## ❏ GLOSSARY 

Acquisition date  is the date on which the acquirer effectively obtains control of the acquiree. In most cases this includes at least the transfer of risks and rewards related to the acquired business or assets / liabilities. 

Actuarial funding  enables a life insurance company to reduce the size of the unit reserves it holds for unit linked business to reflect some or all of the unit-linked charges it expects to receive in the future from the units nominally allocated. Actuarial funding is used on those contracts that have surrender penalties and the company will hold a minimum of the surrender value at all times. 

Actuarial gains and losses  relate to the accounting for post- employment benefit plans. They comprise the effects of experience adjustments and changes in assumptions used to determine the cost of a plan. 

Amortized cost  is the amount at which the financial asset or liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest rate method of any difference between that initial amount and the maturity amount and minus any reduction (directly or through the use of an allowance account) for impairment or uncollectability. 

Assets held by long-term employee benefit funds  are part of plan assets. These are assets (other than non-transferable financial instruments issued by the reporting entity) that: 

■ Are held by an entity that is legally separate from the reporting entity and exists solely to pay or fund employee benefi ts; and 

■ Are available to be used only to pay or fund employee benefits and are not available to the reporting entity’s own creditors. 

Bifurcation  is the measurement and presentation of embedded derivatives separate from the host contracts, as if they were stand-alone derivative financial instruments. 

Binomial option pricing model  uses a binomial lattice that represents possible paths that might be followed by the underlying asset’s price over the life of the option, for a given number of time steps between valuation date and option expiration. Each node in the lattice represents a possible price of the underlying asset, at a particular point in time. The valuation process is iterative; it starts at each final node and then works backwards through the lattice to the first node, which is the valuation date, where the calculated result is the value of the option. 

Business combination  is the bringing together of separate entities or operations of entities into one reporting entity. This can be realized through a purchase transaction or by means of a merger. A business combination involving entities (or operations of entities) under common control is a business combination in which all of the combining entities (or operations of entities) ultimately are controlled by the same party or parties both before and after the combination, and that control is not transitory. 

Capitalization  is the recognition of a cost as part of the cost of an asset on the balance sheet. 

Cash generating unit  is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. 

Cedant  is the policyholder under a reinsurance contract. 

Claims settlement expenses  are costs incurred in settling a claim. These costs include internal administration and payout costs, but also such items as attorney’s fees and investigation expenses. 

Collateral  is an asset pledged by a borrower to secure a loan and is subject to seizure in the case of default. 

Compound financial instruments  are financial instruments that, from the issuer’s perspective, contain both a liability and an equity element. 

Constructive obligation  is an obligation that derives from an entity’s actions whereby an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities, and as a result, the entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities. 

Credit risk  is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. 

Currency risk  is a market risk, namely the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. 

Deferred tax assets  are amounts of income taxes recoverable in future periods in respect of deductible temporary differences; the carryforward of unused tax losses; and the carryforward of unused tax credits. 

