Risk
A condition of the real world in which there is a possibility of an adverse deviation from an expected or desired outcome
Uncertainty
A state of mind characterised by doubt, based on a lack of knowledge about what will happen in the future
Peril
Something which causes a loss to occur
Hazard
A condition that might create or increase the chance of a loss
Principle of indemnity insurance
Benefit payment should return individual to same financial position
Life insurance contract
Contract providing for the payment of a specified sum on the happening of an event or events which are dependent on human life or lives
Mutuality
The principle whereby individuals pool risks and share losses and are charged a premium that reflects the risk they pose
Solidarity
A sharing of losses but with “premiums” calculated by some other method. Social objectives in mind
Selection
Insurers will select individuals most appropriate for risk pool
Anti-selection
Individuals taking out the insurance they feel is most appropriate to them
Contracts of life assurance
A contract providing for the payment of a specified sum on the happening of an event dependent on human life
Valuation
Determining the value of a company’s liabilities
Benefit charges
Explicit charges to cover mortality and other insurance benefits
New-business strain
Initial premium less initial expenses being insufficient to cover initial reserve required
Investment
Capital formation: Additions to the nation’s stock of buildings, equipment and inventories.
Comes from savings
Saving
Using income in such a way that there will be atleast the same amount or more in the future
Not put to use
Derivatives
A financial instrument with a value dependent on that of some underlying asset
Futures
A standardised, exchange tradable contract between two parties to trade a specified asset on a set date at a specified time
Forwards
Same as Futures however not exchange traded so no early exit
Options
Gives an investor the right, not obligation to buy or sell a specified asset on a specified future date for a specified price
Swaps
Contracts between two parties under which they agree to exchange a series of payments according to a prearranged formula
Capital Project
Any project where there is initial expenditure and then, once the project comes into operation, a stream of revenue, less running costs
Systemic risk
Part of variability of return that cannot be eliminated by investing in the same project multiple times or by diversification (Inflation)
Specific risk
Element of risk that can be eliminated through repeated investment or diversification
