Glossary (A-Z)
Acquisition costs
The amount paid in currency or currency equivalent
in acquiring an asset, or the current fair value of another
form of payment at the time of acquisition.
Actuarial provision
Provision in the amount of the existing obligation to
pay insurance claims and premium refunds, mainly
in life and health insurance. The provision is calculated
in line with actuarial methods as the balance of
the cash value of future obligations less the cash value
of future premiums.
Affiliated companies
Affiliated companies are the parent and its subsidiaries.
Subsidiaries are companies in which the parent
may exercise a controlling influence on business
policy. This is the case, for instance, if the parent directly
or indirectly holds more than half of the voting
rights, if control agreements have been concluded or
if the parent is in a position to nominate the majority
of the members of the Management Board, or of
other
controlling bodies of the subsidiary.
Asset allocation
The structure of the investments, i.e. the portion
of the total investments invested in the different
vehicles
of investment (e.g. shares, fixed income
securities,
holdings, real estate, money market
instruments).
Asset liability management
Management concept in which decisions regarding
company assets and liabilities are coordinated.
This involves a continuous process in which strategies
for assets and liabilities are formulated, implemented,
monitored and revised, in order to achieve
the financial goals with defined risk tolerances and
restrictions.
Associated companies
These are participating interests consolidated at
equity,
i.e. by including them in the consolidated
financial
statements with the corresponding share
in the equity. The major prerequisite for doing so is
the possibility of the Group exercising a decisive influence
on the operating and financial policy of the
associated
companies, regardless of whether the
Group actually exercises that influence.
At amortised cost
Recognised on the balance sheets at the amortised
cost, i.e. the difference between acquisition costs
and the redemption amount is spread out over the
corresponding pro rata term or capital share.
Benchmark method
An accounting and valuation method preferred
under
IFRS.
Book value (amortised acquisition costs)
The original acquisition costs minus lasting reduction
in value and differences between acquisition costs
and redemption amount are credited or debited to
acquisition costs, with an effect on income until the
amount falls due.
Cash flow statement
Shows the cash surplus from operating, investing
and financing activities generated by the company
during a specific period (source and use of funds).
Combined ratio
Sum of the operating expenses and the insurance
benefits (both retained) in relation to the premiums
earned in property and casualty insurance.
Corporate Governance
Corporate Governance refers to the legal and factual framework of the management
and monitoring of companies. Corporate governance regulations are geared towards
transparency and thus strengthen the trust in management and control focusing
on value creation.
Cost ratio
Operating expenses (retained) in relation to premiums
earned.
Deferred acquisition costs
These comprise the expenses incurred by an insurance
company for concluding new insurance policies
or renewing existing policies. Amongst other
costs, they include acquisition commissions and
expenses
for handling the proposal form and risk
underwriting.
Deferred taxes (active/passive)
Deferred taxes arise from temporary differences
between
the commercial balance sheet and the balance
sheet for tax purposes, and those resulting from
uniform valuation standards throughout the Group.
The calculation of deferred taxes is based on the specific
tax rates of each country that the Group companies
are based in; changes in the tax rate that have
been decided on as at the balance sheet date are included.
Deposits receivable/payable under reinsurance
business
Amount receivable by the reinsurance company
from the ceding company on the basis of the reinsurance
business accepted by the reinsurer and
which, for the latter, is similar to an investment. The
amount equals the amount the ceding company
provides as collateral. Analogously: deposits payable.
Derivatives
Financial contracts whose value depends on the
price development of an underlying asset.
Direct insurance business
Insurance contract taken out by a direct (primary) insurance
company with a private person or company,
as opposed to reinsurance business accepted (indirect
business) which refers to the business accepted
from another direct (primary) insurer or reinsurance
company.
Diversification
Diversification is a business policy instrument that
generally involves positioning or distributing the
activities
of a company over various areas to avoid
dependence on single factors.
Duration
The weighted average maturity of an interest-sensitive
financial investment or a portfolio. It is a risk
measure of the sensitivity of financial investments to
changes in the rate of interest.
Earnings per share (ordinary/diluted)
The consolidated profit for the year divided by the
average number of shares outstanding. Diluted earnings
per share include subscription rights exercised
or to be exercised in the number of shares, and in
the consolidated profit for the year.
Earned premiums
The premiums earned on an accrual basis, which
determine the year’s income. For calculating the
amount of earned premiums, in addition to gross
premiums written, the change in unearned premiums
in the business year, the provision for expected
cancellations and other receivables from
unwritten
premiums are considered.
Equity method
Method used for recognising the interests in associated
companies. They are, in principle, valued at the
Group‘s share in the equity of these companies. In
the case of interests in companies which also prepare
consolidated financial statements, the valuation
is based on the share in Group equity. Under current
valuation, this measurement is to be adjusted for
proportional equity changes, with the interest in the
net income for the year being allocated to the consolidated
result.
FAS
US Financial Accounting Standards laying down specifics
of US GAAP (Generally Accepted Accounting
Principles).
Goodwill
Excess over the purchase price for a subsidiary and
the share in its equity after winding up the hidden
reserves attributable to the purchaser on the date of
acquisition.
Gross amounts
Presentation of the balance sheet items prior to the
deduction of the amount which is allocated to the
business ceded to a reinsurer.
Hedging
A way of insuring oneself against unwanted price
fluctuations by the use of adequate counter positions,
particularly in derivatives.
IAS
International Accounting Standards.
IFRS
International Financial Reporting Standards. As of
2002, the term IFRS refers to the entire concept of
standards adopted by the International Accounting
Standards Board. Standards that were adopted
before that are still called International Accounting
Standards (IAS).
Insurance benefits
Expenses (net of the reinsurer’s share) arising from
claim settlement, premium refunds and profit participation,
and from changes in the actuarial provisions.
Loss ratio
Retained insurance benefits in property and casualty
insurance, in relation to premiums earned.
Minority interests
Shares in the equity of associated companies that are
not held by Group companies.
Minority interests in net profit
The share of net profit allocated not to the Group,
but to shareholders outside of the Group holding
interests
in associated companies.
Multitranches
Bonds involving a put option under which the
seller
can sell additional bonds (with an identical
or shorter
term) to the buyer. The buyer receives a
premium
which increases the yield on the security
as opposed to a “normal” security having the same
term and yield.
Operating expenses
This item includes acquisition expenses, the handling
of the policy portfolio and reinsurance expenses.
After
deduction of commissions and profit participations
received under reinsurance business ceded, the
remaining expenses are the net operating expenses.
Premiums
Total premiums written. All compulsory premiums
in the financial year, from insurance policies in direct
business and reinsurance business accepted.
Profit participation
In life and health insurance, the policyholders are entitled
by law and by contract to an adequate share in
the profits generated by the company. The amount
is reset every year.
Provision for outstanding claims
This provision includes the obligations for payment
of insurance claims which have already occurred on
the reporting date, but which are not yet completely
settled.
Provision for premium refunds and profit
participation
The part of the profit to be distributed to the policyholders
is appropriated to a provision for premium
refunds and/or profit participation. The provision
also includes deferred amounts.
Reinsurance
An insurance company would cede parts of its own
risk to another insurance company.
Reinsurance premiums ceded
Share of the premiums paid to the reinsurer as a
consideration for insuring certain risks.
Retention
The part of the risks assumed which the (re)insurer
does not cede.
Retrocession
Retrocession is the ceding of reinsurance business accepted
to a retrocessionaire. Professional reinsurance
companies and also other insurance companies,
within their internal reinsurance business, use retrocession
as an instrument for spreading and controlling
risks.
Return on equity (ROE)
The return on equity (before tax) is the profit on
ordinary
activities in relation to the average total
equity
(without consideration of the contained net
profit). It is used as a general indication of the company‘
s efficiency.
Revaluation reserves
Unrealised profits and losses resulting from the difference
in the present market value and acquisition
value
and/or the amortised acquisition costs for fixed
interest securities are allocated to this reserve, without
affecting income, after the deduction of deferred
taxes and provisions for deferred profit participation
(in life insurance).
Risk
The possibility that negative factors could influence
the future financial situation of the company.
Furthermore,
in the insurance business, risk is understood
as the possibility that a claim will arise because
a danger
that has been ensured against occurs. The
insured
object or insured person is also frequently
referred
to as a risk.
Risk management
Ongoing, systematic and continuous identification,
analysis, evaluation and management of potential
risks that could endanger the assets, financial situation
and profits of a company over the medium
and long terms. Target: to ensure the continued
existence
of a company, secure the company goals
against disruptive events, with the aid of appropriate
measures, and improve the company value.
Securities available for sale
Available-for-sale securities are securities that are
neither
meant to be held until maturity nor have
they been acquired for short-term trading purposes;
available for sale at any time, they are recognised at
par value on the balance sheet date.
Securities held to maturity
Securities representing money claims which are held
with the intention of keeping them to maturity. They
are recognised at amortised cost.
Solvability
Level of own funds in an insurance company.
Stress test
Stress tests are a special form of scenario analysis
with the goal of being able to quantify the potential
loss of portfolios during extreme fluctuations in
the market.
Subordinate debt
Debt which is honoured in the case of winding up or
bankruptcy only after all the other debts have been
settled.
Supplementary capital
Capital paid in which is agreed to remain at the insurance
company’s disposal for at least five years,
with no cancellation possible; it accrues interest only
to the extent that this is covered by the net profit
for the year. It can only be repaid prior to liquidation
after
a pro rata deduction of the net losses incurred
during the retention period; in the case of liquidation,
it can only be redeemed after those payables
have been settled or secured that do not constitute
equity or participation capital.
Trading portfolio (held for trading)
Debt securities, shares and other securities (primarily
derivatives and structured products) which are held
mainly for short-term trading purposes. They are
recognised at current market value.
Unearned premiums
That part of the premium income of the year which
refers to periods of insurance that lie after the reporting
date, i.e. which have not yet been earned on the
reporting date. In the balance sheet, with the exception
of life insurance, unearned premiums have to
be shown as a separate line item under the actuarial
provisions.
US GAAP
US Generally Accepted Accounting Principles.
Value at risk
A method for measuring market risks in order to
calculate
the expected value of a loss that might
occur
in an unfavourable market situation, with a determined
probability within a defined period of time.
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