International ERM Glossary

The International ERM Glossary is intended to provide users with a set of definitions that are in common usage around the world by actuaries, regulators and members of the insurance industry. The purpose in developing the glossary is to help provide a common understanding of the terms currently in use, as definitions and meanings have varied over time, and among practitioners. It can also be used as a training and educational tool for regulators.

The glossary can be consulted per letter, organization or grouping.

DISCLAIMER: The content of the International ERM Glossary has been compiled by the Joint ORSA Subcommittee of the Insurance Regulation Committee and the Enterprise and Financial Risk Committee of the IAA. This information has been collated and presented for educational and informational purposes to the members of the IAA and interested parties. The IAA assumes no responsibility for the accuracy, completeness, currency, reliability of the information in the International ERM Glossary or access to any information contained on any of the sources cited in the Glossary. The IAA, its employees and officers shall not be liable for any loss or damage, direct or indirect, which may arise or occur as a result of the use of or reliance upon any of the material in the International ERM Glossary.

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Glossary
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TermGroupingOrganization or Jurisdiction Defining TermSource of DefinitionDefinition
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Credit Risk (Counterparty Risk)Risk CategoriesCanadaOSFI Manual of ReportingThe risk that a borrower may default on his credit obligations to the lender.C
Credit Risk (Counterparty Risk)Risk CategoriesChinaCIRC C-ROSS Conceptual FrameworkThe risk of losses arising from counterparties failing to fulfill contractual obligations, or to fulfill the contractual obligations on time, or from adverse changes in credit conditions.C
Credit Risk (Counterparty Risk)Risk CategoriesIAISIAIS Supervisory MaterialThe risk of financial loss resulting from default or movements in the credit rating assignment of issuers of securities (in the insurers investment portfolio), debtors (e.g. mortgagors), or counterparties (e.g. on reinsurance contracts, derivative contracts or deposits) and intermediaries, to whom the company has an exposure. Credit risk includes default risk, downgrade or migration risk, indirect credit or spread risk, concentration risk and correlation risk. Sources of credit risk include investment counterparties, policyholders (through outstanding premiums),reinsurers, intermediaries and derivative counterparties.C
Credit Risk (Counterparty Risk)Risk CategoriesInternational Actuarial AssociationIAA - Acturial Aspects of ERM for Insurance CompaniesThe risk that a counterparty will be unable or unwilling to make payments due under a specific agreementC
Credit Risk (Counterparty Risk)Risk CategoriesInternational Risk Management InstituteIRMI TermsThe possibility that either one of the parties to a contract will not be able to satisfy its financial obligation under that contract.C
Credit Risk (Counterparty Risk)Risk CategoriesThe European Economic AreaCEA Solvency IIThe risk of a change in value due to actual credit losses deviating from expected credit losses due to the failure to meet contractual debt obligations.C
Credit Risk (Counterparty Risk)Risk CategoriesThe European Economic AreaPRA RulebookThe risk of loss, or of adverse change, in the financial situation, resulting from fluctuations in the credit standing of issuers of securities, counterparties and any debtors to risk, or market risk concentrationsC
Credit Risk (Counterparty Risk)Risk CategoriesThe European Economic AreaSolvency IIThe risk of loss or of adverse change in the financial situation, resulting from fluctuations in the credit standing of issuers of securities, counterparties and any debtors to which insurance and reinsurance undertakings are exposed, in the form of counterparty default risk, or spread risk, or market risk concentrations. (Solvency II Directive art. 13(32))C
Credit Risk (Counterparty Risk)Risk CategoriesUnited StatesU.S. ASB TermsRisk associated with the possibility of a loss on an investment arising from a borrower who does not make payments as promised.C
Currency RiskRisk CategoriesInternational Actuarial AssociationIAA - Acturial Aspects of ERM for Insurance CompaniesThe risk of loss arising from movement in foreign exchange ratesC
Emerging RiskRisk CategoriesInternational Actuarial AssociationIAA - Acturial Aspects of ERM for Insurance CompaniesA risk which may develop or which may already exist that is difficult to quantify or may have a high loss potentialE
Equity RiskRisk CategoriesInternational Actuarial AssociationIAA - Acturial Aspects of ERM for Insurance CompaniesThe risk of loss associated with exposure to an adverse movement in equity pricesE
Group RiskRisk CategoriesInternational Actuarial AssociationIAA - Acturial Aspects of ERM for Insurance CompaniesThe risk of loss associated with exposure to other group companiesG
Inflation RiskRisk CategoriesInternational Actuarial AssociationIAA - Acturial Aspects of ERM for Insurance CompaniesThe risk of loss associated with exposure to an adverse movement in inflationI
Insurance Risk (see Underwriting Risk)Risk CategoriesChinaCIRC C-ROSS Conceptual FrameworkThe risk of losses caused by adverse deviation from expected experience of mortality, morbidity, loss ratio, lapse, etc.I
Insurance Risk (see Underwriting Risk)Risk CategoriesIAISIAIS Supervisory Material(Insurance Risk, Technical Risks) Represent the various kinds of risk that are directly or indirectly associated with the technical or actuarial bases of calculation for premiums and technical provisions in both life and non-life insurance, as well as risks associated with operating expenses and excessive or uncoordinated growth. Technical risks result directly from the type of insurance business transacted. They differ depending on the class of insurance. Technical risks exist partly due to factors outside the company's area of business activities, and the company often may have little influence over these factors. The effect of such risks - if they materialise - is that the company may no longer be able to fully meet the guaranteed obligations using the funds established for this purpose, because either the claims frequency, the claims amounts, or the expenses for administration and settlement are higher than expected. (Underwriting Risk) Includes claims, expense and reserving risks and the risks associated with guarantees and options embedded in policies.I
Insurance Risk (see Underwriting Risk)Risk CategoriesThe European Economic AreaSolvency IISee Underwriting RiskI
Insurance Risk (see Underwriting Risk)Risk CategoriesUnited StatesU.S. ASB TermsThe extent to which the level or timing of actual insurance cash flows is likely to differ from expected insurance cash flows.I
Interest Rate RiskRisk CategoriesInternational Actuarial AssociationIAA - Acturial Aspects of ERM for Insurance CompaniesThe risk of loss associated with exposure to adverse movements in interest ratesI
Liquidity RiskRisk CategoriesChinaCIRC C-ROSS Conceptual FrameworkThe risk that an insurance undertaking is unable to obtain sufficient funds in a timely manner, or is unable to obtain sufficient fund at a reasonable cost in a timely manner, in order to meet the liabilities when they fall due.L
Liquidity RiskRisk CategoriesIAISIAIS Supervisory MaterialThe risk that an insurer is unable to realise its investments and other assets in a timely manner in order to settle its financial obligations as they fall due.L
Liquidity RiskRisk CategoriesInternational Actuarial AssociationIAA - Acturial Aspects of ERM for Insurance CompaniesLiquidity risk the risk associated with the ability to trade a particular asset quickly without incurring a lossL
Liquidity RiskRisk CategoriesInternational Risk Management InstituteIRMI TermsExposure to adverse cost or return variation stemming from the lack of marketability of a financial instrument at prices in line with recent sales.L
Liquidity RiskRisk CategoriesThe European Economic AreaCEA Solvency IIThe risk stemming from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss.L
Liquidity RiskRisk CategoriesThe European Economic AreaSolvency IIThe risk that insurance and reinsurance undertakings are unable to realise investments and other assets in order to settle their financial obligations when they fall due. (Solvency II Directive art. 13(34))L
Market RiskRisk CategoriesChinaCIRC C-ROSS Conceptual FrameworkThe risk of unexpected losses arising from adverse changes in interest rates, FX, equity, commodity, etc.M
Market RiskRisk CategoriesIAISIAIS Supervisory MaterialThe risk to an insurer's financial condition arising from movements in the level or volatility of market prices of assets, liabilities and financial instruments, whether on all investments as a whole (general market risk) or on an individual investment (specific market risk).M
Market RiskRisk CategoriesInternational Actuarial AssociationIAA - Acturial Aspects of ERM for Insurance CompaniesThe risk of loss arising from changes in market variables.M
Market RiskRisk CategoriesInternational Risk Management InstituteIRMI TermsExposure to uncertainty due to changes in rate or market price of an invested asset (e.g., interest rates, equity values).M
Market RiskRisk CategoriesThe European Economic AreaCEA Solvency IIThe risk of changes in values caused by market prices or volatilities of market prices differing from their expected values.M
Market RiskRisk CategoriesThe European Economic AreaPRA Rulebookmeans the risk of loss or of adverse change in the financial situation resulting, directly or indirectly, from fluctuations in the level and in the volatility of market prices of assets, liabilities and financial instruments.M
Market RiskRisk CategoriesThe European Economic AreaSolvency IIThe risk of loss or of adverse change in the financial situation resulting, directly or indirectly, from fluctuations in the level and in the volatility of market prices of assets, liabilities and financial instruments. (Solvency II Directive art. 13(31))M
Model RiskRisk CategoriesInternational Actuarial AssociationIAA ISAPThe risk that, due to deficiency in the model or in its use, an intended user of the results of the model will draw an incorrect conclusion from those resultsM
Operational RiskRisk CategoriesChinaCIRC C-ROSS Conceptual FrameworkThe risk of direct or indirect losses due to inadequate internal processes, personnel and systems or from external events, including legal and supervisory compliance risk (but excluding strategic risk and reputational risk).O
Operational RiskRisk CategoriesIAISIAIS Supervisory MaterialThe risk arising from the inadequacy or failure of internal systems, personnel, procedures or controls leading to financial loss. Operational risk also includes custody risk.O
Operational RiskRisk CategoriesInternational Actuarial AssociationIAA - Acturial Aspects of ERM for Insurance CompaniesThe risk of loss from failed or inadequate internal processes, people and systems, or from external events.O
Operational RiskRisk CategoriesInternational Risk Management InstituteIRMI TermsThe risk of loss from everything other than credit, market, and interest rate risks. It is the risk of human, process, system, or technological failure as well as risks from external events (i.e., event risk).O
Operational RiskRisk CategoriesThe European Economic AreaCEA Solvency IIRisk of a change in value caused by the fact that actual losses, incurred for inadequate or failed internal processes, people and systems, or from external events (including legal risk), differ from the expected losses.O
Operational RiskRisk CategoriesThe European Economic AreaPRA Rulebookmeans the risk of loss arising from inadequate or failed internal processes, personnel or systems, or from external events, including legal risks which, for the purposes of Solvency Capital Requirement - General Provisions 3.3(1), includes legal risks but excludes risks arising from strategic decisions and reputational risksO
Operational RiskRisk CategoriesThe European Economic AreaSolvency IIThe risk of loss arising from inadequate or failed internal processes, personnel or systems, or from external events. (Solvency II Directive art. 13(33))O
Regulatory RiskRisk CategoriesInternational Actuarial AssociationIAA - Acturial Aspects of ERM for Insurance CompaniesThe risk arising from changes in regulation or legislationR
Reputational RiskRisk CategoriesChinaCIRC C-ROSS Conceptual FrameworkThe risk of losses due to negative evaluation of insurance undertakings by relevant stakeholders resulting from the insurance undertakings operation or external events.R
Reputational RiskRisk CategoriesInternational Actuarial AssociationIAA - Acturial Aspects of ERM for Insurance CompaniesThe risk that events could have an adverse impact on an organisation's reputation or brand value.R
Reputational RiskRisk CategoriesInternational Risk Management InstituteIRMI TermsThe risk that negative publicity regarding an institution's business practices will lead to a loss of revenue or increased litigation.R
Reputational RiskRisk CategoriesThe European Economic AreaCEA Solvency IIType of business risk. The risk that adverse publicity regarding an insurer's business practices and associations, whether accurate or not, will cause a loss of confidence in the integrity of the institution.R
Residual RiskRisk CategoriesInternational Actuarial AssociationIAA - Acturial Aspects of ERM for Insurance CompaniesThe risk remaining with an organisation following its risk management process and internal controls.R
RiskRisk CategoriesCOSOCOSOThe possibility that events will occur and affect the achievement of strategy and business objectivesR
RiskRisk CategoriesInternational Actuarial AssociationIAA Deriving Value from ORSAThe potential of future losses or shortfalls from expectations due to the deviation of actual from expected results.R
RiskRisk CategoriesUnited StatesU.S. ASB TermsThe potential of future losses or shortfalls from expectations due to deviation of actual results from expected results.R
Strategic RiskRisk CategoriesChinaCIRC C-ROSS Conceptual FrameworkThe risk arising from incompatibility between strategy and the market environment or the company's capacity, due to ineffective strategy formulation and execution processes or the changing business environment.S