Dictionary of Financial Terms - A

ABI

Association of British Insurers

AER

stands for Annual Equivalent Rate and usually specifies the interest paid from current, deposit or savings accounts. This new term replaces CAR (Compound Annual Rate) which denoted much the same thing.

Acceptance letter

An offer of life assurance, setting out the terms.

Access To Medical Records Act 1988

The terms of this Act require an insurance company to obtain prior written consent from an individual before approaching any medical practitioner for a medical report pertaining to them. The individual has certain other rights including the right (subject to some restrictions) to see any report before it is submitted by the doctor.

Accidental Death Benefit

A provision that may be added to a life insurance policy which provides payment of an additional benefit in the case of death resulting from an accident.

Accidental Death and Dismemberment

Loss of life or limbs through accident. Insurance against such eventualities is generally available.

Act of God

An accident or event which happens independently of human intervention and due to natural causes such as storm earthquake etc. which no human foresight can provide against. Suggesting that an event was an "act of God" may be a defence in English law against a claim for liability since it may be held that it could not have been foreseen or safeguarded against.

Actively at Work

A clause in a group insurance policy that requires a new member or one with an increase in cover, to be at work (or on holiday i.e. not absent due to sickness, industrial action, etc.) on the day of joining/day of increase.

Activities of Daily Living

Everyday living functions and activities performed by individuals without assistance. These functions include mobility, dressing, personal hygiene and eating. The inability to undertake these activities may be used in some circumstances to define disability in insurance contracts.

Actuary

A professional trained in the technical aspects of insurance and its related fields, particularly in the mathematics of insurance, for example, the calculation of premiums and reserves. An actuary will use complex mathematical methods, often with the aid of computers, to provide analysis of claims data and other statistics. In certain circumstances insurance companies, pension schemes etc. are required to have documents, calculations etc. certified by an actuary. In this and other legal contexts the word means a qualified Fellow of the Institute or Faculty of Actuaries.

ADD

Accidental Death and Dismemberment

Additional Borrowing

Similar to a traditional current account overdraft. It is the extra money you can borrow on top of what you've already borrowed. Your Additional Borrowing = Your Agreed/Total Facility - Total Borrowing.

Additional Voluntary Contributions

Pension contributions over and above the pension scheme member's normal contributions, which secure additional benefits for the member or his or her dependants.

Adjuster

See: Loss Adjuster.

ADLs

Activities of daily living.

Advance Underwriting

Describes a system used for underwriting members of some group schemes. Once an underwritten member is accepted for insurance at 'ordinary rates', they may increase their cover by a predetermined percentage in any year without the need for further underwriting.

Advice

Where an authorised adviser looks at your individual circumstances and advises on suitable products for your financial needs.

AFPC

Advanced Financial Planning Certificate - a professional qualification for financial advisers obtained by examination through the Chartered Insurance Institute. Holders are eligible for membership of the Society of Financial Advisers.

Age Allowance

Increased personal allowance for Income Tax for persons aged over 65. A further increase is available to persons over 75.

Agent

Someone who acts on behalf of another. Traditionally, insurance company salesmen have often been called agents. This has led to a certain amount of confusion since in some situations they are acting on behalf of the client and at other times they are acting on behalf of the insurance company: the distinction is not always clear.

All Risks

Extension of the cover provided by household insurance to damage, theft if outside the home, etc. in respect of individual high value items.

Allocation rate

This is the percentage of your payment that is actually invested (e.g. 75%) after initial charges have been taken into account.

Alpha

Alpha is the term used to describe the risk adjusted outperformance of an investment. A large alpha indicates good performance relative to the market.

Alternative Dispute Resolution

A means of resolving disputes without resort to the Courts. Particularly used in relation to disputes between pension schemes, trustees and members.

Amount

Amount purchased or sold in Gift Fund Pools as a result of a contribution or miscellaneous activity.

AMRA

Access To Medical Records Act 1988.

Analyst

person who studies particular stock markets or industry sectors and makes buy or sell recommendations regarding the shares of specific companies within them. These are arrived at through a combination of research, economic statistics and, frequently, visits to the companies themselves. For example, in 1998 alone, Flemings' analysts have made over 3,000 company visits around the world. (See also Fund Manager)

Annual Percentage Rate (APR)

This rate takes into account all the costs, interest charges, arrangement fees etc. Theoretically it allows you to compare mortgages on a like for like basis. However, you need to be careful as different lenders calculate it in different ways.

Annual management fee

A charge made every year for running your fund. It is usually a percentage of the amount you've got invested.

Annual Report

A voluntary report published by a foundation or corporation describing its grant activities. It may be a simple typed document listing the year's grants or an elaborately detailed publication. A growing number of foundations and corporations use annual reports to inform the community about their contributions activities, policies, and guidelines. (This annual contributions report is not to be confused with a corporation's annual report to stockholders.)

Annual Volatility

Volatility is one measure used to assess the risk of a portfolio as it helps to describe the likely range of returns achieved by the fund. In statistical terms it is the standard deviation of the return distribution. Greater volatility of monthly fund returns means that there is a wider range of likely returns in the future, or greater uncertainty regarding the fund return. Most investors would equate this greater uncertainty with greater risk.

Annuitant

The person entitled to receive payments from an annuity contract.

Annuity

A series of payments, possibly subject to increases, made at specified intervals until a particular event occurs. Most commonly an annuity will cease after a specified period or upon the death of the annuitant.

Annuity Certain

A contract that provides payments for a specified number of years, regardless of life or death of the annuitant

Approved Scheme

A pension scheme that is approved by the Inland Revenue under the relevant legislation. Members and their employers are able to obtain certain tax advantages in respect of contributions and/or benefits. (See Exempt Approved Scheme).

APR

1. Annual Percentage Rate. This is the compounded rate used to give a standard comparison of the amount of interest you are likely to pay on loans or outstanding credit card balances. 2. A statutory method of calculating the Annual Percentage Rate of charge to repay the total charge for credit over the period of the loan. 3. Allows customers to compare like with like when comparing costs between different lenders.

Arbitrage

profiting from the differences in price when the same security, currency or commodity is traded on two or more markets.

Arbitration

A means of arriving at an acceptable agreement between two disputing parties. An independent person or body hears the arguments of both parties and makes a decision that is then binding on all concerned. Often conducted by members of the Institute of Arbitrators.

Assets

another word for the investments which a unit trusts holds within its portfolio.

Assignment

The transfer of one person's interest in a legal right or duty to another person or organisation.

Association of British Insurers

An association representing some 450 insurance companies which account for over 95% of the business transacted by UK insurance companies. Is the forum through which UK insurance companies collectively liaise with Government Departments and other bodies. Brings insurance companies together to set industry standards and codes of practice.

AUTIF

the Association of Unit Trusts and Investment Funds, which is the industry trade body of unit trusts and investment trusts management companies.

Average

Apportionment of loss on an equitable basis.

Average Annual Return

Average Annual Return is used to compare returns over different periods on a consistent basis with the unit being years, hence per annum. Normally only returns over periods greater than one year are annualised. The average annual return is the rate that an investor would have earned in each year to achieve the total cumulative return over the period.

Aviation Hazard

The extra hazard of death or injury resulting from participation in aeronautics, usually as other than a fare-paying passenger in licensed aircraft. For insurance, this often requires an extra premium or the exclusion of certain risks.

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