Actuarial Dictionary for Students

  The year in which a loss event occurs, regardless of when the claim is reported. Tracking by accident year helps estimate reserves and analyze trends. Example: A crash in Dec 2024 but reported in Jan 2025 belongs to the 2024 accident year.

  A practical framework involving problem definition, solution development, implementation, and review. It ensures actuarial work remains accurate and relevant in changing environments. Example: Like baking a cake — plan, mix, bake, and adjust based on taste.

  The department responsible for pricing, reserving, capital modeling, and risk assessment. It plays a key role in protecting policyholder interests and ensuring solvency. Example: Producing reports that guide senior management decisions.

  A concise symbolic language used to represent complex formulas in financial and life contingency calculations. It enhances communication among actuaries. Example: axa_x for annuity value at age x.

  The present value of future expected payments, adjusted for interest and probability. It's used to price products and calculate reserves. Example: Estimating how much is needed today to cover possible future birthday gifts.

  When higher-risk individuals are more likely to seek insurance, leading to potential losses. Proper underwriting helps control this risk. Example: Smokers being more likely to buy life insurance without disclosure.

Age calculated by rounding to the nearest birthday. Used for accurate premium determination. Example: A person aged 29.6 is considered 30. 

We offer a 30-day return policy for all products. Items must be in their original condition, unused, and include the receipt or proof of purchase. Refunds are processed within 5-7 business days of receiving the returned item.

  Combines the number and size of claims to estimate total loss for a portfolio. Helps in setting premiums and capital. Example: Like rolling dice (number of claims) and spinning a wheel (claim size).

The portion of the premium invested after deducting charges in unit-linked policies. Influences policyholder returns. Example: ₹10,000 premium minus ₹1,000 charges = ₹9,000 invested

  An annuity where payments are made at the start of each period. Slightly more valuable than an ordinary annuity. Example: Rent paid at the beginning of each month.

  Aligns the cash flows of assets and liabilities to reduce risk and ensure obligations are met on time. Example: Using long-term bonds to back long-term pension payouts

  Assurance covers certain events (e.g., death), while insurance covers uncertain ones (e.g., theft). This distinction affects product design. Example: Life assurance vs motor insurance

  A reference table of standard death rates used before adjusting for current experience. Forms the foundation for pricing and reserving. Example: A generic mortality table before applying company-specific factors

  A reserving method blending expected losses with reported claims. Useful when data is sparse. Example: Like combining historical belief with new evidence.

Sharing claim costs between you and the insurance.

Like splitting pizza costs with a friend.

Ensures an insurer holds enough capital to withstand risks and meet obligations. A buffer against unexpected losses. Example: Holding ₹120 crore assets for ₹100 crore liabilities.

Investing in assets with maturities aligned to liabilities to ensure timely payments. Example: Buying a bond that matures when a pension is due.

A fixed-term bank investment offering guaranteed returns. Used for short-term, low-risk investments. Example: ₹1 lakh invested at 6% for one year

A technique for projecting claims using historical development patterns. Assumes stability over time. Example: Estimating unpaid claims for recent years using older data.

The number of claims occurring in a portfolio over a time period. Impacts pricing and reserves. Example: 20 claims out of 1,000 policies = 2% frequency

The average size of a claim. Together with frequency, it helps estimate total losses. Example: ₹10 lakh total from 50 claims → ₹20,000 severity

A shared insurance agreement between parties, often involving reinsurers. Spreads risk and reduces exposure. Example: 80% retained by insurer, 20% by reinsurer.

Payment to agents for selling policies. Affects acquisition cost and pricing. Example: ₹5,000 commission on a ₹50,000 policy

A statistical range that’s likely to contain the true value. Reflects estimate uncertainty. Example: 95% chance true claim cost is between ₹9,000 and ₹11,000

Measures how two variables move together. Important for diversification and modeling. Example: Rainfall and umbrella sales typically rise together

The scope of protection offered by an insurance policy. Defines what is and isn’t included. Example: Car insurance covering theft and accident, but not fire

A table that displays claims by the year they occurred and the number of years it took to settle them. It helps actuaries track how claims evolve over time and estimate future liabilities. Example: Like a school chart showing how students’ performance improves each year by batch.

An annuity where payments begin at a future date, typically after retirement. It allows people to save now and enjoy a steady income later. Example: You invest ₹5 lakh today and start receiving monthly payouts after 10 years.

A pension plan where the retirement payout is pre-defined, usually based on salary and years of service. The employer bears the investment risk. Example: A plan that guarantees 50% of your final salary every year after retirement. ​

A retirement plan where the employee and/or employer contribute fixed amounts, and the payout depends on investment performance. Example: You and your employer each put ₹5,000/month in a retirement fund that grows with the stock market.

A model where outcomes are fixed and predictable if inputs are known. It doesn’t allow for randomness. Example: Like a calculator that always gives the same answer when you enter the same numbers.

A number that shows how much a future payment is worth today. The further in the future the payment, the smaller its present value Example: ₹100 received next year is worth about ₹95 today at a 5% discount rate.

The portion of an insurance premium that relates to the time period that has already passed. Example: If you paid ₹12,000 for a one-year policy, ₹6,000 is earned after six months.

A life insurance policy that pays either on death or after a fixed number of years. It combines savings with protection. Example: A 20-year policy that pays ₹5 lakh whether you live to 20 years or die earlier.

Ownership in an asset, usually a share in a company. Equities have the potential for higher returns but also higher risk. Example: Owning one share of a company means you own a small part of that company

The percentage of premium income used to cover administrative and operational expenses. Lower ratios mean better efficiency. Example: If you collect ₹1 crore in premiums and spend ₹30 lakh on expenses, your ratio is 30%.

The guaranteed amount an insurance policy will pay on death or maturity. It’s the base value before bonuses. Example: A life policy with a face amount of ₹10 lakh pays that amount on death.

A situation where extreme events are more likely than normal models predict. It suggests higher-than-expected risk. Example: An earthquake that happens once in 100 years but causes massive damage.

The current market value of investments in a unit-linked policy. It changes based on market performance. Example: You invested ₹1 lakh in equity units, and now it's worth ₹1.2 lakh — that’s your fund value.

A measure of how sensitive an option's delta is to changes in the underlying asset’s price. It helps manage how much risk changes as markets move. Example: Like steering a car — gamma tells you how quickly the steering (delta) becomes more responsive as you speed up.

The total amount a policyholder pays for insurance, including costs, risk cover, and profit margin. Example: You pay ₹12,000/year for a policy — that’s your gross premium.

A way to calculate reserves using total expected premiums and benefits. It gives a fuller picture of the insurer’s obligations. Example: Like budgeting with your full income and expenses, not just part of it.

A single insurance contract that covers multiple people, usually employees or members of an organization. It offers lower costs and simplified paperwork. Example: A company providing life cover to all its workers under one plan

A rider in a life insurance policy that lets you increase coverage in the future without another medical exam. It offers flexibility and peace of mind. Example: Buying extra life cover after marriage without proving your health again.

The rate at which events (like death or failure) happen over time, assuming survival up to that point. It's key to survival modeling. Example: If someone has survived to age 60, what are the chances they pass away before age 61?

The unrealized profit or loss on an investment due to changes in its market value. It reflects asset performance before selling. Example: Buying a bond at ₹1,000 and seeing it rise to ₹1,100 before selling.

Claims that have already happened but haven’t been reported yet. Insurers estimate and reserve for these hidden liabilities. Example: An accident in December is reported only in January — but the insurer still owes for it.

A method for protecting a portfolio from interest rate changes by matching duration and value of assets and liabilities. Example: Like balancing both ends of a see-saw so they move together

The promise to restore someone to their financial position before a loss — not better, not worse. Example: If your insured bike is worth ₹20,000, you won’t get ₹25,000 after it’s stolen.

The rise in prices over time, which reduces the value of money. It's crucial for long-term financial planning. Example: What ₹100 buys today might cost ₹110 next year.

A loan where you pay just the interest for a period, then repay the full principal at the end. It lowers early payments but adds final burden. Example: Paying ₹5,000 interest yearly, and ₹1 lakh principal after 5 years.

Putting money into assets like stocks or bonds with the hope of earning income or profit. It fuels insurer growth and meets future claims. Example: Buying a ₹1 lakh bond that gives ₹7,000 income per year.

An annuity that pays out as long as at least one of two people is alive. It's commonly used by couples. Example: A husband and wife receive monthly payments until both pass away.

A premium that stays constant throughout the term of the policy, making payments predictable. Example: Paying ₹1,000 every month for 20 years without increase.

The present value of future payments an insurer is expected to make. It reflects the company’s future financial responsibilities. Example: If future claims will cost ₹50 crore, that’s a ₹50 crore liability today.

How quickly and easily an asset can be turned into cash without losing much value. Insurers need liquid assets to pay claims promptly. Example: Cash is very liquid; property takes longer to sell.

The final date on which a financial product like a bond or insurance policy ends, and the last payment is made. It marks the contract's completion. Example: A 20-year policy starting in 2025 will mature in 2045.

The chance of dying at a certain age. It’s a key input for life insurance and pension calculations. Example: If 5 out of 1,000 people aged 60 die in a year, the mortality rate is 0.005.

A table that shows the probability of death at each age. It’s the foundation for pricing and reserving life products. Example: A table might show that a 70-year-old has a 3% chance of dying within a year.

The difference between the present value of money received and money paid. It tells you if an investment is worthwhile. Example: Getting ₹1,20,000 in future income for ₹1,00,000 today gives an NPV of ₹20,000.

A method for estimating reserves using only net premiums and expected benefits. It gives a simple but conservative view. Example: Calculating what’s owed to policyholders based on just risk and interest.

A policy where no more premiums are needed, but reduced benefits continue. It happens when someone stops paying but has already contributed enough. Example: A ₹10 lakh policy becomes a ₹6 lakh paid-up plan after 5 years of payments.

The interest rate at which a bond would sell at its face value. It's used to construct yield curves and assess pricing. Example: A bond that pays 6% and sells for ₹1,000 has a par yield of 6%.

A stream of payments that goes on forever. It’s used in financial modeling for long-term valuation. Example: Getting ₹1,000 every year forever, valued at ₹20,000 if interest is 5%.

The person who owns the insurance policy. They have the right to benefits and must keep the policy active. Example: If you buy health insurance for your family, you’re the policyholder.

A list or function that shows all possible outcomes and how likely each is. It’s essential in modeling risks and uncertainties. Example: A die roll has six outcomes, each with 1/6 probability.

A way to check if an insurance product is expected to make money. It shows how surplus or loss evolves over time. Example: A life policy that earns ₹2,000 more than its costs each year passes a profit test

The chance that something will happen, ranging from 0 (impossible) to 1 (certain). It's the basis of all insurance modeling. Example: A coin flip has a 0.5 probability of landing heads

The amount you pay to the insurer to keep your coverage active. It’s based on risk, costs, and expected claims. Example: Paying ₹10,000/year for your life insurance.

Three conditions that help protect investments from small interest rate changes by matching cash flows. It’s like insulating your finances from sudden moves. Example: Matching bond payouts with pension obligations to reduce risk.

A statistical tool used to explore the relationship between variables. It helps forecast values and understand patterns. Example: Estimating claim cost based on age and car type.

Money set aside by insurers to pay future claims and benefits. It ensures promises to policyholders are kept. Example: An insurer holds ₹500 crore to meet upcoming death claims.

A way of testing how financial outcomes might change under different conditions. It helps insurers prepare for both good and bad possibilities. Example: What happens to profit if interest rates fall by 2% or claims suddenly double?

The ability of a company to meet its long-term financial promises. A solvent insurer has enough assets to pay future claims. Example: Having ₹120 crore in assets for ₹100 crore in expected liabilities

A European framework that sets rules for how much capital insurers must hold and how they report their risks. It's one of the most detailed regulatory systems globally. Example: Ensuring a 99.5% chance of meeting obligations over the next year.

A model that includes randomness and simulates many possible future outcomes. It gives a richer view than single-scenario models. Example: Forecasting 1,000 different paths for stock returns over 10 years.

A technique to see how a company performs under extreme but possible scenarios. It’s used to identify weaknesses. Example: Can we survive if inflation hits 10% and the stock market drops 40%?

The amount a policyholder gets back if they end their policy early. It’s usually lower than the full benefit. Example: Quitting a 20-year plan after 5 years might return ₹1.5 lakh on a ₹3 lakh plan.

The extra money left after covering all liabilities. Insurers can use it for bonuses or to strengthen their position. Example: Assets worth ₹120 crore and liabilities worth ₹100 crore = ₹20 crore surplus.

A simple life insurance that pays if death occurs within a specific period. It offers large cover at low cost but no savings. Example: A 20-year term plan paying ₹20 lakh on death. If you survive, it ends with no payout.

A graph showing how interest rates vary with time to maturity. It’s key for valuing future payments. Example: A 1-year bond may offer 5%, while a 10-year bond offers 6%.

The process of assessing risk before issuing a policy. It ensures fair pricing and avoids unexpected losses. Example: Checking health reports before issuing a ₹10 lakh life cover.

A repeating pattern in insurance where prices and terms get stricter (hard market) or looser (soft market). It affects profitability. Example: After major disasters, insurers raise premiums and reduce coverage.

A life insurance policy where part of the premium is invested in market-linked funds. Returns depend on fund performance. Example: Paying ₹1 lakh premium, with ₹85,000 going into equity funds and ₹15,000 covering charges

 The set of assumptions (like interest rate, mortality, and expenses) used to calculate reserves and liabilities. Choosing the right ones is critical. Example: Assuming 4% interest and LIC 1994–96 mortality table for reserve calculations.

The speed and size of changes in a financial value like a stock or portfolio. It reflects uncertainty and affects risk levels. Example: A stock that moves 5% daily is more volatile than one that moves 1%.

 A life policy that covers you for your entire life and pays upon death, whenever it occurs. It builds cash value and lasts forever. Example: A ₹10 lakh payout promised at death, even if you live past 100.