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
Conditional Tail Expectation or Tail VaR (Tail Value at Risk)MethodsInternational Risk Management InstituteIRMI TermsAn economic cost of ruin (ECOR)-like measure in the sense that both the probability and the cost of "tail events" are considered; the calculation differs from ECOR in such a way that it has a desirable statistical property (i.e., coherence).C
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
DiversificationMethodsInternational Risk Management InstituteIRMI TermsA risk control technique that spreads loss exposures over a myriad of projects, products, areas, or markets.D
Economic CapitalSolvency termsInternational Risk Management InstituteIRMI TermsMarket value of assets minus fair value of liabilities. Used in practice as a risk-adjusted capital measure; specifically, the amount of capital required to meet an explicit solvency constraint (e.g., a certain probability of ruin).E
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
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
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
Probability of RuinMethodsInternational Risk Management InstituteIRMI TermsThe percentile of the probability distribution corresponding to the point at which capital is exhausted. Typically, a minimum acceptable probability of ruin is specified, and economic capital is derived therefrom.P
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
Risk AppetiteGeneralInternational Risk Management InstituteIRMI TermsThe degree to which an organization's management is willing to accept the uncertainty of loss for a given risk when it has the option to pay a fixed sum to transfer that risk to an insurer.R
Risk CapitalSolvency termsInternational Risk Management InstituteIRMI TermsCapital required to finance the consequences of business risks.R
Risk ToleranceGeneralInternational Risk Management InstituteIRMI TermsThe willingness of an organization to incur risk to gain future reward.R
Strategic RiskRisk CategoriesInternational Risk Management InstituteIRMI TermsExposure to uncertainty arising from long-term policy decisions.S
Value-at-Risk (see also TailVaR)MethodsInternational Risk Management InstituteIRMI TermsThe worst loss expected over a target horizon within a given confidence interval.V