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.


TermGroupingOrganization or Jurisdiction Defining TermSource of DefinitionDefinition
Available CapitalSolvency termsIAISIAIS Supervisory Material(Capital) The financial resources of an insurer and different variation/calculations of capital may be referred to as equity capital (i.e. paid-up, share, subscribed), economic capital and regulatory capital.A
Conditional Tail Expectation or Tail VaR (Tail Value at Risk)MethodsIAISIAIS Supervisory MaterialValue at Risk (VaR) plus the average excess over the VaR if such excess occurs over a specified amount of time.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
Double GearingSolvency termsIAISIAIS Supervisory MaterialUsed to describe a situation where the same capital is used simultaneously as a buffer against risk in two or more legal entities of a conglomerate.D
Economic CapitalSolvency termsIAISIAIS Supervisory MaterialThe capital needed by the insurer to satisfy its risk tolerance and support its business plans and which is determined from an economic assessment of the insurer's risks, the relationship of these risks and the risk mitigation in place.E
Enterprise Risk ManagementGeneralIAISIAIS ICP 16The process of identifying, assessing, measuring, monitoring, controlling and mitigating risks.E
Enterprise Risk ManagementGeneralIAISIAIS Supervisory MaterialThe process and activities of identifying, assessing, measuring, monitoring, controlling and mitigating risks in respect of the insurer's enterprise as a whole.E
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
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
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
Minimum Capital RequirementSolvency termsIAISIAIS Supervisory MaterialIn the context of a legal entity's capital adequacy assessment, the level of solvency at which, if breached, the supervisor would invoke its strongest actions, in the absence of appropriate corrective action by the insurer.M
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
Own Risk and Solvency Assessment (ORSA)GeneralIAISIAIS ICP 16The assessment of whether an insurer's risk management and solvency position is currently adequate and is likely to remain so in the future.O
Reverse Stress TestingMethodsIAISIAIS ICP 16Reverse stress testing identifies scenarios that are most likely to cause an insurer to fail. Such an approach may help to ensure adequate focus on the management actions that are appropriate to avoid undue risk of business failure. The focus of such reverse stress testing may be largely qualitative in nature although broad assessment of associated financial impacts may help in deciding the appropriate action to take.R
Risk AppetiteGeneralIAISIAIS Supervisory MaterialThe aggregate level and types of risk an insurer is willing to assume within its risk capacity to achieve its strategic objectives and business plan.R
Risk LimitGeneralIAISIAIS Supervisory MaterialThe level of risk to which the insurer is prepared to be exposed. The risk measure might be a supervisory one or an internal one or a combination of both.R
Risk ToleranceGeneralIAISIAIS Supervisory MaterialUsed to include the active retention of risk that is appropriate for an insurer in the context of its strategy, financial strength, and the nature, scale and complexity of its business and risks. Risk tolerance is typically a percentage of the absolute risk bearing capacity for an insurer.R
Scenario AnalysisMethodsIAISIAIS Supervisory MaterialA complicated type of test, which contains simultaneous moves in a number of risk factors and is often linked to explicit changes in the view of the world. S
SolvencySolvency termsIAISIAIS Supervisory MaterialAbility of an insurer to meet its obligations to policyholders when they fall due. Solvency includes capital adequacy but also involves other aspects of a solvency regime, for example, technical provisions, qualitative aspects (such as would be addressed in an enterprise risk management framework), supervisory review and supervisory reporting.S
Stochastic AnalysisMethodsIAISIAIS Supervisory MaterialA methodology which aims at attributing a probability distribution to financial variables of interest. It sometimes uses closed form solutions, often involves simulating large numbers of scenarios in order to reflect the distributions of the capital required by, and the different risk exposures of, the insurer. S
Stress TestMethodsIAISIAIS ICP 16The method of measuring the financial impact of stressing one or relatively few factors affecting the insurer.S
Stress TestMethodsIAISIAIS Supervisory MaterialThe method of solvency assessment that provides for the consideration of the impact (current and prospective) of a particular defined set of alternative assumptions or outcomes that are adverse. Consideration is given to the effect on the insurance company assets, liabilities and operations of a defined adverse scenario.S
Underwriting RiskRisk CategoriesIAISIAIS ICP 16in a broad sense and includes claims, expense and reserving risks and the risks associated with guarantees and options embedded in policiesU
Underwriting RiskRisk CategoriesIAISIAIS Supervisory MaterialIncludes claims, expense and reserving risks and the risks associated with guarantees and options embedded in policies.U
Value-at-Risk (see also TailVaR)MethodsIAISIAIS Supervisory MaterialAn estimate of the worst expected loss over a certain period of time at a given confidence level.V