[[Actuarial Notes Wiki|Wiki]] / ==Actuarial Glossary== ## Basic Terms > This **Actuarial Glossary** is a collection of terms used in the practice of [[Actuarial Science]]. Definitions come from a variety of standards and other publications from institutions such as the [[Society of Actuaries]], the [[Actuarial Standards Board]], and the Bank of Canada. | Term | Definition | | ------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | [[Actuary]] | Actuaries measure and manage risk. - [SOA](https://www.soa.org/future-actuaries/what-is-an-actuary)<br><br>Actuaries assess the financial consequences of risks and use mathematics, statistics and financial theory to analyze and determine the financial impact of uncertain future events. - [IRS](https://www.irs.gov/retirement-plans/what-is-an-actuary-a-brief-overview) | | [[Risk]] | Risk is the possibility of failing to meet objectives. It can only be defined in context. - [SOA](https://www.soa.org/4a537f/globalassets/assets/files/edu/actuarial-glossary.pdf)<br><br>Risk is the effect of [[uncertainty]] on objectives. An effect is a deviation from expectations. It can be positive, negative or both and can address, create or result in opportunities and threats. -[ISO](https://www.iso.org/obp/ui/en/#iso:std:iso:31000:ed-2:v1:en)<br><br>We consider a future activity and define risk in relation to the consequences of this activity, with respect to something humans value. - [SRA](https://www.sra.org/wp-content/uploads/2020/04/SRA-Glossary-FINAL.pdf) | | [[Risk Management]] | Coordinated activities to direct and control an organization with regard to risk. - [ISO](https://www.iso.org/obp/ui/en/#iso:std:iso:31000:ed-2:v1:en) | | Actuarial Risk | A phenomenon subject to uncertainty with respect to one or more of the variables: occurrence, timing, and severity. - ([SOA](https://www.soa.org/4a537f/globalassets/assets/files/edu/actuarial-glossary.pdf)) | | Financial Risk | Financial impact from financial transactions. - [SOA](https://www.soa.org/4a537f/globalassets/assets/files/edu/actuarial-glossary.pdf)<br><br>The risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, currency exchange rate, index of prices or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. - [IFRS 17](https://www.ifrs.org/content/dam/ifrs/publications/pdf-standards/english/2022/issued/part-a/ifrs-17-insurance-contracts.pdf?bypass=on)<br><br>Financial risks relate to the potential for financial losses arising from credit, market and liquidity risks. - [Bank of Canada](https://www.bankofcanada.ca/about/governance-documents/risk-management/?page_moved=1) | | Insurance Risk | Risk, other than financial risk, transferred from the holder of a contract to the issuer - [IFRS 17](https://www.ifrs.org/content/dam/ifrs/publications/pdf-standards/english/2022/issued/part-a/ifrs-17-insurance-contracts.pdf?bypass=on) | ## Risk and Uncertainty Actuaries measure and manage risk, but risk can be defined in many ways (see for example the 7 different definitions in the [SRA's Glossary](www.sra.org/wp-content/uploads/2020/04/SRA-Glossary-FINAL.pdf)). While variations have subtle distinctions, all risk definitions share a common goal of **understanding and changing the uncertainty about future events.** | Term | Definition | | ----------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | [[Uncertainty]] | A situation which involves imperfect or unknown information." Including predictions of future events, physical measurements or the unknown. - [SOA](https://www.soa.org/4a537f/globalassets/assets/files/edu/actuarial-glossary.pdf)<br><br>Unmeasurable risk. - [SOA](https://www.soa.org/4a537f/globalassets/assets/files/edu/actuarial-glossary.pdf) | | Event | The result of an experiment is called an outcome; an event is a set of one or more possible outcomes. - [SOA](https://www.soa.org/4a537f/globalassets/assets/files/edu/actuarial-glossary.pdf)<br><br>Occurrence or change of a particular set of circumstances. An event can have one or more occurrences, and can have several causes and several consequences. - [ISO](https://www.iso.org/obp/ui/en/#iso:std:iso:31000:ed-2:v1:en)<br><br>A specified change of the states of the world/affairs - SRA | | Consequence | Outcome of an event affecting objectives | | Probability | A measure that takes on values from zero to one and gives the likelihood of occurrence of an event. - [SOA](https://www.soa.org/4a537f/globalassets/assets/files/edu/actuarial-glossary.pdf) | | Likelihood | Chance of something happening. - [ISO](https://www.iso.org/obp/ui/en/#iso:std:iso:31000:ed-2:v1:en) | | Severity (Distribution) | The probability distribution for the amount of loss. - [SOA](https://www.soa.org/4a537f/globalassets/assets/files/edu/actuarial-glossary.pdf) | ## Insurance | Term | Definition | | ------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | Insurance Contract | A contract under which one party (the issuer) accepts significant **insurance risk** from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. - [IFRS 17](https://www.ifrs.org/content/dam/ifrs/publications/pdf-standards/english/2022/issued/part-a/ifrs-17-insurance-contracts.pdf?bypass=on) | | Casualty Insurance | A broad category of non-life, non-health coverage against loss of property, damage or other liabilities, including such things as vehicle insurance, liability insurance, theft insurance, machinery, and crime. | | Reinsurance | A transaction between a primary insurer and another licensed (re)insurer where the reinsurer agrees to cover all or part of the losses and/or loss adjustment expenses of the primary insurer, for a premium. Indemnification could be on a proportional or non-proportional basis. | | Underwrite | The process by which an insurance company decides which people to accept for insurance and on what terms. - [SOA](https://www.soa.org/4a537f/globalassets/assets/files/edu/actuarial-glossary.pdf) | | Exposure | A measure that reflects how many persons or contracts were exposed to the possibility or risk of the event under study, and for how long. - [SOA](https://www.soa.org/4a537f/globalassets/assets/files/edu/actuarial-glossary.pdf) | | Earned Premium | Earned premium is the portion of an insurance premium that paid for a portion of time in which the insurance policy was in effect, but has now passed and expired. Since the insurance company covered the risk during that time, it can now consider the associated premium payments it took from the insured<br>as 'earned'. - [SOA](https://www.soa.org/4a537f/globalassets/assets/files/edu/actuarial-glossary.pdf) | | Claim | A document or request filed by a policyholder, beneficiary or other stakeholder stating that an insured<br>event has occurred and that the insurance company should provide coverage. - [SOA](https://www.soa.org/4a537f/globalassets/assets/files/edu/actuarial-glossary.pdf) | | Reserves | Liability set aside to pay future claims. - [SOA](https://www.soa.org/4a537f/globalassets/assets/files/edu/actuarial-glossary.pdf) | | Incurred But Not Reported | Amount owed by an insurer to all valid claimants who have had a covered loss but have not yet reported it. Since the insurer knows neither how many of these losses have occurred, nor the severity of each loss, IBNR is necessarily an estimate. The sum of IBNR losses plus reported losses yields an estimate of the total eventual liabilities the insurer will cover, known as ultimate losses. - [SOA](https://www.soa.org/4a537f/globalassets/assets/files/edu/actuarial-glossary.pdf) | | Claim Frequency | A rate or distribution of the number of claims within a given period of time. Claims frequency is often thought to be a negative-binomial or Poisson distribution, with the result being either claim did not did not occur. - [SOA](https://www.soa.org/4a537f/globalassets/assets/files/edu/actuarial-glossary.pdf) | | Severity | Severity distribution is the probability distribution for the amount of loss. - [SOA](https://www.soa.org/4a537f/globalassets/assets/files/edu/actuarial-glossary.pdf) | | Mortality | The incidence of death in a population. It is measured in various ways, often by the probability that a randomly selected individual in a population at some date and location would die in some period of time. - [SOA](https://www.soa.org/4a537f/globalassets/assets/files/edu/actuarial-glossary.pdf) | ## Sources **Actuarial Standards** - [Society of Actuaries Glossary (SOA)](https://www.soa.org/4a537f/globalassets/assets/files/edu/actuarial-glossary.pdf) - [[Actuarial Standards of Practice (ASOPs)]] - [[International Standards of Actuarial Practice (ISAPs)]] **Risk Management Standards** - [[Society for Risk Analysis Glossary (SRA)|Society for Risk Analysis Glossary]] - [[ISO 31000 - Risk Management - Guidelines|ISO's 31000 Risk Management Guidelines]] - [[ISO-IEC 31010 - Risk Management Techniques]] **Insurance** - [Glossary of Insurance Terms](https://content.naic.org/glossary-insurance-terms) (NAIC) - [IFRS Accounting Standards](https://www.ifrs.org/issued-standards/list-of-standards/) (IASB) - [[GAAP Accounting Standards]] (GAAP) - [policyterms.ca](https://policyterms.ca/)