Glossary

The risk that the parameters used in the methods or models are not representative of future outcomes. (ASOP No. 43)

Mathematical, financial, economic, or statistical input to models that, when  varied, results in different realizations. Examples include expected values, and the coefficients of variables in mathematical distributions or regression formulae. As input to a model, parameters are sometimes considered assumptions and are sometimes considered data, but are named separately in this standard.

An individual who (a) is currently receiving benefit coverage under a retiree group benefits program, (b) is reasonably expected to receive benefit coverage under a retiree group benefits program upon satisfying its eligibility and participation requirements, or (c) is a dependent of an individual described in (a) or (b).

Payments made by a participant to support a retiree group benefits program. (2nd Draft Proposed Revision of ASOP No. 6)

An insurance or annuity policy under which the policyholder is entitled to participate in the distributable surplus of the company. (ASOP No. 10)

A method of financing a pension plan under which the contributions to the plan are generally made at about the same time and in about the same amount as benefit payments and expenses becoming due. (ASOP No. 4)

An independent and qualified actuary who is retained by the board of directors of the company or its designee to render a PBA review opinion. (Independent Review of Principles-Based Valuations)

The document or set of documents containing supporting information prepared by the company under the direction of a qualified actuary as required by Chapter VM-31: PBR Report Requirements for Business Subject to a Principle-Based Reserve Valuation of the Valuation Manual (VM-31). (Principle-Based Reserves for Life Products (Second Exposure Draft))

A payment mechanism under which an MCO may receive funds in addition to the capitation rates for meeting targets specified in the contract between the state and the MCO. (Medicaid Managed-Care Capitation – Rate Development and Certification)

An amount included in the capitation rates that is paid if the MCO meets certain state requirements, which may be related to quality or operational metrics. The amount may be withheld or paid up front with the monthly capitation rate. (Medicaid Managed-Care Capitation – Rate Development and Certification)

The amount assigned to a period using a cost allocation procedure for purposes other than funding.  This may be a function of plan obligations, normal cost, expenses, and assets.  In many situations, periodic cost is determined for accounting purposes.

Amounts payable by a resident periodically (usually monthly) during the existence of a residency agreement. The periodic fees are typically adjusted from time to time to reflect changes in operating costs.

A move from one level of care to another level of care without expectation of returning to the former level of care.

Physical assets, such as land, building, furniture, fixtures, or equipment, which belong to the CCRC. These assets, excluding land, are assumed to depreciate over their respective lifetimes. These assets are also referred to as the fixed assets of the CCRC.

The plan under which a mutual company converts to a stock company. (ASOP No. 37)

The relevant terms of the plan document and any relevant administrative practices known to the actuary.

An organization that establishes or maintains a retiree group benefits program. Examples of plan sponsors include employers and Taft-Hartley Boards of Trustees. (2nd Draft Proposed Revision of ASOP No. 6)

Unless otherwise specified, the term policy (and its plural form, policies) in this standard includes both insurance policy and annuity contract. In some demutualizations it may also include supplementary contracts.

An accrued obligation to policyholders that relates to the payment of future costs and amounts accrued for unearned revenue. The amount accrued for unearned revenue may or may not be shown separately in the company’s financial statements, but is, in any case, included in the policy benefit liability for purposes of this standard. (ASOP No. 10)

All premiums and other amounts paid by policyholders or contract holders to the insurer and all benefits, expenses, and other amounts paid to policyholders or others as required by policy or law. (ASOP No. 7)

The risk that the amount or timing of cash flows under a policy or contract will differ from expectations or assumptions for reasons other than a change in investment rates of return or a change in asset cash flows. This has been commonly referred to in actuarial literature as the C-2 risk. (ASOP No. 7)

Policies that are grouped together for the purposes of determining an NGE.

A premium, value, charge, or benefit that limits a nonguaranteed charge or benefit. Policy factors are based on the guarantees defined in the policy. Examples of policy factors include minimum cash values, minimum mortality charges, maximum gross premiums, and maximum policy loan interest rates.

Nonguaranteed returns of premium or distributions of surplus. (ASOP No. 29)

A health benefit plan in which the claim cost portion of its premium rates is based at least in part on the claims experience of groups other than the group being valued. The use of projection assumptions that are not based solely on the claims experience of the group being valued (for example, the health care cost trend rate assumption) would not by itself create a pooled health plan. (2nd Draft Proposed Revision of ASOP No. 6)

An estimate of the number of residents expected to live in the CCRC at various future times.

Interest rate on an investment portfolio, calculated relative to current book values or on other asset valuation bases. (ASOP No. 20)

ASOPs frequently call upon actuaries to undertake certain inquiries, perform certain analytical tests, or make disclosures if it is “practical” or “practicable” to do so. These terms are intended to suggest that all possible steps need not always be taken to complete an assignment. A professional assignment frequently requires the actuary to adopt a course of action that is likely to yield an appropriate result without being unnecessarily time-consuming, elaborate, or costly relative to the principal’s needs. Thus, it is appropriate for the actuary, exercising professional judgment, to decide that the circumstances surrounding a particular assignment are such that it would not be necessary to undertake a particular task. (Note: ASOPs commonly use “practical” and “practicable” interchangeably.) (ASOP No. 1)

A potential payment to prefund the retiree group benefits program , other than by the participant, determined by the actuary. It may or may not be the amount actually paid by the plan sponsor or other contributing entity. (2nd Draft Proposed Revision of ASOP No. 6)

A condition that exists when the net GAAP liability plus the present value of future gross premiums is less than the present value of future benefits and expenses using current best estimate assumptions. (ASOP No. 10)

A liability established when, for a period of time, the value of future premiums, current reserves, and unpaid claims liability are less than the value of future claim payments and expenses plus the anticipated liabilities at the end of the period.

Those expenses that vary in direct proportion to premium, e.g., premium taxes. These expenses are sometimes referred to as variable expenses. (ASOP No. 29)

The final price charged for the transfer of risk.

A specific asset valuation method that is mandated by law, regulation, or other binding authority. For purposes of this standard, the plan sponsor would be considered a binding authority to the extent that law, regulation, or accounting standards give the plan sponsor responsibility for selecting such an asset valuation method. (ASOP No. 44)

A specific assumption or method that is mandated or that is selected from a specified range that is deemed to be acceptable by law, regulation, or other binding authority. For purposes of this standard, the plan sponsor would be considered a binding authority to the extent that law, regulation, or accounting standards give the plan sponsor responsibility for selecting such an assumption or method.

A specific assumption or method that is selected by another party, to the extent that law, regulation, or accounting standards give the other party responsibility for selecting such an assumption or method. For this purpose, an assumption or method selected by a governmental entity for a plan that such governmental entity or a political subdivision of that entity directly or indirectly sponsors is a prescribed assumption or method set by another party.

A specific assumption or method that is mandated or that is selected from a specified range or set of assumptions or methods that is deemed to be acceptable by applicable law (statutes, regulations, and other legally binding authority). For this purpose, an assumption or method selected by a governmental entity for a plan that such governmental entity or a political subdivision of that entity directly or indirectly sponsors is not a prescribed assumption or method set by law.

A specific assumption that is mandated or that is selected from a specified range that is deemed to be acceptable, by law, regulation, or other binding authority. (ASOP No. 21)

A specific assumption or method that is selected by another party, to the extent that law, regulation, or accounting standards give the other party responsibility for selecting such an assumption or method. For this purpose, an assumption or method selected by a governmental entity for a plan that such governmental entity or a political subdivision of that entity directly or indirectly sponsors is a prescribed assumption or method set by another party.

A specific assumption or method that is mandated or that is selected from a specified range or set of assumptions or methods that is deemed to be acceptable by applicable law (statutes, regulations, and other legally binding authority). For this purpose, an assumption or method selected by a governmental entity for a plan that such governmental entity or a political subdivision of that entity directly or indirectly sponsors is not a prescribed assumption or method set by law.

The value at a point in time of cash flows at other points in time, calculated at selected interest rates.  It is also known as “discounted present value” or “discounted value.” (ASOP No. 36)

The process of setting charges for, and benefits provided by, an insurance policy or annuity contract at issue. Examples of charges include premiums, cost of insurance charges, separate account charges, surrender charges, and policy fees. Examples of benefits include death benefits, surrender benefits, and income benefits.

A measurement of pension obligations performed by the actuary to estimate the impact on the periodic cost or the actuarially determined contribution of proposed changes to plan benefit provisions.

A client or employer of the actuary.

The reserve resulting from a principle-based valuation prepared in accordance with the Valuation Manual. (Principle-Based Reserves for Life Products)

The document or set of documents containing supporting information prepared by the company under the direction of a qualified actuary as required by Chapter VM-31: PBR Report Requirements for Business Subject to a Principle-Based Reserve Valuation of the Valuation Manual (VM-31). (Principle-Based Reserves for Life Products (Second Exposure Draft))

A valuation that uses a cash flow model to project liability and asset cash flows to estimate the values and analyze the risks of policy benefits and guarantees, and of the assets backing the policies. It uses assumptions for some risk factors that are based on the insurer’s own experience to the extent relevant and credible. (Principle-Based Reserves for Life Products)

The risk associated with the projection of future contingencies, that are inherently variable, even when the parameters are known with certainty. (ASOP No. 43)

The rates of change in a group’s compensation attributable to the change in the real value of goods or services per unit of work.

Actuaries bring to their assignments not only highly specialized training, but also the broader knowledge and understanding that come from experience. For example, the ASOPs frequently call upon actuaries to apply both training and experience to their professional assignments, recognizing that reasonable differences may arise when actuaries project the effect of uncertain events. (Introduction – Introductory Actuarial Standard of Practice)

The difference between all expected cash inflows and all expected cash outflows in the future cost estimate of the risk transfer or risk retention. The profit margin is also equal to the underwriting profit margin, plus the provision for investment income, less expected income taxes, plus any risk margins in the future cost estimate. Profit margin is also known as total return.

An evaluation of a product’s expected financial return using a set of pricing assumptions and a specified model framework.

A measurement used to assess a product’s expected level of financial return.

Health benefit programs including but not limited to commercial and employer sponsored health insurance, self-funded employer health insurance, and government sponsored health insurance, such as Medicaid and Medicare.

The investments held by the trust fund, including any cash balance, available to meet program costs.

The program’s expenditures for benefits and administrative or general expenses. The expenditures for benefits are sometimes referred to as claim costs. The amount required to attain and maintain a target trust fund level may also be included.

The program’s tax income, investment income, premiums, and any other receipts and income, other than loan proceeds.

The specific goal or question the actuary is addressing when selecting or using a catastrophe model to meet the needs of the principal. (ASOP No. 38 Revision)

Those pension plan benefit amounts which are expected to be paid at various future times under a particular set of actuarial assumptions, taking into account such items as the effect of advancement in age and past and anticipated future compensation and service credits. That portion of an individual’s projected benefit allocated to service to date, determined in accordance with the terms of a pension plan and based on future compensation as projected to retirement, is called the credited projected benefit. (ASOP No. 4)

A method under which the excess of the actuarial present value of the sum of projected benefit payments for a specified period plus a funding objective as of the end of the period over the actuarial value of assets is allocated on a level basis over the earnings or service of the group during the specified period, including earnings or service for any future entrants assumed. The allocation is performed for the group as a whole, not as a sum of individual allocations. The portion of this actuarial present value allocated to a valuation year is called the annual cost allocation. (ASOP No. 4)

The application of an adjusted historical claim metric to an appropriate exposure base, in order to estimate incurred claims. (ASOP No. 5 Revision – Incurred Health and Disability Claims)

An amount established for expected future incentive payments or receipts or for non-claim related payments or receipts.

A liability established to cover expected future incentive or non-claim payments or to cover the possibility of a change in the relationship between the risk-assuming entity and a provider. (ASOP No. 42)

Individuals, groups, or organizations providing health care services, including doctors, hospitals, physical therapists, medical equipment suppliers, etc.

An explicit amount to make some provision for uncertainty in a liability. This sometimes is called a Provision for Uncertainty or a Margin for Uncertainty.

A risk factor assumption developed by applying margins to the anticipated experience assumption for that risk factor. (Principle-Based Reserves for Life Products)