Glossary

The process of verifying the accuracy of information submitted for use in the risk-adjustment model.

Investment income earned on funds held over time, expressed as a percentage of those funds. (ASOP No. 8)

The process of estimating future costs associated with the transfer of risk in insurance or other risk-transfer mechanisms. (Property-Casualty Ratemaking)

An estimate of the expected value of future costs.

Time period for which managed-care Medicaid capitation rates are being developed. (Medicaid Managed-Care Capitation – Rate Development and Certification)

The sum of the risk premium and the real risk-free return. It can also be expressed as the nominal return less inflation. (Proposed Revision of ASOP No. 27)

The return on an investment that is completely secure as to principal and yield in an environment with no inflation. (Proposed Revision of ASOP No. 27)

Model results that are derived from a given set of inputs. This concept is also sometimes referred to as a “scenario” or a “run.” (Modeling)

In many instances, the ASOPs call for the actuary to take “reasonable” steps, make “reasonable” inquiries, select “reasonable” assumptions or methods, or otherwise exercise professional judgment to produce a “reasonable” result when rendering actuarial services. The intent is to call upon the actuary to exercise the level of care and diligence that, in the actuary’s professional judgment, is necessary to complete the assignment in an appropriate manner. Because actuarial practice commonly involves the estimation of uncertain events, there will often be a range of reasonable methods and assumptions, and two actuaries could follow a particular ASOP, both using reasonable methods and assumptions, and reach different but reasonable results. (ASOP No. 1)

The expectations that the current dividend scale will be maintained if the experience underlying the current scale continues, and that the dividend scale will be adjusted appropriately if the experience changes. (ASOP No. 33)

The process of modifying the risk adjustment model, usually the risk weights. Recalibration is often used to make the risk adjustment model more specific to the population, data, and other characteristics of the project for which it is being used. (ASOP No. 45)

An amount (for example, deductibles, ceded reinsurance, salvage, or subrogation) that may be collected from a counterparty.

Where appropriate, the term includes initial determination. (ASOP No. 1)

A clause in a residency agreement or membership agreement that provides for a refund of any portion of the advance fee upon termination of the agreement.

The portion of an advance fee, designated in the residency agreement, that is to be returned to the resident or the resident’s estate either upon termination of the agreement or upon resale of the unit. (ASOP No. 3)

A measurement that may be used by the regulatory authority in evaluating a health filing. Possible benchmarks may include loss ratios, capital ratios, or actuarial values. (ASOP No. 8)

The contract between one or more individuals and the CCRC that describes the services to be provided and the obligations of the parties. The contracts are usually of long duration and may be for the life of the individual or the life of the survivor of joint individuals. The residency agreement describes the health care guarantee, if any, and any portion of the advance fee that would be refundable upon termination of the residency agreement. (Proposed Revision of ASOP No. 3)

Reinsurance as it affects the entity accepting the risk under a reinsurance agreement. This applies equally to an assuming entity and to an assuming entity that is a retrocessionaire.

Reinsurance as it affects the entity transferring the risk under a reinsurance agreement. This applies equally to a ceding entity and to a ceding entity that is an assuming entity (for example, assuming entity ceding to a retrocessionaire).

A contractual agreement whereby some element of risk contained in the coverage provided by one or more plans or contracts is transferred from the ceding entity (the reinsured) to the assuming entity (the reinsurer). (ASOP No. 36)

The combination of the reinsurance agreement(s), its associated service contracts, and their implementation. Activities under a reinsurance program include but are not limited to sales, underwriting, claims adjudication, and administration, which might be affected by volume-based or performance-based fees or commissions.

A transaction made pursuant to a reinsurance agreement. (ASOP No. 11)

The assumed yield rate on assets to be purchased with the closed block’s cash flows. (ASOP No. 33)

Uncertainty regarding the yields that will be available on reinvestment of proceeds from current investments that are subject to reinvestment in the future. (ASOP No. 20)

Experience in situations that are sufficiently similar to the liabilities, assets, and environments being projected to make the experience appropriate, in the actuary’s professional judgment, as a basis for determining the assumptions for anticipated experience.

Actuaries frequently rely upon others for information and professional judgments that are pertinent to an assignment. Similarly, actuaries often rely upon others to perform some component of an actuarial analysis. Accordingly, some ASOPs permit the actuary to rely in good faith upon such individuals, subject to appropriate disclosure of such reliance, if required by applicable ASOPs (for example, ASOP Nos. 23, Data Quality, and 41). (ASOP No. 1)

The reported amount is the minimum amount that is required to be reported by the company with respect to the C3 component of risk-based capital as of the valuation date for all policies required to use a principle-based approach. The reported amount equals the excess on the valuation date of the total asset requirement over the statutory liabilities reported with respect to the policies. (Standards for Life-Insurance Required Capital Levels)

A property of a model that implies that each time the model is run with the same inputs, the realization will be identical. (Modeling)

An actuarial communication of which the formal content is prescribed by law or regulation. (ASOP No. 32)

The minimum level of excess of assets over liabilities required by regulators, rating agencies, or internal assessments.

An amount recorded in financial statements or accounting systems in order to reflect obligations. (2nd Exposure Draft Proposed Revision of ASOP No. 36)

The process of evaluating the reasonableness of a reserve. (Draft Proposed Revision of ASOP No. 36)

The process of evaluating the reasonableness of a reserve. (ASOP No. 36)

A provision to satisfy obligations as of a specified date. (Draft Proposed Revision of ASOP No. 36)

The contract between one or more individuals and the CCRC that describes the services to be provided and the obligations of the parties. The contracts are usually of long duration and may be for the life of the individual or the life of the survivor of two or more individuals. The residency agreement describes the health care guarantee, if any, and any portion of the advance fee that would be refundable upon termination of the residency agreement.

A person living in the CCRC who has signed a residency agreement with a health guarantee or a refund guarantee.

Assessments for the entity’s share of residual market profits or losses.

A provision for the entity’s costs that represents its share of residual market profits or losses. (ASOP No. 29)

Temporary care for frail or impaired persons that allows volunteers to have a rest from care giving. (ASOP No. 18)

An actuary who is authorized by the entity to respond to the auditor or examiner on behalf of the entity being audited, reviewed, or examined with respect to specified elements of the entity’s financial audit, financial review, or financial examination that are based on actuarial considerations. Any given financial audit, financial review, or financial examination may involve one or more responding actuaries.

The program specifying retiree group benefits: including eligibility requirements, participant contributions, and the design of the benefits being provided. (2nd Draft Proposed Revision of ASOP No. 6)

Medical, prescription drug, dental, vision, legal, death, long- term care, or other benefits (excluding retirement income benefits) that are provided during retirement to a group of individuals, on account of an employment relationship. (ASOP No. 6)

The plan specifying retiree group benefits: including eligibility requirements, contributions, and the design of the benefits being provided. (Proposed Revision of ASOP No. 6)

The program specifying retiree group benefits: including eligibility requirements, participant contributions, and the design of the benefits being provided. (2nd Draft Proposed Revision of ASOP No. 6)

An employment-related arrangement for determining the amount and timing of retirement benefit payments, eligibility for payments, etc. A retirement plan may be a defined benefit pension plan, a defined contribution plan, or a hybrid plan with both defined benefit and defined contribution elements. It may be a plan qualified under the IRC, a nonqualified plan of deferred compensation, or a governmental plan sponsored by the United States or its agencies or a state or local government. (ASOP No. 34)

A rating technique that adjusts the insured’s premium for a policy period based on the insured’s loss experience during that same period (Property/Casualty Ratemaking).

An examination of the obvious characteristics of data to determine if such data appear reasonable and consistent for purposes of the assignment. A review is not as detailed as an audit of data.

The date (subsequent to the valuation date) through which material information known to the actuary is included in forming the reserve opinion. (ASOP No. 36)

An actuary who is responsible for reviewing a health filing on behalf of a government agency or consumers. This includes actuaries employed by the government agency and consulting actuaries engaged to review a health filing on behalf of the government agency or consumers. (ASOP No. 8)

Clinics that meet certain requirements for providing primary care services in specific areas, as outlined in the Public Health Service Act and defined in Section 1905(l)(1) of the Social Security Act. Medicaid payment rates to RHCs may be specified in legislation or statute. (Medicaid Managed-Care Capitation – Rate Development and Certification)

The potential of future deviation of actual results from expectations derived from actuarial assumptions.

The process by which relative risk factors are assigned to individuals or groups based on expected resource use and by which those factors are taken into consideration and applied. (ASOP No. 45)

The level of aggregate risk that an organization chooses to take in pursuit of its objectives.

A methodology used to identify, measure, and place limits on risks an organization is willing to take. The risk appetite framework may contain risk appetite statements, measurement of risks, setting and monitoring of risk appetite limits, and the governance associated with risk appetite.

The level that a risk measure should not exceed for the organization to remain within the intended level of risk-taking. Risk appetite limits may be applied at an aggregate level or specifically to a risk type. They may also operate at the company level within a group.

A statement by the management of an organization (or a part of an organization) of how much risk, of different risk types and also overall, that the organization is willing to take. There may be several risk appetite statements pertaining to individual risks or a single statement across an organization.

Amounts to absorb potential unexpected losses resulting from severe events.

A minimal acceptable amount of capital. (Capital Adequacy Assessment for Insurers)

The preferred amount of capital. This could be a range.

The minimum level of capital necessary for an organization to operate effectively as selected by management and expressed as a function of a measure of risk. An insurer may establish multiple risk capital thresholds based on different risk metrics at any one time.

Measurable or observable factors or characteristics that are used to assign each risk to one of the risk classes of a risk classification system. (ASOP No. 12)

A set of risks grouped together under a risk classification system. (ASOP No. 12)

The process of establishing a system for evaluating, prioritizing, and cataloging risks, normally involving the creation of a risk inventory and an associated risk taxonomy.

The system, process, or schema used to assign risk subjects to risk classes, based on the risk characteristics of each risk subject.

A system used to assign risks to groups based upon the expected cost or benefit of the coverage or services provided. (ASOP No. 12)

A combination of practices, tools, and methodologies within a risk management system used to measure the potential impacts of risk events on the performance metrics of an organization. (ASOP No. 46)

An aspect of future experience that is uncertain as of the valuation date and that can affect the future financial results arising from the provisions of a policy. Examples include mortality, expense, policyholder behavior, and asset return. (Principle-Based Reserves for Life Products)

A mechanism for the assessment, management, and financing of exposure to loss.

A regularly updated register of the risks to which an organization is exposed. Also commonly referred to as a risk register.

A threshold used to monitor the actual risk exposure of a specific unit or units of the organization to ensure that the level of aggregate risk remains within the risk tolerance. (ASOP No. 46)

A combination of practices, tools and methodologies that an organization uses to identify, assess, measure, mitigate and manage the risks it faces during the course of conducting its business. (ASOP No. 46)

A provision for uncertainty in an unpaid claim estimate (ASOP No. 20)

A measurement of the outcomes of a contingent event mitigated by the financial or personal security system. Examples of risk measures include mortality rates, healthcare costs, and claim frequency and severity.

A measure of risk. Examples include value at risk, expected policyholders deficit, and conditional tail expectation. (ASOP No. 46)

Action that reduces the frequency or severity of a risk. (ASOP No. 46)

The risk that actual experience may differ from best-estimate assumptions in a manner that produces costs higher than assumed or revenues less than assumed.

The portion of real return that reflects uncertainties of future payments and appreciation. (Proposed Revision of ASOP No. 27)

The risks to which an organization is exposed over a specified period of time.

A risk-management and risk-control strategy for the assessment, management, or financing of retained risk associated with the specific coverage. Examples of risk retention include self-insurance and certain types of single parent captives.

An individual or entity that is or may be covered by a financial or personal security system.

A tiered structure with broad risk classifications at the top and more narrowly defined classifications further down. Risk inventories typically use taxonomy to index their risks.

The aggregate risk-taking capacity of an organization.

A risk-management and risk-control strategy, involving legally binding agreements, that shifts responsibility from one party to another or indemnifies one party by another party for the financial obligations associated with the coverage. Examples of risk transfer include insurance, reinsurance, and loss portfolio transfers.

The process of selecting actions and making decisions to transfer, retain, limit, and avoid risk. This can include determining risk tolerance, choosing risk appetites, setting risk limits, performing risk mitigation activities, and optimizing organizational objectives relative to risk. (ASOP No. 47)

The value assigned to each condition category that indicates the expected contribution of that condition category to an individual’s estimated resource use. (ASOP No. 45)

An expected or target annual return to the investor that includes a risk-free return that compensates the investor for the use of the funds (recognizing anticipated inflation so as to maintain the real value of those funds), plus a risk premium above the risk-free rate that compensates the investor for the risk that actual returns will deviate from expected. The size of the risk premium varies with the degree of risk associated with the returns. (ASOP No. 19)

The entity with respect to which the actuary is determining liabilities associated with health benefit plans or risk-sharing arrangements. (ASOP No. 42)

The entity with respect to which the actuary is determining liabilities associated with health benefit plans or risk-sharing arrangements.

The theoretical rate of return of an investment with zero risk with respect to payment timing and amount. (ASOP No. 20)

An arrangement involving two or more entities, calling for payments contingent upon certain financial, operational, or other metrics. Examples include, but are not limited to, provider risk-sharing arrangements such as provider incentives, bonuses, and withholds or governmental risk-sharing arrangements such as risk corridor and risk-adjustment programs.

An arrangement involving a provider, calling for payments to or from the provider where the payment is not related to a specific service performed by that provider, and the payment is contingent upon certain financial or operational goals being achieved. Examples of risk-sharing arrangements include provider incentives, bonuses, and withholds.

Clinics that meet certain requirements for providing primary care services in specific areas, as outlined in the Public Health Service Act and defined in Section 1905(l)(1) of the Social Security Act. Medicaid payment rates to RHCs may be specified in legislation or statute. (Medicaid Managed-Care Capitation – Rate Development and Certification)