ASOP 7
(ANALYSIS OF LIFE, HEALTH, OR PROPERTY/CASUALTY INSURER CASH FLOWS)
SECTION 2
(DEFINITIONS)

Section 2
Definitions

ASOP 7 | §2.0 | INTRO TO SECTION 2

The definitions below are defined for use in this actuarial standard of practice.

ASOP 7 | §2.1 | APPLICABLE LAW

Federal, state, and local statutes, regulations, case law, and other binding authority that may govern analysis of insurer cash flows.

ASOP 7 | §2.2 | ASSET

Any resource that can generate revenue or reduce disbursement cash flows.

ASOP 7 | §2.3 | ASSET RISK

The risk that the amount or timing of items of cash flow connected with assets will differ from expectations or assumptions for reasons other than a change in investment rates of return. Asset risk includes delayed collectibility, default, or other financial nonperformance. This has been commonly referred to in actuarial literature as the C-1 risk or credit risk.

ASOP 7 | §2.4 | CASH FLOW

Any receipt, disbursement, or transfer of cash.

ASOP 7 | §2.5 | CASH FLOW ANALYSIS

Any evaluation of the risks associated with the timing or amount of cash flows.

ASOP 7 | §2.6 | CASH FLOW TESTING

A form of cash flow analysis involving the projection and comparison of the timing and amount of cash flows resulting from economic and other assumptions3.

ASOP 7 | §2.7 | DERIVATIVE CONTRACT

Any security that derives its value from an underlying financial instrument. Examples include interest rate swaps, futures, and options.

ASOP 7 | §2.8 | HEALTH BENEFIT PLAN

A contract providing medical, dental, vision, disability income, accidental death and dismemberment, long-term care, and similar benefits, whether on a reimbursement, indemnity, or service benefit basis, regardless of the form of the risk-bearing organization, including benefit plans provided by self-insured plan sponsors.

ASOP 7 | §2.9 | INSURER

An entity that accepts the risk of financial losses or, for a specified time period, guarantees stated benefits upon the occurrence of specific contingent events, in exchange for a monetary consideration.

ASOP 7 | §2.10 | INVESTMENT RATE-OF-RETURN RISK

The risk that investment rates of return will differ from expectations or assumptions, causing a change in the amount or timing of asset, policy, or other liability cash flows. This has been commonly referred to in actuarial literature as the C-3 risk or asset/liability mismatch risk.

ASOP 7 | §2.11 | LIABILITY

Any commitment by, or requirement of, an insurer that can reduce revenue or generate disbursement cash flows.

ASOP 7 | §2.12 | NOTIONAL ASSET PORTFOLIO

A portfolio of assets, not owned by the insurer, which changes the risk characteristics of either the assets or the liabilities of the insurer.

ASOP 7 | §2.13 | OTHER LIABILITY CASH FLOWS

Cash flows not specifically associated with asset or policy cash flows. Examples are corporate expenses, payables, surplus notes, shareholder dividends, or balance sheet items that result from litigation.

ASOP 7 | §2.14 | POLICY CASH FLOW RISK

The risk that the amount or timing of cash flows under a policy or contract will differ from expectations or assumptions for reasons other than a change in investment rates of return or a change in asset cash flows. This has been commonly referred to in actuarial literature as the C-2 risk.

ASOP 7 | §2.15 | POLICY CASH FLOWS

All premiums and other amounts paid by policyholders or contract holders to the insurer and all benefits, expenses, and other amounts paid to policyholders or others as required by policy or law.

ASOP 7 | §2.16 | SCENARIO

A set of economic and other assumptions used in performing cash flow analysis.