Underwriting risk that a single trigger event (e.g. an earthquake or hurricane) can lead to an accumulation of claims within a portfolio.

Costs incurred by an insurance company when insurance policies are taken out or renewed (e.g. new business commission, costs of proposal assessment or underwriting).

Costs of current administration connected with the production of insurance coverage.

Parent or subsidiary companies which are to be included in the consolidated financial statement of a parent company (as defined by the German Commercial Code, HGB).

Process in which the initial expenditures for an object are covered through the resulting earnings.

Profit-oriented and ongoing supervision and management of investments according to risk and return considerations.

Partnership between a bank/postal service partner and an insurance company for the purpose of selling insurance products through the banking/postal service partner’s branches.

Value arrived at using mathematical methods for future liabilities (present value of future liabilities minus present value of future incoming premiums), especially in life and health insurance.

Analytical model used to calculate theoretical option prices. It makes allowance for the current price of the underlying stock, the risk-free interest rate, the remaining time until option expiration, the > volatility and possible dividend payments within the remaining period.

Proportional reinsurance treaty on the life or health insurance portfolio of a > cedant.

Hedge instrument securitized in a security. It is used to hedge the reinvestment interest rate if the 5-year mean of the market rate reaches a previously defined level, and approximates the real income of the portfolio.

Model used to measure securities in relation to risk/return considerations and determine the cost of capital, making allowance for the fact that an equity investment entails an additional risk in comparison with a risk-free investment and requires an additional return (risk premium).

An insurer’s shareholders’ equity plus the provisions committed to underwriting business and the (claims) equalization reserve. Total maximum funds available to offset liabilities.

see capital asset pricing model

Statement on the origin and utilization of cash and cash equivalents during the accounting period. It shows the changes in liquid funds separated into cash flows from operating, investing and financing activities.

Primary insurer or reinsurer that passes on shares of its insured risks to a reinsurer in exchange for a premium.

see Cedant

see equalization reserve

Sum total of > loss ratio and > expense ratio; ratio of net technical expenses including other technical income/expenses (net) and amortization of the shareholders’ PVFP, but excluding any consolidation differences, to net premium earned. When calculating the adjusted combined ratio, the claims and claims expenses in the non-life reinsurance segment are adjusted so as to eliminate the effect of interest income on funds withheld and contract deposits.

see combined ratio

Remuneration paid by a primary insurer to agents, brokers and other professional intermediaries.

In the context of a consolidated financial statement: combining of the individual financial statements of several companies belonging to one group into a consolidated financial statement.

System that serves to ensure responsible management and supervision of enterprises and is intended to foster the trust of investors, clients, employees and the general public in companies.

Also creditworthiness. Ability of a debtor to meet its payment commitments.

Personal riders on the basis of which parts of the sum insured which would otherwise only become payable on occurrence of death are paid out in the event of previously defined severe illnesses.

Term denoting the difference between the taxes calculated on the profit reported in the commercial balance sheet and those carried in the tax balance sheet, which then evens out in subsequent months. Deferred taxes are recognized in order to offset this difference in those cases where it is evident that it will be eliminated over time.

An accounting method originating in US accounting principles for the recognition of short-term and multi-year insurance and reinsurance contracts with no significant underwriting risk transfer.

see derivative financial instrument

Financial products derived from underlying primary instruments such as equities, fixed-income securities and foreign exchange instruments, the fair value of which is determined inter alia on the basis of the underlying security or other reference asset. Derivatives include swaps, options and futures.

see primary insurer

Orientation of business policy towards various lines of products and services in order to minimize the effects of economic fluctuations and stabilize the result.

Auditing of a participating interest in the run-up to acquisition or merger. It encompasses, in particular, a systematic analysis of the strengths and weaknesses of the proposition, analysis of the risks associated with the acquisition and a well-founded valuation of the item in question.

Ratio in investment mathematics that represents the average commitment period of the cash value of a financial instrument. The duration can thus also be considered a measure of the interest rate risk associated with a financial instrument.

Non-distribution of a company’s profits, leading to a different tax treatment than that applied to distributed profits.

see operating profit

Benchmark used to measure the performance of life insurance enterprises. It is composed of the sum total of free assets (net asset value) plus the present value of the projected stream of future after-tax profits on the in-force insurance portfolio.

Provision constituted to offset significant fluctuations in the loss experience of individual lines over a number of years.

Administrative expenses for the insurance business in relation to the (gross or net) premiums earned.

Level of danger inherent in a risk or portfolio of risks.

Participation on the part of the reinsurer in a particular individual risk assumed by the primary insurer.

Price at which a financial instrument would be freely traded between two parties.

Collateral provided to cover insurance liabilities which an insurer retains from the liquid funds which it is to pay to a reinsurer under a reinsurance treaty. In this case, the insurer shows funds held under a reinsurance treaty, while the reinsurer shows funds held by a ceding company.

see funds held by ceding companies

The amount that a purchaser is prepared to pay – in light of future profit expectations – above and beyond the value of all tangible and intangible assets after deduction of liabilities.

In insurance: before deduction of reinsurance.

Market phase during which premium levels are typically high. Opposite: > soft market.

Funds that are subject to virtually no investment restrictions and are free to pursue a highly diverse range of investment strategies.

Capital in the form of subordinated debt and surplus debenture that exhibits a hybrid character of equity and debt.

International Financial Reporting Standards; used by Talanx since 2004.

Rating of BBB or better awarded to an enterprise on account of its low risk profile.

Public entity or private enterprise that issues securities, e.g. the federal government in the case of German Treasury Bonds or a joint-stock corporation in the case of shares.

Fund created by an outside company. It is marketed through a subsidiary or third company, but remains the responsibility of the original company.

If several (re)insurers participate in a contract, one company assumes the role of leader and normally carries a higher percentage of the risk for own account. The policyholder deals exclusively with this lead company.

Collective term covering those types of insurance which are concerned in a broader sense with risks associated with the uncertainties of life expectancy and life planning. These include death and disability, retirement provision as well as marriage and education.

Lines of business concerned with the insurance of persons, i.e. life, annuity, health and personal accident.

Percentage ratio of claims expenditure to earned premiums, calculated gross or net.

Claim that reaches an exceptional amount compared to the average claim for the risk group in question and exceeds a defined claims amount.

see major claim

Coverage of technical liabilities in foreign currencies by means of corresponding investments in the same currency in order to avoid exchange-rate risks.

Measure of the occurrence probability of an illness in relation to a specific population group.

Rate of death in the population as a whole or in specific age groups.

In insurance: used primarily to mean after deduction of reinsurance.

Item in the statement of income; sum total of personnel expenditures, commissions, material costs, distribution costs and regular administrative expenses.

Sum of the result of non-underwriting business and the underwriting result before the change (allocation or withdrawal) in the (claims) equalization reserve.

see life/health insurance

Total amount of shareholders’ equity excluding minority interests, which is comprised of the common shares, additional paid-in capital, retained earnings and cumulative other comprehensive income, as well as the minority interests in shareholders’ equity and so-called hybrid capital, as equity-replacing debt capital that encompasses the subordinated liabilities.

The risks assumed by a primary insurer or reinsurer as a totality or in a defined segment. Also: group of investments categorized according to specific criteria.

Agreed compensation for the risks accepted by the insurer.

Intangible asset primarily arising from the purchase of life and health insurance companies or individual portfolios. The present value of expected future profits from the portfolio assumed is capitalized and amortized according to schedule.

Company which accepts risks in exchange for an insurance premium and which has a direct contractual relationship with the policyholder (private individual, company, organization).

Investment capital raised by private investors in contrast to public equity, i.e. capital raised on the stock exchange.

The present value of the earned portion of commitments from a defined benefit obligation.

All insurance lines with the exception of life insurance and health insurance.

Liability item as at the balance sheet date to discharge obligations which exist but whose extent and/or due date is/are not known. Technical provisions, for example, are for claims which have already occurred but which have not yet been settled, or have only been partially settled (= provision for outstanding claims, abbreviated to: loss reserve)

Cost of acquiring an asset item including all ancillary and incidental purchasing costs; in the case of wasting assets less scheduled and/or special amortization.

Systematic evaluation of companies by a rating agency or bank with respect to their > credit status.

Company that accepts risks or portfolio segments from a > primary insurer or another reinsurer in exchange for an agreed premium.

Contractual relationships between insurers and reinsurers are maintained over long periods of time. The treaty terms and conditions are normally modified annually in so-called renewal negotiations, and the treaties are renewed accordingly.

Business involving investment funds that are designed for private, non-institutional investors, although such funds are also open for investments of group companies.

The part of the accepted risks which an insurer/reinsurer does not reinsure, i.e. shows as > net. The larger the insured portfolio, the higher the retention can be.

Ceding by a reinsurer of its risks or shares in its risks to other reinsurers.

The complete set of rules and measures used to monitor and protect against risks.

Fulfillment of liabilities for which reserves have been constituted.

Presentation of asset and income data broken down into business segments and regions.

Funds provided by the owners of an enterprise for its financing or left within the company as earned profit. The capital providers are entitled to a share of the profit, e.g. in the form of a dividend, in return for making the shareholders’ equity available.

Capital components that are economically available but not yet recognized in the balance sheet: the loss reserve discount and the present value of future profits in life business that has not been capitalized, and on the company level the excess loss reserves.

Market phase with oversupply of insurance, resulting in premiums that are not commensurate with the risk; this is in contrast to
> hard market.

Level of available unencumbered capital and reserves required to ensure that contracts can be fulfilled at all times.

Specialty insurance refers to niche business such as special automobile covers, fine arts insurance etc.

Exclusion of minority shareholders by the majority shareholder of a joint-stock corporation.

Option contract which enables the buyer to enter into an interest rate swap on or until a specific point in time in return for payment of a once-only premium. It facilitates hedging against rising interest rates without forfeiting the opportunity to obtain funding more reasonably if interest rates fall.

Balance of income and expenditure allocated to the insurance business and recognized in the technical statement of income.

Underlying instrument of a forward transaction, futures contract or option contract that serves as the basis for settlement and measurement of the contract.

Process of examining and assessing (re)insurance risks in order to determine a commensurate premium for the risk in question. The purpose of underwriting is to diversify the underwriting risk in such a way that it is fair and equitable for the (re)insured and at the same time profitable for the (re)insurer.

Premiums written in a financial year which are to be allocated to the following period on an accrual basis.

Life insurance under which the level of benefits depends on the performance of an investment fund allocated to the policy in question.

United States Generally Accepted Accounting Principles. Internationally recognized US accounting principles used at Talanx until 2003.

With respect to assets: degree of fluctuation in equity prices, ex-change rates and interest rates. In the insurance industry, volatile business analogously refers to insurance lines that can have a highly fluctuating claims experience.