetary events and transactions

Hint 113

[7

Front 114

first-year commission

Back 114

For a life insurance policy, a commission equal to a stated
percentage of the amount of the premium an insurer receives during the first
policy year

Hint 114

Contrast with renewal commission

Front 115

fiscal policy

Back 115

In economics, the use of government spending and taxation to change
aggregate demand—indicated by the level of spending—in the economy

Hint 115

[6

Front 116

fixed expense

Back 116

An expense amount that remains relatively constant regardless of
the number of policies sold or some other measure of the level of operating
activity

Hint 116

Contrast with variable expense

Front 117

flow chart

Back 117

A graphic representation of a sequence of activities and decisions

Hint 117

[9

Front 118

foreign exchange market

Back 118

A market that converts currencies used by buyers into
currencies acceptable to the sellers

Hint 118

[1

Front 119

fraternal benefit society

Back 119

An organization formed to provide social and insurance
benefits to its members

Hint 119

[2

Front 120

future value (FV)

Back 120

For a sum of money, the amount that an original sum is
expected to be worth at a specified future date, given a specified interest rate

Hint 120

Contrast with present value

Front 121

future value interest factor (FVIF)

Back 121

The future value of $1.00 at a given interest
rate for a stated number of periods

Front 122

general and administrative expenses

Back 122

The expenses that result from undertaking

normal business activities to generate sales of products and tosupport products.

Front 123

government bond

Back 123

A bond issued by a national, state, provincial, or city government

Hint 123

[3

Front 124

gross domestic product (GDP)

Back 124

The market value of all final goods and services
produced within a country in a given time period, usually a year

Hint 124

See market
value and final good

Front 125

grouped frequency distribution

Back 125

A table that displays the number of times
observed grouped data fall within specified classes

Hint 125

[9

Front 126

heaped commission schedule

Back 126

For life insurance sales, a commission schedule
that features a relatively high first-year commission and lower renewal commissions

Hint 126

[5

Front 127

histogram

Back 127

A bar chart showing grouped data; each bar represents a different
class of data

Hint 127

[9

Front 128

hyperinflation

Back 128

An out-of-control inflationary spiral

Hint 128

See inflation

Front 129

income statement

Back 129

A financial document that lists an insurer’s revenue and
expenses over a specific period, such as a year, and shows whether the insurer
experienced a profit or a loss during that period

Hint 129

Also known as a statement of
operations or a profit and loss statement (P&L)

Front 130

independent variable

Back 130

A variable that influences the behavior of another variable

Hint 130

Contrast with dependent variable

Front 131

indirect expense

Back 131

A product expense that cannot be traced to or that is not incurred
for one specific product

Hint 131

Also known as a common cost

Front 132

industrial production

Back 132

A coincident indicator that measures the raw volume of
goods produced by industrial firms, such as factories, mines, and electrical utilities

Hint 132

See coincident indicator

Front 133

inference

Back 133

A conclusion based on facts and other information

Hint 133

[11

Front 134

inferential statistics

Back 134

Methods that allow people to make predictions about a
population on the basis of data gathered from only a sample, or portion, of the
population

Hint 134

Contrast with descriptive statistics

Front 135

inflation

Back 135

A rise in the general level of prices in an economy over a period of time

Hint 135

Contrast with deflation

Front 136

insolvency

Back 136

A condition in which a company is unable to meet its financial obligations
on time

Hint 136

Contrast with solvency

Front 137

insurance

Back 137

A mechanism for transferring some or all of the risk of a financial loss
from an individual or entity to an insurance company

Hint 137

[1

Front 138

insurance leverage ratio

Back 138

A leverage ratio that compares a company’s contractual
reserves to its capital and surplus

Hint 138

[8

Front 139

Insurance Regulatory Information System (IRIS)

Back 139

In the United States, a ratiobased
analysis of insurance companies that uses 12 standardized financial ratios
to identify insurance companies that are most likely to experience financial
difficulty

Hint 139

[8

Front 140

interest

Back 140

A fee that individuals and financial institutions pay (or charge) for the use
of borrowed money

Hint 140

[1

Front 141

interest-rate risk

Back 141

The uncertainty arising from fluctuations in market interest
rates

Hint 141

[3

Front 142

interest spread

Back 142

Represents the element of profit that insurers hope to earn from
their investment operations; found by subtracting the interest-crediting rate
from the interest rate earned

Hint 142

Also known as an interest margin

Front 143

intermediation

Back 143

The transfer of funds from savers to borrowers through the services
of a financial intermediary

Hint 143

Contrast with disintermediation

Front 144

investment

Back 144

Any use of a company’s resources that is intended to generate a positive
return of some type

Hint 144

[3

Front 145

investment expenses

Back 145

The costs associated with investing a company’s assets

Hint 145

[5

Front 146

kaizen

Back 146

The Japanese word for continuous improvement; refers to improvinga

system by constantly improving the little details.

Front 147

labor market

Back 147

A market in which households offer their labor to businesses and
governments in exchange for wages or other compensation

Hint 147

[1

Front 148

lagging indicator

Back 148

A statistical variable that tends to change after gross domestic
product (GDP) changes

Hint 148

See gross domestic product

Front 149

law of large numbers

Back 149

A mathematical concept which states that, under normal
circumstances, the more times a particular event is observed, the more likely it
is that the observations will approximate the “true” probability that the event
will occur

Hint 149

[11

Front 150

leading indicator

Back 150

A statistical variable that tends to change before gross domestic
product (GDP) changes

Hint 150

See gross domestic product

Front 151

lean management

Back 151

A quality improvement method that emphasizes teams or
“cells” that process work with fewer hand-offs, greater speed, and better communication

Hint 151

[5

Front 152

leverage effect

Back 152

A measure of the impact of fixed costs—either operating costs

or financing costs—on a company’s potential risks and returns tocompany

owners.

Front 153

liability

Back 153

A debt or future obligation of a company

Hint 153

[3

Front 154

liability portfolio

Back 154

In asset-liability management, the portfolio which represents
the insurer’s obligations to customers

Hint 154

Also known as a product portfolio

Front 155

license

Back 155

A document issued by a regulatory agency that grants an insurer the legal
authority to conduct insurance business in a specific jurisdiction

Hint 155

[2

Front 156

life expectancy

Back 156

The average number of years of life remaining for a group of
people

Hint 156

[6

Front 157

liquidity risk

Back 157

The risk of not having adequate liquidity to meet obligations as
they come due

Hint 157

See liquidity

Front 158

maintenance expense

Back 158

A product-related expense an insurer incurs while a contract
is in force

Hint 158

Also known as a renewal expense

Front 159

management

Back 159

The process that companies use to plan, organize, and control operations
effectively and efficiently

Hint 159

[2

Front 160

management information system (MIS)

Back 160

A computerized system that provides
information about a company’s daily operations

Hint 160

[2

Front 161

market risk

Back 161

The risk arising from movements in the direction of an entire financial
market

Hint 161

[3

Front 162

market value

Back 162

The price that people would be willing to pay for a good or service,
rather than the cost of producing it

Hint 162

See gross domestic product

Front 163

Master budget

Back 163

A budget which shows the overall operating and financing plans

for a company during a specified accounting period; formed bycombining all

of the individual budgets for each department.

Front 164

maturity date

Back 164

For a bond, the date on which the bond issuer must pay the bondholder
the bond’s par value

Hint 164

[3

Front 165

mean

Back 165

The numerical “average” ofa series of values.

Front 166

measure of central tendency

Back 166

A representative value that describes the values in
the middle of a population

Hint 166

See population

Front 167

measure of dispersion

Back 167

A representative value that describes the distribution of
data around specified central values

Hint 167

[10

Front 168

median

Back 168

The middle value in a set of values that is arranged in numerical order

Hint 168

Also known as a population median

Front 169

medium of exchange

Back 169

A standardized method of making and receiving payments
for goods and services

Hint 169

[1

Front 170

mission statement

Back 170

A written statement that describes a company’s fundamental

purpose or reason for being.

Front 171

mode

Back 171

The statistical measure that identifies the value that appears most often in a
population

Hint 171

Also known as a population mode

Front 172

model

Back 172

A system that simulates something else—in product design, a system that
simulates an insurance or annuity product

Hint 172

[4

Front 173

mortality

Back 173

The incidence of death in a specified group of people

Hint 173

[4

Front 174

mortality risk

Back 174

The risk that actual mortality will differ from expectations, causing
the insurer to lose money on its products; a type of pricing risk

Hint 174

[3

Front 175

mortgage

Back 175

A loan, typically long term, secured by a pledge of specified real estate

Hint 175

[3

Front 176

mutual fund

Back 176

An investment company that pools the funds of customers and uses
the funds to buy stocks, bonds, and other financial instruments

Hint 176

[1

Front 177

mutual insurance company

Back 177

An insurance company that is owned by its policyowners

Hint 177

[2

Front 178

mutualization

Back 178

The conversion of a stock insurance company to a mutual insurance
company

Hint 178

[2

Front 179

National Association of Insurance Commissioners (NAIC)

Back 179

In the United States,

an association of state insurance commissioners designed topromote consistent

insurance regulation.

Front 180

need

Back 180

A condition that must be satisfied by a product or service in order for
individuals, businesses, and governments to survive and function properly

Hint 180

Contrast with want

Front 181

net gain

Back 181

Positive net income; results when an insurer’s revenue is greater than its
expenses

Hint 181

See net income

Front 182

net income

Back 182

The difference between an insurer’s revenue and its expenses

Hint 182

See net
gain and net loss

Front 183

net loss

Back 183

Negative net income; results when an insurer’s expenses are greater than
its revenue

Hint 183

See net income

Front 184

net profit margin

Back 184

A profitability ratio which shows how much after-tax profit is
generated by each dollar of total revenue

Hint 184

Also known as a return on revenue
ratio

Front 185

nominal interest rate

Back 185

The named interest rate for a particular investment

Hint 185

Contrast
with effective interest rate

Front 186

noncontrollable expense

Back 186

A cost over which no specified manager or organizational
unit has power or influence

Hint 186

Contrast with controllable expense

Front 187

nondiversifiable risk

Back 187

A risk that affects all assets in an economy and is therefore
not specific to an individual asset or issuer

Hint 187

Also known as a systematic risk

Front 188

nonprobability sampling

Back 188

A sampling technique that bases selection on specific,
personally selected criteria

Hint 188

[11

Front 189

normal distribution

Back 189

A type of probability distribution in which the number of
values that are less than the mean is the same as the number of values greater
than the mean

Hint 189

[10

Front 190

Operating Expenses

Back 190

The costs of operations other than expenses for contractual

benefits.

Front 191

operational budget

Back 191

A budget that includes all of a company’s core business operations;
shows the revenue and expenses that a company expects during a specified
accounting period

Hint 191

[7

Front 192

operational risk

Back 192

The risk of financial losses resulting from (1) inadequate or
failed internal processes and controls, people, or systems, or (2) external events

Hint 192

[3

Front 193

ordinary annuity

Back 193

An annuity in which the periodic payments are made at the end
of each payment period

Hint 193

Contrast with annuity due

Front 194

organizational chart

Back 194

A visual display of the various jobs and the formal lines of
authority and reporting within a company

Hint 194

[2

Front 195

outlier

Back 195

An extremely high or low value that is not representative of the other values
in a population

Hint 195

[10

Front 196

outsourcing

Back 196

The practice of hiring an external vendor to perform specified operations

Hint 196

[5

Front 197

overhead expense

Back 197

A cost an insurer incurs during normal business operations
that is not directly connected to a specific product or service

Hint 197

[5

Front 198

owners’ equity

Back 198

The owners’ financial interest in the company

Hint 198

Also known as
capital and surplus

Front 199

par value

Back 199

For a bond, the amount owed on the bond’s maturity date

Hint 199

Also known
as face value or maturity value

Front 200

pension fund

Back 200

A contractual savings institution that provides retirement funds for
individuals covered by pension plans

Front 201

pension plan

Back 201

An arrangement under which a plan sponsor provides plan participants
with a lifetime income benefit that begins at retirement

Hint 201

[1

Front 202

performance standard

Back 202

A previously established level of performance against

which actual performance can be measured.

Front 203

persistency bonus

Back 203

In producer compensation, a bonus that provides extra earnings
for favorable persistency results; can be used as an alternative to a production
bonus

Hint 203

[5

Front 204

personal consumption expenditures (PCE)

Back 204

A coincident indicator that contains
figures on how much money people are spending on goods and services

Hint 204

See
coincident indicator

Front 205

Pictograph

Back 205

A picture or symbol that is used instead of bars to represent thedata

values in a bar chart.

Front 206

planning

Back 206

The process of evaluating business opportunities, assessing resources,
determining goals, and developing strategies for implementation and control

Hint 206

[2

Front 207

point estimate

Back 207

In modeling, an estimate that is assigned a single value

Hint 207

Contrast
with range estimate

Front 208

policy dividend

Back 208

The portion of a mutual company’s operating profits that is distributed
to policyowners

Hint 208

[2

Front 209

policyholder behavior risk

Back 209

The risk that a company faces as a result of the
choices made by policyholders; a type of pricing risk

Hint 209

Also known as customer
behavior risk

Front 210

population

Back 210

In statistical analysis, a complete set of collected data

Hint 210

See statistical
analysis and descriptive statistics

Front 211

preferred stock

Back 211

Stock that entitles its owner to certain privileges that common
stockholders do not have

Hint 211

For example, preferred stockholders have the first
right in receiving dividends

Front 212

present value (PV)

Back 212

For a sum of money, the amount that, if invested at a specified
interest rate on a specified date, would grow to equal a specified future amount

Hint 212

Contrast with future value

Front 213

present value interest factor (PVIF)

Back 213

The present value of $1.00 discounted at a
given interest rate for a stated number of periods

Front 214

pricing risk

Back 214

The risk that an insurer’s actual experience will be significantly
worse than expectations, causing the insurer to lose money on its products

Hint 214

[3

Front 215

prime rate

Back 215

The interest rate that commercial banks charge their best corporate
customers

Hint 215

[6

Front 216

principal

Back 216

The original amount of money upon which interest is calculated

Hint 216

[4

Front 217

privately held company

Back 217

A company in which ownership is restricted to specified
individuals

Hint 217

Contrast with publicly held company

Front 218

probability sampling

Back 218

A sampling technique in which each member of a population
has a determinable chance, or probability, of being selected

Hint 218

Also known
as random sampling

Front 219

process

Back 219

A series of ongoing activities directed toward achieving a goal

Hint 219

[5

Front 220

Product (Output) Market

Back 220

A market in which businesses supply finished goods

and services to households, other businesses, and governments.

Front 221

Profitability

Back 221

A company’s overall success in generating returns to its ownersand

increasing the value of the company.

Front 222

profitability ratio

Back 222

A ratio that provides insurers with a relative measure of their
overall success by comparing the company’s profits, or gains from operations,
to the resources used to generate those profits

Hint 222

[8

Front 223

program evaluation and review technique (PERT) network

Back 223

A project scheduling
tool that helps shorten the length of time needed to complete large, complex
projects

Hint 223

[9

Front 224

publicly held company

Back 224

A company that sells ownership shares to the public

Hint 224

Contrast with privately held company

Front 225

random number generator

Back 225

A software application that automatically identifies
a pattern of values that would be produced by sampling a probability distribution

Hint 225

[11

Front 226

Random variable

Back 226

A variable whose valuesrepresent all possible outcomes.

Front 227

random variation

Back 227

A variation that results from changes that are either unexpected
or are one-time occurrences

Hint 227

See variation

Front 228

range

Back 228

The difference between the highest and lowest values in a particular population

Hint 228

[10

Front 229

range estimate

Back 229

In modeling, an estimate that provides a range of possible outcome
values

Hint 229

Contrast with point estimate

Front 230

ratio

Back 230

A comparison of two numeric values expressed in the form of a fraction or
percentage

Hint 230

[8

Front 231

ratio analysis

Back 231

The study of the relationships between various financial statement
amounts

Hint 231

[8

Front 232

Real GDP

Back 232

Gross domestic product that has been adjusted for changes in price

levels.

Front 233

real rate of interest

Back 233

The difference between the nominal, or stated, rate of interest
and the expected inflation rate

Hint 233

[6

Front 234

recession

Back 234

A significant decline in economic activity spread across the economy,
lasting more than a few months

Hint 234

During a recession, unemployment is generally
high and real GDP usually falls for two or more quarters

Front 235

recovery

Back 235

The phase of the business cycle in which real GDP increases for two or
more quarters after a recession or depression

Hint 235

See recession, depression, business
cycle, and real GDP

Front 236

Refinance

Back 236

To make new borrowing arrangements, usually because of a drop in

market interest rates.

Front 237

regulatory risk

Back 237

The risk that arises from changes in the regulatory environment

Hint 237

[3

Front 238

reinvestment-rate risk

Back 238

The risk that a decline in interest rates will lead to lower
income when bonds are paid off and the insurer must reinvest the funds

Hint 238

[3

Front 239

renewal commission

Back 239

A commission on life insurance policies that remain in force
that is equal to a stated percentage of each premium paid for a specified number
of years after the first policy year

Hint 239

Contrast with first-year commission

Front 240

required rate of return

Back 240

For a given investment, the sum of the risk-free rate of

return and the risk premium.

Front 241

residential mortgage

Back 241

A loan secured by a single-family home

Hint 241

[3

Front 242

Return

Back 242

Any reward, profit, or compensation an investor hopes to earn inexchange

for taking a risk.

Front 243

return on assets ratio (ROA)

Back 243

A profitability ratio which provides companies
with information about a company’s success in using assets to earn a profit

Hint 243

[8

Front 244

return on equity ratio (ROE)

Back 244

A profitability ratio which measures the return to
a company’s owners by relating profits to owners’ equity

Hint 244

[8

Front 245

revenue

Back 245

An amount that a companyearns from its business operations.

Front 246

revenue budget

Back 246

A type of operational budget that indicates the amount of income
from operations that a company expects in the coming budget period

Hint 246

See revenue
and operational budget

Front 247

rightsizing

Back 247

The elimination of nonessential employees or jobs within an organization

Hint 247

Also known as downsizing

Front 248

risk

Back 248

The possibility that results will be different than expected; generally associated
with the possibility of loss

Hint 248

[1

Front 249

risk-free rate of return

Back 249

The return on a risk-free investment

Hint 249

See required rate
of return and risk premium

Front 250

risk management

Back 250

The practice of systematically identifying, assessing, and minimizing
the negative impact of risk

Hint 250

[3

Front 251

risk premium

Back 251

The compensation that investors demand for taking on the risk
associated with a specific investment

Hint 251

See required rate of return and riskfree
rate of return

Front 252

risk-return trade-off

Back 252

The interplay between risk and return; according to this
interplay, in general, the greater the risk associated with an investment, the
greater the expected return on the investment; conversely, the lower the risk
associated with an investment then, generally, the lower the expected return on
the investment

Hint 252

[3

Front 253

risk tolerance

Back 253

From an individual investor’s perspective, that individual’s comfort
level with risk

Hint 253

[1

Front 254

sample errors

Back 254

The differences between population values and the values derived
from a sample of the population

Hint 254

[11

Front 255

seasonal variation

Back 255

A variation that results from routine patterns that typically

occur in the course of one year.

Front 256

Securities and Exchange Commission (SEC)

Back 256

In the United States, a federal

government agency that regulates the investment industry.

Front 257

shared service

Back 257

A functional area that performs specified business processes for
multiple strategic business units (SBUs) and that shares accountability for the
costs, timing, and quality of those processes with the SBUs

Hint 257

See strategic business
unit

Front 258

simple interest

Back 258

Interest that is applied only to the principal amount of an investment

Hint 258

Contrast with compound interest

Front 259

simple random sampling

Back 259

A type of probability sampling in which every member
of a population has an equal probability of being in the sample

Hint 259

[11

Front 260

Six Sigma

Back 260

A disciplined approach for improving quality by reducing process
defects or correcting problems so that results fall within customer specifications

Hint 260

[5

Front 261

solvency

Back 261

An insurance company’sability to meet its financial obligations on time.

Front 262

span of control

Back 262

The number of people who report directly to a manager

Hint 262

[2

Front 263

spread compression

Back 263

The narrowing of an insurer’s interest spread

Hint 263

See interest
spread

Front 264

spread expansion

Back 264

The widening of an insurer’s interest spread

Hint 264

See interest
spread

Front 265

stagflation

Back 265

A combination of inflation, slow economic growth, and high unemployment

Hint 265

See inflation

Front 266

standard deviation

Back 266

For a population, the square root of the variance of the population

Hint 266

See variance and population

Front 267

statistical analysis

Back 267

The use of mathematical techniques to collect, organize,
describe, analyze, and interpret large amounts of numerical data in order to
help people make decisions

Hint 267

[10

Front 268

statistical validity

Back 268

The degree to which an observed result, such as a difference
between two measurements, can be relied upon and not attributed to random
error in sampling or measurement

Hint 268

[11

Front 269

statistics

Back 269

The numerical data used in statistical analysis

Hint 269

See statistical analysis

Front 270

stock

Back 270

A security that represents an ownership interest in a company

Hint 270

[1

Front 271

stock insurance company

Back 271

An insurance company that is owned by the people
and organizations that purchase shares of the company’s stock

Hint 271

[2

Front 272

straight-through processing

Back 272

The automation of the steps in industry-specific
transactions electronically, with little or no manual intervention

Hint 272

Also known
as end-to-end processing

Front 273

strategic business unit (SBU)

Back 273

An area of business distinct from other areas
within a company in that it generates its own profits, has its own separate set of
customers and competitors, has its own management, and is capable of having
its own goals and strategies

Hint 273

[2

Front 274

stratified random sampling

Back 274

A type of probability sampling that divides the
population into subgroups, or strata, and then selects a proportional number of
items from each stratum at random

Hint 274

[11

Front 275

surplus

Back 275

The cumulative amount of money—calculated as an insurance company’s
assets minus its liabilities and its capital—that remains in the company
over time

Hint 275

See asset, liability, and capital

Front 276

surrender

Back 276

When the owner of a cash value life insurance policy or deferred annuity
contract chooses to receive the contract’s monetary value before the contract
reaches maturity

Hint 276

[3

Front 277

SWOT analysis

Back 277

In planning, an analysis in which a company weighs company
strengths and weaknesses against environmental opportunities and threats

Hint 277

[2

Front 278

systematic random sampling

Back 278

A type of probability sampling that involves
selecting items from the population at a uniform interval, which is generally
measured by time, order, or space

Hint 278

[11

Front 279

table

Back 279

An orderly listing of data.

Front 280

technical product design

Back 280

The phase in the product development process in which
a product’s financial structure is created

Hint 280

Also known as financial design or
product design

Front 281

telecommuting

Back 281

A remote work arrangement that gives employees the flexibility
to determine their working location and hours

Hint 281

[5

Front 282

time value of money

Back 282

A concept which states that the value of a sum of money will
change over time as a result of the effects of interest

Hint 282

[4

Front 283

top-down budgeting

Back 283

A budgeting approach that begins at the top of a company
and is passed down to lower-level management

Hint 283

Contrast with bottom-up
budgeting

Front 284

total asset turnover ratio

Back 284

A type of activity ratio which indicates how efficiently
a company is using its cash, investments, and other assets to support incomeproducing
activities

Hint 284

[8

Front 285

trend

Back 285

A movement in a specific direction, either upward or downward

Hint 285

[6

Front 286

trend analysis

Back 286

A type of analysis that forecasts the future movement of specified
factors based on historical patterns

Hint 286

[11

Front 287

unemployment rate

Back 287

The percentage of people in the labor force who are without

jobs but who are actively seeking jobs.

Front 288

unit of account

Back 288

In an economy, the monetary unit in which value is expressed

Hint 288

[1

Front 289

unity of command

Back 289

A principle which states that each employee should be under
the authority of and be accountable to only one person

Hint 289

[2

Front 290

US Treasury Bill

Back 290

An obligation issued by the U.S. Treasury as part of its ongoing

process of funding the national debt.

Front 291

variable

Back 291

An item of data whose value varies over time

Hint 291

[11

Front 292

variable expense

Back 292

An expense amount that varies in direct proportion to some
variation in a specified level of operating activity

Hint 292

Contrast with fixed expense

Front 293

variance

Back 293

The average squared distance between the population mean and each
individual item in a population

Hint 293

[10

Front 294

variation

Back 294

A change or fluctuation in a trend

Hint 294

See seasonal variation, cyclical
variation, and random variation

Front 295

vested commission

Back 295

A commission that is guaranteed payable to a producer
whether or not the producer represents the company when the commission
becomes due

Hint 295

Contrast with nonvested commission

Front 296

want

Back 296

A desire for a particular product or service

Hint 296

Contrast with need

Front 297

weighted value

Back 297

A value that has been multiplied by a percentage

Hint 297

[8

Front 298

zero-based budgeting (ZBB)

Back 298

A budgeting approach in which a company begins

with the premise that no resources will be allocated for the nextaccounting

period unless and until each expense is shown to be in accord withthe company’s

strategic and operational goals.

Front 299

Per Capita GDP

Back 299

Gross domestic productdivided by a country’s population