Asset All the property and resources of a business. Asset All things of value owned by an individual or organization. Examples of assets include cash, data processing equipment, and investments. Assets are shown on the balance sheet of a life insurance company's Annual Statement as required by law or by insurance department ruling. Asset Entity with exchange or commercial value, such as the book value of property owned by an insurance company as listed on its balance sheet. Economic loss Total estimated cost incurred by a person or persons, a family, or a business resulting from the death or disability of a wage earner (key employee), damage or destruction of property, and/or a liability suit (negligent acts or omissions by a person result in property damage or bodily injury to a third party). Factors included in the total cost are loss of earnings, medical expenses, funeral expenses, property damage restoration expenses, and legal expenses. Economic perils One of the three common categories of perils used in the insurance industry to classify causes of loss. Economic perils are those caused by loss of market, loss of income, local, national, or worldwide economic conditions, inflation, or obsolescence of an industry. The other two common categories of perils are human perils and natural perils. Goodwill Monetary value of the reputation of a business. Goodwill is an intangible asset and thus may be difficult to measure. Goodwill An intangible business asset. It refers to the value of a business which has been built up through the reputation of the business concern and its owners Hazard Circumstance that increases the likelihood or probable severity of a loss. For example, the storing of explosives in a home basement is a hazard that increases the probability of an explosion. Hazard A condition which may lead to a loss, such as oily rags leading to a fire. Human perils One of three broad categories of perils commonly referred to in the insurance industry which include not only human perils, but also natural perils and economic perils. Human perils are those caused directly by people and include crime, liability, fidelity, and some types of property damage such as vehicle damage or arson. Contrast those with natural perils which include wind, flood, or earthquake, or economic perils such as inflation or obsolescence. Insurable risk Any subject matter eligible for insurance. While the law does not specify minimum criteria (except occasionally by regulation that the size of any risk insured and the amount of premium writings by an insurer be related to its financial strength), and textbook writers disagree on essential criteria, the following are probably desirable: 1) Enough relatively similar exposure units should be insured to permit the operation of the Law of Large Numbers (unless reinsurance is used by the insurer) 2) Losses insured should be measurable and accidental to the insured (to prevent intentional losses) 3) Risks taken should not threaten the insurer with a catastrophe (unless reinsurance is used) because of their centralized location or other condition. Insurable risk Condition in which an applicant has met an insurance company's standards. Requirements include a loss that is definable; fortuitous; one of a large number of homogeneous exposures; and carries a premium reasonable in relation to a potential loss. Insurance A system of protection against loss in which a number of individuals agree to pay certain sums of money, called premiums, to create a pool of money which will guarantee that the individuals will be compensated for losses caused by events such as fire, accident, illness, or death. Insurance Mechanism for contractually shifting burdens of a number of pure risks by pooling them. Insurance The transfer of risk, or chance of loss, from one party (the insured) to another party (the insurer), in which the insurer promises, usually specified in a written contract, to pay the insured, or others on the insured's behalf, an amount of money, services, or both, for economic losses sustained from an unexpected (accidental) event, during a period of time for which the insured makes a premium payment to the insurer. Insurance contract The written contract or insurance policy between the insured and the insurer detailing the coverage provided, exclusions and limitations, conditions in case of loss, and other details pertinent to the terms of the agreement. Law of large numbers Mathematical premise stating that the greater the number of exposures, (1) the more accurate the prediction; (2) the less the deviation of the actual losses from the expected losses (X - x approaches zero); and (3) the greater the credibility of the prediction (credibility approaches 1). This law forms the basis for the statistical expectation of loss upon which premium rates for insurance policies are calculated. Out of a large group of policyholders the insurance company can fairly accurately predict not by name but by number, the number of policyholders who will suffer a loss. Life insurance premiums are loaded for the expected loss plus modest deviations. For example, if a life insurance company expects (x) 10,000 of its policy-holders to die in a particular year and that number or fewer actually die (X), there is no cause for concern on the part of the company's actuaries. However, if the life insurance company expects (*) 10,000 of its policyholders to die in a particular year and more than that number dies (X) there is much cause for concern by actuaries. Law of large numbers The theory of probability which specifies that the greater the number of observations made of a particular event, the more likely it will be that the observed results will approximate the results anticipated by the mathematics of probability. Law of Large Numbers A mathematical concept which postulates that the more times an event is repeated (in insurance, the larger the number of homogeneous exposure units), the more predictable the outcome becomes. In a classic example, the more times one flips a coin, the more likely that the results will be 50% heads, 50% tails. Liability 1) An obligation imposed by law or equity. 2) Money owed or expected to be owed. In an insurance company financial statement, the two columns it contains are its "assets" (or the amounts it owns) and the "liabilities" (or the amount it owes or expects to owe). Liabilities generally are defined by state statute or insurance department regulation for use in the annual statement of an insurer. The term is also defined for special purposes by other regulatory officials, such as the Securities and Exchange Commission. Liability Legal obligation to perform or not perform specified act (s). In insurance the concern is with the circumstance in which one party's property is damaged or destroyed, or that party incurs bodily injury as the result of the negligent acts or omissions of another party. Liability insurance is designed to provide coverage for exposure on either a business or a personal basis. Liability, civil Alleged torts or breaches of contract, but not crimes. Action is brought by one individual against another at the litigant's own expense, within the statute of limitations. The losing party must pay any judgment plus court expenses. Casualty insurance provides coverage for an insured in a civil liability suit for alleged negligent acts or omissions, even if the suit is without foundation. Moral hazard The danger that a proposed insured might deliberately attempt to conceal or misrepresent information. Moral hazard is a risk factor that affects the underwriting decision. Moral hazard A condition or characteristic by which an insured intends to profit from an insured loss. Moral hazard Circumstance which increases the probability of loss because of an applicant's personal habits or morals; for example, if an applicant is a known criminal. Morale hazard Circumstance that increases the probability of loss because of the insured's indifferent attitude. For example, if an insured leaves the doors unlocked and the windows open when leaving home, a morale hazard is created. Natural perils One of the three categories of perils commonly considered by insurance, the other two being human perils and economic perils. This category includes such perils as injury and damage caused by natural elements such as rain, ice, snow, typhoon, hurricane, volcano, wave action, wind, earthquake, or flood. Peril The cause of loss, for example, fire, wind, vandalism, or accident Physical hazard Danger of loss or liability arising from the condition, occupancy or use of property, as opposed to such danger arising from the character of the policyholder. Political risk Investment risk associated with the changes in government policies that may have a dramatic effect on financial instruments. For example, if federal legislation is passed removing the tax-exempt status of tax-deferred buildup of the cash values in life insurance policies and annuities, one of the primary reasons for purchase of these products would be eliminated. Risk 1) Defined variously as uncertainty of loss, chance of loss, or the variance of actual from expected results. However defined, its existence is the reason people buy insurance. 2) The subject matter of an insurance contract, such as the building, cargo or liability exposure insured. Risk class A group of insureds who present a substantially similar risk to the insurance company. Among the most common risk classes used by life insurance companies are standard, preferred, nonsmoker, substandard, and uninsurable. Risk classification Analysis of uncertainty of financial loss. This classification can be according to whether a risk is fundamental, particular, pure, speculative, dynamic, or static. In life insurance the process by which a company determines how much to charge for a policy according to an applicant's age, occupation, sex, and health. Risk management The active identification, evaluation, and management of all of the potential hazards and exposures to loss a risk may experience. The handling of those exposures is not limited to insurance options, but includes a variety of methods such as alternative financing, retention, reduction, elimination, transfer, and/or any combination of methods. Risk manager The person or manager in charge of the active identification, evaluation, and management of all of the potential hazards and exposures to loss a risk may experience. The handling of those exposures is not limited to insurance options, but includes a variety of methods such as alternative financing, retention, reduction, elimination, transfer, and/or any combination of methods. Spread of risk A property insurance philosophy where the accumulation of property risks in a given area, and subject to the same catastrophic loss such as tornado or major conflagration, are monitored by the insurer to make sure the accumulation is either within the insurer's capacity or has been properly reinsured. PIRÀMIDE DE MASLOW