LOMA Glossary

The LOMA Glossary of Insurance and Financial Services Terms

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E&O insurance. See errors and omissions insurance.

early-warning financial ratio tests. In Canada, a set of ratios used by regulators to analyze insurers’ financial statements.

earmarked surplus. See special surplus.

earnings. (1) Profits that are made through either labor or increases in the value of investments. (2) For an insurance or annuity product, the amount that a product adds to the insurance company’s capital in a given period; takes into account noncash adjustments, such as a product’s contribution to capital.

earnings enhanced death benefit (EEDB). An enhanced death benefit that can be added to a variable annuity. The EEDB benefit provides that the death benefit will equal either the contract’s accumulated value at the time of the contract owner’s death or an enhanced benefit based on (1) the performance of the separate accounts, (2) the age of the contract owner when the contract was issued, and (3) the number of years the contract has been in force at the time of the contract owner’s death. Also known as an enhanced earnings benefit (EEB).

earnings first rule. A United States federal tax rule stating that any amount that the contract owner withdraws from an annuity contract is treated as a withdrawal of earnings, which is taxable income, until the contract owner has withdrawn all of the earnings in the contract. Thereafter, withdrawals are treated as a return of the contract owner's cost basis. Also known as the interest first rule or last-in-first-out (LIFO) rule.

earthquake insurance. A form of property insurance that pays the policyholder in the event of an earthquake that causes damage to the property.

economic capital. An estimate of the amount of capital that a financial institution calculates to internally manage its own risks. Also known as internal capital. Contrast with regulatory capital and rating agency capital.

economic indicator. A statistical variable that demonstrates the direction of an economy. See also leading indicator, coincident indicator, and lagging indicator.

EEB. Enhanced earnings benefit; see earnings enhanced death benefit.

EEDB. See earnings enhanced death benefit.

effective interest rate. Interest rate or rate of return that includes the effects of compounding. Also known as the annual percentage rate (APR). Contrast with nominal interest rate. See also interest rate.

effective rate of return. The actual rate of return on a bond, if the purchase price differs from the bond’s par value; obtained by dividing the annual bond interest by the bond’s stated interest rate. Also known as effective yield.

effective yield. See effective rate of return.

EIA. See equity indexed annuity.

electronic insurance application. A technology that allows an applicant, sometimes in conjunction with a producer, to complete an application for insurance online and submit the application directly to an insurer’s new business processing system.

electronic signature. A unique personal identifier that makes a legally binding contract using electronic communications media like the Internet.

eligibility period. In contributory group insurance plans, the period of time—usually 31 days—during which eligible group members may enroll for the contributory group insurance coverage without having to provide evidence of insurability. Also called the enrollment period.

eligibility requirement. In employee benefits, any condition that an employee must satisfy in order to participate in an employer-provided employee benefit plan, such as group life insurance, group health insurance, or a retirement plan.

elimination period. (1) In disability income insurance policies, the specific amount of time that the insured must be disabled before becoming eligible to receive disability income benefit payments from the insurance company. (2) In long-term care insurance, the specific amount of time the insured must be receiving long-term care before becoming eligible to receive long-term care benefit payments from the insurance company. The longer the elimination period in a policy, the lower the premium for the policy. Also known as a waiting period, benefit waiting period, or deductible period.

embedded value (EV). A measure of the economic worth of a life insurance company. EV is equal to the present value (PV) of expected future distributable profits pertaining to in-force covered business, after sufficient allowance is made for the aggregate risks represented by this business. EV is a conservative value because it excludes any value attributable to future new business.

employee benefits. Additional programs and services offered by an employer to an employee in addition to compensation.

employee class. In group insurance, a group of employees categorized by position, earnings, or rank for purposes of determining eligibility for coverage and benefit levels.

Employee Retirement Income Security Act (ERISA). A United States federal law designed to protect covered employees by ensuring that employee benefit plans meet specified requirements. For example, ERISA requires employers to inform their employees about their pension and certain other benefits in a manner that an average employee can understand.

employer-employee group. For group insurance purposes, a group that consists of employees of a particular employer or the employees in any designated class of employees.

endorsement. See policy rider.

endorsement method of beneficiary change. A method of changing the beneficiary of a life insurance policy under which the policyowner must submit his policy to the insurer along with a beneficiary change request. Contrast with recording method of beneficiary change.

endowment insurance. A type of life insurance that provides a policy benefit payable either when the insured dies or on a stated date if the insured is still alive on that date.

enhanced earnings benefit (EEB). See earnings enhanced death benefit.

enrollment period. See eligibility period.

enterprise risk management (ERM). A system that identifies and quantifies risks from both potential threats and potential opportunities and manages these risks in a coordinated approach that supports the organization’s strategic objectives.

entire contract provision. (1) A life insurance, health insurance, and annuity policy provision that defines which documents constitute the contract between the insurer and the policyowner. (2) A reinsurance agreement policy provision that states that the reinsurance agreement represents the whole agreement between the parties, and that they have no further agreement than that stated in the written document.

entity agreement. A method of carrying out a partnership buy-sell agreement under which the partnership agrees to purchase the share of any partner who dies and to distribute a proportionate share of that ownership interest to each of the surviving partners. Contrast with cross-purchase agreement.

EOB. See explanation of benefits.

equity. An ownership interest in an asset. For real estate assets, the ownership interest is found by subtracting the amount of any outstanding mortgage from the market value of the property.

equity indexed annuity (EIA). A type of annuity product that guarantees the owner a minimum interest rate and also guarantees that the value of the annuity will never fall below a stated minimum as long as the contract is maintained for a specified period. In addition, the annuity offers the potential for additional interest earnings linked to the performance of a published market index of securities values. Also known as fixed indexed annuity, indexed annuity.

equity risk. The risk arising from movements in the direction of the stock market. See also market risk.

equity security. A security that represents an ownership interest in the issuing company. Contrast with debt security.

ERISA. See Employee Retirement Income Security Act.

ERM. See enterprise risk management.

errors and omissions (E&O) insurance. Insurance that protects an insurance producer against financial liability for any negligent acts or mistakes but does not cover a producer for intentional acts or wrongdoings.

escape clause. See bailout provision.

escrow account. A trust account used to pay property maintenance expenses, property taxes, and other expenses related to a mortgaged property.

estate. The accumulated assets that an individual owns when he dies.

estate planning. A type of planning in which a producer helps a potential customer to develop a program that will cover the customer’s current and future financial needs and will provide a means of conserving, as much as possible, the personal assets the person wants to pass on to her heirs at her death. See also advanced underwriting.

ETS. See Examination Tracking System.

EV. See embedded value.

evergreening. A term that annuity insurers use to describe the annual delivery of an updated prospectus to variable annuity contract owners.

evidence of insurability. Proof that an insurance underwriter requires to determine that a proposed insured meets the insurer’s health and lifestyle requirements and is an insurable risk.

evidence of insurability provision. A group life and health insurance policy provision that specifies the conditions, if any, under which the insurer reserves the right to require a person eligible for insurance to furnish evidence of individual insurability satisfactory to the insurer as a condition to part or all of his coverage.

Examination Tracking System (ETS). An electronic system developed by the National Association of Insurance Commissioners in the United States to help streamline examination scheduling by allowing states to schedule and coordinate market conduct and financial condition examinations.

examining physician. A physician who performs an examination of a proposed insured at the request of an insurance company to provide information for the underwriting process. Contrast with attending physician.

exception-based underwriting. A technology that integrates expert systems with electronic applications so that all insurance applications, except the most difficult ones that require an underwriter to take part in the decision-making process, are processed electronically.

excess interest-crediting rate. For fixed deferred annuities, the amount by which the current interest-crediting rate exceeds the guaranteed interest-crediting rate. See also current interest-crediting rate and guaranteed interest-crediting rate.

excess quota share arrangement. A reinsurance arrangement for assigning risk in which the direct writer keeps its full retention limit and cedes the remaining risk to two or more reinsurers on a percentage basis.

excess-of-loss ratio reinsurance. See stop-loss reinsurance.

excess-of-loss reinsurance. A type of nonproportional reinsurance in which a reinsurer is responsible for paying the amount of a claim above a predetermined limit.

excess-of-retention arrangement. A proportional reinsurance arrangement in which the direct writer establishes a dollar amount as its retention limit and the reinsurer agrees to assume monetary amounts greater than the direct writer’s specified retention limit, up to the reinsurer’s automatic binding limit.

excess-of-time reinsurance. See extended-time reinsurance.

exchange fee. A mutual fund fee for transferring money from one mutual fund to another within the same fund family.

exclusion. An insurance policy provision that describes circumstances under which the insurer will not pay the policy's benefit following an otherwise covered loss. For example, a life insurance policy may exclude payment of the policy's benefit when the insured commits suicide within a specified time after policy issue. See also limitation and reduction.

exclusion ratio. In the United States, a formula used to determine the portion of a fixed periodic income payment that can be excluded from taxable income.

exclusion rider. See impairment rider.

exclusive agent. See career agent.

exculpatory statutes. In the United States, state laws that permit an insurer to pay life insurance proceeds according to the terms of a policy without fear of double liability.

ex-date. See ex-dividend date

ex-dividend date. The date used for determining whether a stockholder is eligible to receive a declared dividend on stock. Also known as ex-date.

execution of transactions as authorized. The element of a company’s internal control system that concerns the delegation of authority to perform specified tasks and the communication of that authority.

executor. A personal representative who is responsible for settling the estate of a person who died with a valid will.

exhibit. See schedule.

expected claim experience. For purposes of group insurance underwriting, the dollar amount of claims an insurer estimates the proposed group will submit during the upcoming policy year.

expected morbidity. The number of sicknesses and injuries predicted to occur in a specified group of people at a given age.

expected mortality. The number of deaths predicted to occur in a specified group of people at a given age. Contrast with assumed mortality.

expense. An amount that a company spends in the course of conducting business. Contrast with revenue.

expense allocation. See cost allocation.

expense allowance. See allowance.

expense analysis. The process of determining which costs are associated with particular activities to help managers decide if a cost is worth the value the activity provides. Also known as cost analysis.

expense risk. The risk that actual expenses will be higher than expectations, causing the insurer to lose money on its products; a type of pricing risk.

expenses for contractual benefits. The total amount that an insurer must pay to fulfill the terms of its insurance and annuity contracts. Also known as contractual benefit expenses.

experience mortality rate. The historical rate of death in a given cohort.

experience rating. A method of setting group insurance premium rates under which the insurer considers the particular group’s prior claims and expense experience. Contrast with manual rating and blended rating.

experience refund. (1) In group insurance, the portion of a group insurance premium that is returned to a group policyholder if the group’s claim experience during the year was more favorable than expected when the premium was calculated. Also known as a premium refund. (2) In reinsurance, an amount credited by a reinsurer to a direct writer as compensation for the reinsurer’s lower than expected mortality experience.

explanation of benefits (EOB). In medical expense insurance, a document that may be sent by an insurer to a patient explaining what was covered for a medical service, and how payment amount and patient responsibility amount were determined.

express authority. Actual authority that a principal explicitly confers on an agent.

extended term insurance nonforfeiture option. A cash value life insurance policy nonforfeiture option under which the policyowner discontinues paying premiums and uses the policy’s net cash surrender value to purchase term insurance for the full coverage amount provided under the original policy, for as long a term as the net cash surrender value can provide.

extended-time reinsurance. A type of nonproportional reinsurance in which the reinsurer takes over paying policy benefits after the direct writer has paid policy benefits for a specified amount of time. Also known as excess-of-time reinsurance.

extension request. A request from a direct writer to a reinsurer to extend the direct writer’s reservation of capacity for a specified period so that the direct writer can gather all information needed to move the case from reserved to placed status.

external audit. An examination of a company’s records, policies, or procedures conducted by parties not associated with the company. Also known as an independent audit. Contrast with internal audit.

external replacement. A replacement in which the new individual life insurance policy or annuity contract is purchased from an insurer other than the insurer that issued the policy or contract being replaced. Contrast with internal replacement.

extra-percentage premium rate table. A type of substandard extra premium rate table, designed for application to a constant extra risk, that shows premium rates that are a certain percentage greater than the insurer’s standard premium rates.

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