Friday September 26, 2008
It wants to be lead adviser for corporate financing
KUALA LUMPUR: Asian Finance Bank Bhd (AFB) has ambitious expansion plans, especially in Islamic banking, despite its small capital base.
AFB has a paid-up capital of RM355mil and an authorised capital of RM1bil.
“We believe that the way for us to grow and expand is by forging strategic collaborations with the Islamic investment banking fraternity in Malaysia and abroad,” chief executive officer Datuk Mohamed Azahari Kamil told StarBiz in an interview.
“Through this, we can syndicate financing and become lead adviser for corporate financing activities."
Building strategic partnerships and an ability to offer innovative products that focus on customer needs would be important foundations for the bank’s success, he said.
Azahari said ADB would leverage on the vast Islamic banking experience of its Middle Eastern shareholders comprising Qatar Islamic Bank (QIB) as well as associates RUSD Investment Bank Inc and Global Investment House.
QIB, a leading Islamic bank in Qatar, has expertise in financing syariah-compliant public and private sector projects.
RUSD Investment Bank is a member of the RUSD Group based in Jeddah, Saudi Arabia. It is part of the RUSD Group that owns a number of Islamic insurance and finance companies and also provides financial planning products and services for a global clientele.
Azahari said moving into niche markets, particularly when servicing institutional investors, would be another key area for the bank, both domestically and abroad.
This was because AFB could act as a bridge for local companies to venture into the Gulf Cooperation Council (GCC) countries and vice-versa, he added.
He said the bank had identified about five Malaysian companies involved in oil and gas, power generation and infrastructure activities in the GCC countries for which it could provide funding and advice.
AFB recently opened a second branch in Johor Port, Johore Baru, and was looking at setting up two more - one each in the north and east of the peninsula.
It was also looking to set up a wealth management division to meet the growing needs of high net worth individuals.
On the international front, Azahari said apart from Indonesia, the bank was also eyeing Brunei.
“Once we have proven our success in Indonesia, we will look into Brunei by setting up a representative office there,’’ he said.
http://biz.thestar.com.my/news/story.asp?file=/2008/9/26/business/2100954&sec=business
Saturday, September 27, 2008
Wednesday, September 24, 2008
Munich Re sees double-digit increase in insurance rates
Tuesday September 23, 2008
FRANKFURT: Munich Re sees opportunities to push through double-digit price increases following the rescue of American International Group (AIG) by the US government, a Munich Re board member said.
The world’s biggest reinsurer is targeting price increases that were “clearly in the double-digit percentages” for the risk cover it provided to insurers in 2009, Torsten Jeworrek told the Financial Times Deutschland newspaper in an interview conducted on Friday.
Insurers, who pass on some of their risks to reinsurers in exchange for part of the premium, will hammer out contracts in the coming weeks on the price and extent of risk cover for 2009.
“We have a situation in the reinsurance market that is similar to that after Sept 11, 2001,” Jeworrek said in the interview published yesterday.
“The market is significantly different from a week ago,’’ he said. “From now on it’s a hard market. The soft market is behind us.”
Reinsurers refer to periods of high prices and favourable conditions for them as a “hard market.” - Reuters
http://thestar.com.my/news/story.asp?file=/2008/9/23/business/2093275&sec=business
FRANKFURT: Munich Re sees opportunities to push through double-digit price increases following the rescue of American International Group (AIG) by the US government, a Munich Re board member said.
The world’s biggest reinsurer is targeting price increases that were “clearly in the double-digit percentages” for the risk cover it provided to insurers in 2009, Torsten Jeworrek told the Financial Times Deutschland newspaper in an interview conducted on Friday.
Insurers, who pass on some of their risks to reinsurers in exchange for part of the premium, will hammer out contracts in the coming weeks on the price and extent of risk cover for 2009.
“We have a situation in the reinsurance market that is similar to that after Sept 11, 2001,” Jeworrek said in the interview published yesterday.
“The market is significantly different from a week ago,’’ he said. “From now on it’s a hard market. The soft market is behind us.”
Reinsurers refer to periods of high prices and favourable conditions for them as a “hard market.” - Reuters
http://thestar.com.my/news/story.asp?file=/2008/9/23/business/2093275&sec=business
Better ways to handle bad debt
Tuesday September 23, 2008
Malaysia reacted quickly during the 1997 financial crisis and avoided an otherwise costly bad-debt plan
IT is no use crying over spilt milk. But the US could have averted an extremely costly bad debt plan, otherwise referred to as “toxic assets dumpster,’’ by taking quick pre-emptive measures.
Not that Malaysia wants to blow its trumpet, but it bit the bullet very fast during the 1997 Asian financial crisis.
“We knew it (the contagion) was coming here," said Datuk Seri Hamidy Hafiz, CEO of Affin Bank Bhd. Once a stern decision was taken, a thorough investigation of banking assets and loans in Malaysia was conducted.
“Action must be taken when (the problem) is first detected. And it cannot be done via instalments," said Hamidy, former managing director of Pengurusan Danaharta Bhd, the asset management company formed to take over and restructure bank debts at that time.
Broadly, the basic steps had involved:
* Stress testing to see how the banks would withstand any stock or property market meltdown;
* Every bank providing a list of accounts to Danaharta for analysis;
* Danaharta offering to buy over the assets at market value, and banks having to take a haircut;
* In cases of insufficient capital, Danamodal Nasional Bhd came in to inject capital and take up a stake in the bank;
* If the loan exceeds the amount of security available, the bank will be paid in government bonds and given five years to amortise the outstanding amount.
“We put the discipline into the banks," said Hamidy.
“Danaharta organised the disposals in an orderly manner without impacting the markets and there was no element of public subsidy."
Nevertheless, the world banking community heaved a sigh of relief when the US decided to embark on an estimated US$700bil to deal with the mortgage and non-mortgage-related debts of large institutions caught in the subprime tailspin.
Just that if it had made the decision earlier, it might have only involved housing loans. Not only are the costs escalating, the price to pay for erosion in confidence is getting higher. Having occupied pole position in the world for so long, US banks would probably find it hard now to raise credit lines overseas.
Prior to its set-up, Danaharta had studied various debt plans such as Securum (Sweden, 1992) and FOBAPROA (Mexico, 1995).
Based on the restructuring model, Securum had successfully managed and sold mostly real estate assets within a relatively short time.
However, the transfer of loans by FOBAPROA did not succeed as capital deficiency was said to be underestimated.
FOBAPROA was set up based on the rapid disposal model whereby banks were cleaned up and assets sold or recovered as quickly as possible.
The US Resolution Trust Corp, which succeeded in resolving 747 thrifts with assets of US$465bil, was also based on the rapid disposal model. The danger with rapid disposal is that assets are sold or recovered so quickly that it can “crash" the market.
In Danaharta’s case, the asset management model entailed rehabilitation of assets and loans that could be saved, and selling off the balance.
As it stands, the world market is still awaiting details of the massive US bailout plan and how its debts are going to be sold off or restructured.
The method used will be important for people to gauge the orderliness and lasting impact to markets worldwide.
http://thestar.com.my/news/story.asp?file=/2008/9/23/business/2093962&sec=business
Tuesday, September 23, 2008
AIA first to get international takaful operator licence
Tuesday September 23, 2008
PETALING JAYA: American International Assurance Bhd (AIA) has received Malaysia’s first international takaful operator (ITO) licence from Bank Negara.
The licence would allow AIA’s wholly owned subsidiary AIA Takaful International Bhd (ATIB) to carry out composite (family and general) takaful and re-takaful businesses in international currencies.
ATIB has been operational since Sept 15.
AIA Bhd chief executive officer and ATIB director Khor Hock Seng said in a statement: “We are delighted to be granted the licence as we are now able to offer takaful solutions for the middle and affluent segments of qualified residents and non-residents in Malaysia.
“It is a significant step for AIA as we enter the growing Islamic financial market as a niche player offering consumers the choice of takaful solutions in international currencies, something that has not been largely available locally.”
He added that it would enable the company to tap the growing takaful global market and contribute to the expansion of ATIB’s takaful infrastructure. It would also establish Malaysia as a regional centre of excellence for AIA.
As one of the few players in Malaysia offering takaful solutions in international currencies, ATIB is well positioned to benefit from the steady growth of the global and domestic Islamic finance sector and the Malaysia International Islamic Financial Centre’s (MIFC) initiative to promote Malaysia as a major hub for international Islamic finance.
The MIFC initiative positions Malaysia as an international Islamic financial hub for international takaful, sukuk origination, Islamic wealth and fund management, international Islamic banking and human capital development.
“From an organisational perspective, ATIB is also strategically positioned to leverage on the established infrastructure of AIA as it adopts the shared services model which will help ensure overall efficiency and effectiveness,” said Khor.
Another notable key strength of ATIB lies in the wealth of knowledge possessed by the distinguished members of its syariah committee, which has been approved by Bank Negara.
“The committee comprises recognised syariah scholars who will guide us in ensuring all our takaful solutions are in line with established syariah principles,” he said.
http://biz.thestar.com.my/news/story.asp?file=/2008/9/23/business/2092990&sec=business
PETALING JAYA: American International Assurance Bhd (AIA) has received Malaysia’s first international takaful operator (ITO) licence from Bank Negara.
The licence would allow AIA’s wholly owned subsidiary AIA Takaful International Bhd (ATIB) to carry out composite (family and general) takaful and re-takaful businesses in international currencies.
ATIB has been operational since Sept 15.
AIA Bhd chief executive officer and ATIB director Khor Hock Seng said in a statement: “We are delighted to be granted the licence as we are now able to offer takaful solutions for the middle and affluent segments of qualified residents and non-residents in Malaysia.
“It is a significant step for AIA as we enter the growing Islamic financial market as a niche player offering consumers the choice of takaful solutions in international currencies, something that has not been largely available locally.”
He added that it would enable the company to tap the growing takaful global market and contribute to the expansion of ATIB’s takaful infrastructure. It would also establish Malaysia as a regional centre of excellence for AIA.
As one of the few players in Malaysia offering takaful solutions in international currencies, ATIB is well positioned to benefit from the steady growth of the global and domestic Islamic finance sector and the Malaysia International Islamic Financial Centre’s (MIFC) initiative to promote Malaysia as a major hub for international Islamic finance.
The MIFC initiative positions Malaysia as an international Islamic financial hub for international takaful, sukuk origination, Islamic wealth and fund management, international Islamic banking and human capital development.
“From an organisational perspective, ATIB is also strategically positioned to leverage on the established infrastructure of AIA as it adopts the shared services model which will help ensure overall efficiency and effectiveness,” said Khor.
Another notable key strength of ATIB lies in the wealth of knowledge possessed by the distinguished members of its syariah committee, which has been approved by Bank Negara.
“The committee comprises recognised syariah scholars who will guide us in ensuring all our takaful solutions are in line with established syariah principles,” he said.
http://biz.thestar.com.my/news/story.asp?file=/2008/9/23/business/2092990&sec=business
Subprime Crisis (who's to blame?)
The number of failing financial institutions and the actions under way for their governmental bailout hit unprecedented levels in recent days. From Fannie Mae and Freddie Mac to AIG and proposed government liquidity pools, actions by the U.S. Treasury, the Bank of England, and other central banks have been broad and monumental. Rarely are we confronted with such important and far-reaching events, and seldom have the stakes been higher.
To a certain extent the following participants are to blame for the creation and magnitude of the subprime crisis ....
- Individual real estate speculators who took out the loans in the first place.
- Mortgage underwriters and their misapplication of loan standards.
Financial firms that engineered and proliferated highly structured mortgage-backed securities. - Financial firms that hold these securities—often in off-balance-sheet structures—with inadequate risk and internal control systems.
- Credit rating agencies and careless or negligent ratings on mortgage-backed securities.
- Lax regulators and insufficient regulation of investment and banking institutions.
Friday, September 19, 2008
Lloyds TSB on takeover of HBOS
HBOS confirms talks on Lloyds TSB takeover
LONDON (AP) - Embattled mortgage lender HBOS PLC confirmed Wednesday that it is in advanced talks about being taken over by Lloyds TSB PLC in what would be a further reshaping of the financial industry from the credit crisis.
The brief announcement to the London Stock Exchange gave no details, adding that the talks may not lead to an agreement.
Sky News television and the British Broadcasting Corp. reported late Thursday that a takeover deal had been worked out - but neither identified its sources.
Sky said the merger would be an all-share deal, and that a formal announcement would be made Thursday. The BBC said the deal valued HBOS at 232 pence (US$4.22) per share.
Lloyds TSB spokeswoman Beth Longcroft refused to comment on the report, saying she had nothing to add to the earlier announcement.
HBOS spokesman Mark Elliott also declined comment.
HBOS shares finished the day at 147.10 (US$2.68) pence per share, nearly 20 percent down. HBOS shares had started the year at 730.5 pence.
Lloyds shares ended the day unchanged, at 279.75 pence (US$5.09). Lloyds shares started the year at 469 pence.
The news comes after the bankruptcy of U.S. investment bank Lehman Brothers Holdings Inc., Bank of America's deal to take over Merrill Lynch, and the U.S. Federal Reserve bailout of faltering insurance giant American International Group.
Prime Minister Gordon Brown's office declined to comment on a British Broadcasting Corp. report that he had been in touch with Lloyds TSB's chairman, Sir Victor Blank, about the deal.
"The prime minister speaks to all sorts of senior businessmen and financial figures all the time,'' Brown's spokesman Michael Ellam told reporters.
"As you would expect, the Treasury, Bank of England and Financial Services Authority remain in close contact with all the major financial institutions in the U.K. and obviously the prime minister is kept informed,'' the spokesman added.
HBOS, parent company of Halifax and the Bank of Scotland, has come under pressure because of its exposure to the U.S. subprime mortgage market, raising questions about whether it can refinance its debt of more than 100 million pounds (US$180 million) in coming months
The company insists that it has no problems raising money.
The Financial Services Authority, Britain's financial regulator, weighed in Wednesday with assurances that HBOS was secure.
"Since the beginning of the current extreme difficulties in the financial markets, the Financial Services Authority has worked intensively with all major UK banks to ensure they have credible capital and liquidity plans,'' the agency said.
"We are satisfied that HBOS is a well-capitalized bank that continues to fund its business in a satisfactory way.''
Vince Cable, economy spokesman for Britain's Liberal Democrat party, accused hedge fund managers of "hunting in packs'' to undermine HBOS.
"It is shocking to see a major British bank brought to its knees by an attack by hedge fund speculators engaged in short selling,'' Cable said.
"They were only able to speculate because they knew HBOS had a government guarantee and would be bailed out by the taxpayer. If Lloyds hadn't stepped in, the government would have had to take over.''
Both Lloyds, the fifth-largest U.K. bank by market capitalization, and HBOS have seen their earnings fall from the impact of the subprime mortgage crisis in the United States.
HBOS reported a 56 percent drop in first-half net profit, down from 2.1 billion pounds (US$3.8 billion) in the first half of 2007 to 931 million pounds (US$1.67 billion) this year.
Lloyds TSB reported a 63 percent drop in first-half net profit to 576 million pounds (US$1.03 billion). Lloyds TSB is the U.K.'s third biggest home mortgage lender.
HBOS, which writes about a fifth of the home mortgages in the U.K., has 235 billion pounds (US$420 billion) in outstanding home loans.
The company also accounts for 16 percent of U.K. savings deposits.
HBOS raised 4 billion pounds (US$7.2 billion) in July through a rights issue.
Only 8 percent of its shareholders took up the offer, leaving the underwriters, Morgan Stanley and Dresdner, to find buyers for the remainder.
http://thestar.com.my/news/story.asp?file=/2008/9/18/business/20080918090437&sec=business
===
Lloyds TSB confirms US$21.85b deal to take over HBOS PLC
LONDON: Lloyds TSB PLC on Thursday announced a 12.2 billion-pound (US$21.85-billion) deal to take over struggling HBOS PLC, Britain's biggest mortgage lender.
The government said it would facilitate the deal by overriding anti-monopoly regulations.
Lloyds said each HBOS shareholder will receive 0.83 shares in Lloyds.
Existing Lloyds shareholders will hold 56 percent of the combined company.
The takeover follows days of heavy selling pressure on HBOS shares, which closed Wednesday down 20 percent at 147.10 pence (US$2.68), a fifth of their value at the start of the year. The takeover valuation is based on Lloyds' closing share price of 279.75 pence (US$5.01) on Wednesday.
Lloyds said the deal should save the combined companies 1 billion pounds (US$1.8 billion) a year by 2011, and that management's focus will be on preserving jobs in Scotland, where Lloyds is based.
John Hutton, the business and enterprise secretary, said he would present an order in Parliament to extend an exemption on public interest grounds to allow the giant combination.
The combined companies will account for more than a quarter of the U.K. mortgage market and 400 billion pounds (US$715 billion) in savings deposits. - AP
http://thestar.com.my/news/story.asp?file=/2008/9/18/business/20080918145931&sec=business
LONDON (AP) - Embattled mortgage lender HBOS PLC confirmed Wednesday that it is in advanced talks about being taken over by Lloyds TSB PLC in what would be a further reshaping of the financial industry from the credit crisis.
The brief announcement to the London Stock Exchange gave no details, adding that the talks may not lead to an agreement.
Sky News television and the British Broadcasting Corp. reported late Thursday that a takeover deal had been worked out - but neither identified its sources.
Sky said the merger would be an all-share deal, and that a formal announcement would be made Thursday. The BBC said the deal valued HBOS at 232 pence (US$4.22) per share.
Lloyds TSB spokeswoman Beth Longcroft refused to comment on the report, saying she had nothing to add to the earlier announcement.
HBOS spokesman Mark Elliott also declined comment.
HBOS shares finished the day at 147.10 (US$2.68) pence per share, nearly 20 percent down. HBOS shares had started the year at 730.5 pence.
Lloyds shares ended the day unchanged, at 279.75 pence (US$5.09). Lloyds shares started the year at 469 pence.
The news comes after the bankruptcy of U.S. investment bank Lehman Brothers Holdings Inc., Bank of America's deal to take over Merrill Lynch, and the U.S. Federal Reserve bailout of faltering insurance giant American International Group.
Prime Minister Gordon Brown's office declined to comment on a British Broadcasting Corp. report that he had been in touch with Lloyds TSB's chairman, Sir Victor Blank, about the deal.
"The prime minister speaks to all sorts of senior businessmen and financial figures all the time,'' Brown's spokesman Michael Ellam told reporters.
"As you would expect, the Treasury, Bank of England and Financial Services Authority remain in close contact with all the major financial institutions in the U.K. and obviously the prime minister is kept informed,'' the spokesman added.
HBOS, parent company of Halifax and the Bank of Scotland, has come under pressure because of its exposure to the U.S. subprime mortgage market, raising questions about whether it can refinance its debt of more than 100 million pounds (US$180 million) in coming months
The company insists that it has no problems raising money.
The Financial Services Authority, Britain's financial regulator, weighed in Wednesday with assurances that HBOS was secure.
"Since the beginning of the current extreme difficulties in the financial markets, the Financial Services Authority has worked intensively with all major UK banks to ensure they have credible capital and liquidity plans,'' the agency said.
"We are satisfied that HBOS is a well-capitalized bank that continues to fund its business in a satisfactory way.''
Vince Cable, economy spokesman for Britain's Liberal Democrat party, accused hedge fund managers of "hunting in packs'' to undermine HBOS.
"It is shocking to see a major British bank brought to its knees by an attack by hedge fund speculators engaged in short selling,'' Cable said.
"They were only able to speculate because they knew HBOS had a government guarantee and would be bailed out by the taxpayer. If Lloyds hadn't stepped in, the government would have had to take over.''
Both Lloyds, the fifth-largest U.K. bank by market capitalization, and HBOS have seen their earnings fall from the impact of the subprime mortgage crisis in the United States.
HBOS reported a 56 percent drop in first-half net profit, down from 2.1 billion pounds (US$3.8 billion) in the first half of 2007 to 931 million pounds (US$1.67 billion) this year.
Lloyds TSB reported a 63 percent drop in first-half net profit to 576 million pounds (US$1.03 billion). Lloyds TSB is the U.K.'s third biggest home mortgage lender.
HBOS, which writes about a fifth of the home mortgages in the U.K., has 235 billion pounds (US$420 billion) in outstanding home loans.
The company also accounts for 16 percent of U.K. savings deposits.
HBOS raised 4 billion pounds (US$7.2 billion) in July through a rights issue.
Only 8 percent of its shareholders took up the offer, leaving the underwriters, Morgan Stanley and Dresdner, to find buyers for the remainder.
http://thestar.com.my/news/story.asp?file=/2008/9/18/business/20080918090437&sec=business
===
Lloyds TSB confirms US$21.85b deal to take over HBOS PLC
LONDON: Lloyds TSB PLC on Thursday announced a 12.2 billion-pound (US$21.85-billion) deal to take over struggling HBOS PLC, Britain's biggest mortgage lender.
The government said it would facilitate the deal by overriding anti-monopoly regulations.
Lloyds said each HBOS shareholder will receive 0.83 shares in Lloyds.
Existing Lloyds shareholders will hold 56 percent of the combined company.
The takeover follows days of heavy selling pressure on HBOS shares, which closed Wednesday down 20 percent at 147.10 pence (US$2.68), a fifth of their value at the start of the year. The takeover valuation is based on Lloyds' closing share price of 279.75 pence (US$5.01) on Wednesday.
Lloyds said the deal should save the combined companies 1 billion pounds (US$1.8 billion) a year by 2011, and that management's focus will be on preserving jobs in Scotland, where Lloyds is based.
John Hutton, the business and enterprise secretary, said he would present an order in Parliament to extend an exemption on public interest grounds to allow the giant combination.
The combined companies will account for more than a quarter of the U.K. mortgage market and 400 billion pounds (US$715 billion) in savings deposits. - AP
http://thestar.com.my/news/story.asp?file=/2008/9/18/business/20080918145931&sec=business
Will AIG plan cost taxpayers money, or just sleep?
WASHINGTON (AP) - American taxpayers awoke Wednesday to learn they may end up owning one of the world's largest insurers.
They might now lose some sleep wondering whether the government's $85 billion loan to American International Group Inc. was a wise investment.
If the gamble succeeds, the company nurses itself back to health, unhinged financial markets calm down and taxpayers turn a profit.
If it fails, the American public feels the hit - and possibly finds itself rescuing other major financial institutions, swelling the deficit and potentially driving up interest rates on mortgages, student loans and other debt.
Analysts said Wednesday the odds are pretty high that the rescue will be a good investment for taxpayers, with AIG paying off the loan at a relatively high interest rate and the government potentially making money off its nearly 80 percent equity stake in the company.
In 1979, the U.S. guaranteed $1.2 billion worth of loans to the struggling automaker Chrysler. When the company rebounded four years later, the government reaped more than $300 million in profits.
While relatively unknown outside of financial circles before Wednesday, AIG is a colossus on Wall Street and financial districts around the globe, with operations in more than 130 countries and $1 trillion in assets on its balance sheet.
Besides life, property and other insurance offerings, AIG provides asset-management services and airplane leases.
Its myriad businesses are also linked to mutual funds, annuities and other retirement products held by millions of ordinary Americans.
But perhaps the biggest concern about AIG is the dizzying array of complex financial instruments it structured for commercial banks, investment banks and hedge funds around the globe - many of which were directly or indirectly linked to the value of U.S. mortgages.
"AIG is in this mess because they got leveraged up to their eye balls,'' said Professor John Coffee of Columbia University Law School.
AIG is required to post capital as collateral to back the securities and derivatives it issues, and those requirements increase if its credit rating is downgraded, as happened on Monday night.
AIG "essentially became the insurer of the financial industry,'' said Barry Ritholtz, chief executive of FusionIQ, a research firm. "As we've seen, that turned out to be not such a great trade.''
The company's staggering reach, combined with the speed with which it faltered, is what forced the government to intervene after private rescue attempts fell apart and pushed the company to the edge of bankruptcy.
"A failure was seen as having catastrophic implications. It met the threshold of too big and too intertwined to fail,'' said former Federal Reserve economist Brian Sack now at Macroeconomic Advisers.
Over the weekend, the government refused to pony up taxpayer money to rescue troubled investment bank Lehman Brothers.
That was seen as drawing a line in the sand after the Fed financially backed JPMorgan's takeover of Bear Stearns and then the Bush administration seized control of mortgage finance companies Fannie Mae and Freddie Mac.
But that turned out to be wrong.
The government agreed to loan up to $85 billion to AIG over two years in exchange for the right to buy 79.9 percent of the company.
The hope is that the money will give the company enough time to reorganize and sell assets to repay the loan.
The interest rate the government is charging AIG for the loan is high - 11.5 percent. Because the government can borrow money right now at around 3.4 percent, taxpayers stand to make a handsome profit if all goes well.
The government is first in line to be paid back on the loan, which is backed by the assets of the entire company.
Key to the U.S. being repaid for its loan is whether AIG can sell its assets, how quickly and for what price.
For the company, that might mean putting some of its profitable, noncore assets, such as its aircraft leasing business, on the block.
AIG's breakup value could top $150 billion, according to a preliminary estimate from FBR Capital Markets.
"The odds are pretty high that it will end up being a good investment for taxpayers,'' said Mark Klock, finance professor at George Washington University.
"I think that AIG will be able to dispose of assets in an orderly fashion in the next year or so and the government will actually get back the money lent out - and more - in interest,'' he said.
It will be up to AIG to decide which assets to sell and the timing, which some analysts said should be done quickly because the publicized difficulties at the company could begin to turn customers away.
The government does, however, have veto power.
One unit that analysts said will likely be sold is the International Lease Finance Corp., which leases out more than 900 aircraft with asset values topping $44 billion at the end of the second quarter.
This division has been a moneymaker for AIG, tallying $873 million in operating income in 2007 and $555 million in the first half of this year, according to securities filings.
Another possibility for sale is AIG's foreign life insurance business, with profits of $1.5 billion in the first half of this year on top of earnings of $6.19 billion in 2007.
Gary Ransom, an analyst with Fox-Pitt Kelton, pegged the value of that business at as much as $50 billion.
But Ransom also noted the foreign life insurance business is also probably the hardest to sell because it includes many different divisions operating across many countries.
"I would say everything is on the table,'' Ransom said.
"At this point, the goal isn't to keep AIG as the owner of businesses.''
If AIG is keeping some operations, the commercial lines and property and casualty operations are possibilities because they are among the divisions that are most closely associated with the company.
"They would love to sell off the bad stuff, but the only option they have is to sell off the good stuff,'' said Kent Smetters, an associate professor insurance and risk management at the Wharton School of Business.
http://thestar.com.my/news/story.asp?file=/2008/9/18/business/20080918081112&sec=business
Thursday, September 18, 2008
Barclays may acquire more of Lehman
Thursday September 18, 2008
LONDON (AP) - Barclays PLC said Wednesday it may pick up some of Lehman Brothers assets and employees in Europe and Asia, on top of the British bank's deal to acquire key U.S. operations from the failed investment bank.
"Options, not obligations,'' Group Chief Executive John Varley said of the possibility of salvaging more of Lehman Brothers businesses.
Barclays PLC, the third-largest British bank, took advantage of Lehman Brothers Holdings Inc.'s bankruptcy reorganization to reach a deal on Tuesday for Lehman's North American investment banking and trading operations for just $250 million.
Barclays also picked up Lehman's New York headquarters and two data centers in New Jersey for $1.5 billion, all subject to court and regulatory approval.
Barclays President Robert D. Diamond Jr. said in a conference call with analysts that Barclays' interest was primarily in the U.S. cash equities business, as part of the company's goal to boost its earnings from North America.
"It's an absolute machine, it's extremely profitable,'' Diamond said.
"We wouldn't want to miss the opportunity to add some of the talent from the U.K. and Europe to the team,'' Diamond added.
"It would most typically be where Lehman has a strong position and BarCap (Barclays Capital) a weak position.''
The two executives also indicated a possible interest in some assets in Asia.
In a statement earlier Wednesday to the London Stock Exchange, Barclays confirmed the deal and said that some of its shareholders had expressed interest in subscribing to at least $1 billion of additional equity in support of the acquisition and to beef up Barclays capital base.
"The proposed acquisition of Lehman Brothers North American investment banking and capital market operations accelerates the execution of our strategy of diversification by geography and business in pursuit of profitable growth on behalf of our shareholders, in particular increasing the percentage of Barclays earnings sourced in North America,'' Varley was quoted in the statement as saying.
"This transaction delivers the strategic benefits of a combination with Lehman Brothers core franchise, whilst meeting Barclays strict financial criteria, and strengthening our capital ratios."
Meanwhile PriceWaterhouseCoopers, which is administering Lehman's assets in London, said staff there would receive their September pay packets - as long as they come into work.
As Lehman works to close the sale of U.S. assets, a bankruptcy judge in New York on Wednesday gave Lehman Brothers initial approval to sell key North American businesses to Barclays Capital Inc. for $1.7 billion in cash.
The approval came just two days after Lehman Brothers Holdings Inc. filed the biggest bankruptcy in U.S. history.
The judge's approval sets in motion the asset sales but leaves open the possibility of a competing bid. Lehman plans to seek final court approval Friday.
Barclays said Tuesday that it would buy Lehman's investment banking and capital markets businesses for $250 million in cash, as well as Lehman's New York headquarters and two data centers in New Jersey for an additional $1.5 billion.
Lawyers for creditors and bondholders objected to the speed of the process, saying two days was not enough time to evaluate the deal much less put together a competing bid.
But Judge James Peck declined to delay the approval of the bidding process and said, "There is effectively one logical purchaser for these assets."
Lawyers for the Federal Reserve Bank of New York, the Securities and Exchange Commission and JPMorgan - which believes it could be the company's biggest creditor - supported the sale effort.
The judge also approved Lehman Brothers' request for a $100 million breakup fee plus $25 million in expenses to be paid to Barclays if the deal fails and a competitor wins out.
Lehman said it has made a list of 200 employees it said were "key'' to the business and another eight were determined to be "critical'' to its success.
It said the retention of a majority of those employees was part of the agreement.
Under the proposed deal, Barclays would continue to employ about 10,000 Lehman employees based in the U.S. for 90 days, or pay them severance equal to what was promised by Lehman.
Lehman estimated that such severance payments would cost Barclays about $2.5 billion.
Barclays would also pick up Lehman contracts, some of which would be transferred when the deal closes and a second group that could move to Barclays within 60 days.
Lehman also said in court filings that it was putting up its once-prized investment management unit, Neuberger Berman Holdings LLC, as collateral for a $450 million loan to fund operations while in bankruptcy.
Barclays shares closed up 3.7 percent in trading on the London Stock Exchange at 317.75 pence ($5.74).
http://biz.thestar.com.my/news/story.asp?file=/2008/9/18/business/20080918082216&sec=business
LONDON (AP) - Barclays PLC said Wednesday it may pick up some of Lehman Brothers assets and employees in Europe and Asia, on top of the British bank's deal to acquire key U.S. operations from the failed investment bank.
"Options, not obligations,'' Group Chief Executive John Varley said of the possibility of salvaging more of Lehman Brothers businesses.
Barclays PLC, the third-largest British bank, took advantage of Lehman Brothers Holdings Inc.'s bankruptcy reorganization to reach a deal on Tuesday for Lehman's North American investment banking and trading operations for just $250 million.
Barclays also picked up Lehman's New York headquarters and two data centers in New Jersey for $1.5 billion, all subject to court and regulatory approval.
Barclays President Robert D. Diamond Jr. said in a conference call with analysts that Barclays' interest was primarily in the U.S. cash equities business, as part of the company's goal to boost its earnings from North America.
"It's an absolute machine, it's extremely profitable,'' Diamond said.
"We wouldn't want to miss the opportunity to add some of the talent from the U.K. and Europe to the team,'' Diamond added.
"It would most typically be where Lehman has a strong position and BarCap (Barclays Capital) a weak position.''
The two executives also indicated a possible interest in some assets in Asia.
In a statement earlier Wednesday to the London Stock Exchange, Barclays confirmed the deal and said that some of its shareholders had expressed interest in subscribing to at least $1 billion of additional equity in support of the acquisition and to beef up Barclays capital base.
"The proposed acquisition of Lehman Brothers North American investment banking and capital market operations accelerates the execution of our strategy of diversification by geography and business in pursuit of profitable growth on behalf of our shareholders, in particular increasing the percentage of Barclays earnings sourced in North America,'' Varley was quoted in the statement as saying.
"This transaction delivers the strategic benefits of a combination with Lehman Brothers core franchise, whilst meeting Barclays strict financial criteria, and strengthening our capital ratios."
Meanwhile PriceWaterhouseCoopers, which is administering Lehman's assets in London, said staff there would receive their September pay packets - as long as they come into work.
As Lehman works to close the sale of U.S. assets, a bankruptcy judge in New York on Wednesday gave Lehman Brothers initial approval to sell key North American businesses to Barclays Capital Inc. for $1.7 billion in cash.
The approval came just two days after Lehman Brothers Holdings Inc. filed the biggest bankruptcy in U.S. history.
The judge's approval sets in motion the asset sales but leaves open the possibility of a competing bid. Lehman plans to seek final court approval Friday.
Barclays said Tuesday that it would buy Lehman's investment banking and capital markets businesses for $250 million in cash, as well as Lehman's New York headquarters and two data centers in New Jersey for an additional $1.5 billion.
Lawyers for creditors and bondholders objected to the speed of the process, saying two days was not enough time to evaluate the deal much less put together a competing bid.
But Judge James Peck declined to delay the approval of the bidding process and said, "There is effectively one logical purchaser for these assets."
Lawyers for the Federal Reserve Bank of New York, the Securities and Exchange Commission and JPMorgan - which believes it could be the company's biggest creditor - supported the sale effort.
The judge also approved Lehman Brothers' request for a $100 million breakup fee plus $25 million in expenses to be paid to Barclays if the deal fails and a competitor wins out.
Lehman said it has made a list of 200 employees it said were "key'' to the business and another eight were determined to be "critical'' to its success.
It said the retention of a majority of those employees was part of the agreement.
Under the proposed deal, Barclays would continue to employ about 10,000 Lehman employees based in the U.S. for 90 days, or pay them severance equal to what was promised by Lehman.
Lehman estimated that such severance payments would cost Barclays about $2.5 billion.
Barclays would also pick up Lehman contracts, some of which would be transferred when the deal closes and a second group that could move to Barclays within 60 days.
Lehman also said in court filings that it was putting up its once-prized investment management unit, Neuberger Berman Holdings LLC, as collateral for a $450 million loan to fund operations while in bankruptcy.
Barclays shares closed up 3.7 percent in trading on the London Stock Exchange at 317.75 pence ($5.74).
http://biz.thestar.com.my/news/story.asp?file=/2008/9/18/business/20080918082216&sec=business
US stocks tumble after government bailout of AIG
Thursday September 18, 2008
NEW YORK: Wall Street plunged again Wednesday as anxieties about the financial system ran high after the government's bailout of insurer American International Group Inc. and left investors with little confidence in many banking stocks.
The Dow Jones industrial average lost about 450 points, giving it a shortfall of more than 800 so far this week.
As investors fled stocks, they sought the safety of hard assets and government debt, sending gold, oil and short-term Treasurys soaring.
The market was more unnerved than comforted by news that the Federal Reserve is giving a two-year, US$85 billion loan to AIG in exchange for a nearly 80 percent stake in the company, which lost billions in the risky business of insuring against bond defaults.
Wall Street had feared that the conglomerate, which has extensive ties to various financial services industries around the world, would follow the investment bank Lehman Brothers Holdings Inc. into bankruptcy.
However, the ramifications of the world's largest insurer going under likely would have far surpassed the demise of Lehman.
"People are scared to death," said Bill Stone, chief investment strategist for PNC Wealth Management.
"Who would have imagined that AIG would have gotten into this position?''
He said the anxiety gripping the markets reflects investors' concerns that AIG wasn't able to find a lifeline in the private sector and that Wall Street is now fretting about what other institutions could falter.
Over the past year, companies including Lehman and AIG have sought to reassure investors that they weren't in trouble, but as market conditions have worsened the market appears distrustful of any assurances.
"No one's going to be believing anybody now because AIG said they were OK along with everybody else," Stone said.
The two independent Wall Street investment banks left standing - Goldman Sachs Group Inc. and Morgan Stanley - remain under scrutiny, as does Washington Mutual Inc., the country's largest thrift bank.
Morgan Stanley revealed better-than-expected quarterly results late Tuesday and insisted that it is surviving the credit crisis that has ravaged many of its peers.
Lehman filed for bankruptcy protection on Monday, and by late Tuesday had sold its North American investment banking and trading operations to Barclays, Britain's third-largest bank, for the bargain price of $250 million.
Over the weekend, Merrill Lynch & Co., the world's largest brokerage, sold itself to Bank of America Corp. in a quickly arranged plan to sidestep further slides in its stock.
"It's still uncertain ground we're treading. We just have to move on a daily basis," said Jack A. Ablin, chief investment officer at Harris Private Bank.
The Dow fell 449.36, or 4.06 percent, to 10,609.66, finishing not far off its lows of the session.
On Monday, the Dow lost 504 points, the largest tumble since its drop following the September 2001 terror attacks.
On Tuesday, it rose 141 points, after the Fed decided to leave interest rates unchanged.
The index is down more than 7 percent on the week, its worst showing since July 2002.
The blue chips have fallen more than 25 percent since reaching a record close of 14,164.53 on Oct. 9 last year.
Broader stock indicators also fell sharply Wednesday.
The Standard & Poor's 500 index dropped 57.21, or 4.71 percent, to 1,156.39.
The Nasdaq composite index fell 109.05, or 4.94 percent, to 2,098.85.
About 200 stocks rose on the New York Stock Exchange, while nearly 3,000 fell.
The stock market is likely to see heavy back-and-forth movement as traders continue to assess the flood of news that has poured in over the past several days.
Short-term Treasurys moved sharply higher as investors sought a safe place for at least the near future.
There was heavy buying in T-bills, which range from three months to a year in maturities.
But the yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 3.42 percent from 3.43 percent late Tuesday as longer-term debt fell.
Tom di Galoma, head of Treasurys trading at Jefferies & Co., characterized the mood of the bond market as "sheer panic."
With turmoil in markets such as credit default swaps, which are essentially insurance policies against bond defaults, investors sought out alternative short-duration assets, he said.
The US dollar was lower against other major currencies.
Commodities prices that have slumped in recent weeks amid growing signs of economic weakness, soared because of the appeal of hard assets.
Gold for December delivery shot up as much as $90.40, or 11.6 percent, to $870.90 an ounce in after-hours trading on the New York Mercantile Exchange after jumping $70 to settle at $850.50 in the regular session; that was its largest ever one-day gain in dollar terms.
Crude oil that had also skidded lower since midsummer $6.01 to settle at $97.16 a barrel on the Nymex after the government reported a drop in domestic crude and gas inventories.
Oil dropped by about $10 a barrel on Monday and Tuesday.
The government took other measures Tuesday to help alleviate the turmoil in the markets.
The Treasury said it will start selling bonds for the Fed to aid it with its lending efforts, while the Securities and Exchange Commission said it will strictly prohibit naked short-selling starting Thursday.
Short-selling occurs when traders borrow shares of a stock they expect will fall and sell them.
If the stock does indeed fall, the traders buy the cheaper shares to cover the borrowed ones and profit from the difference.
Naked short-selling occurs when sellers don't actually borrow the shares before selling them; it's a practice some say is partially responsible for the huge drop in the shares of investment banks like Lehman, Merrill Lynch and Bear Stearns Cos., which JPMorgan Chase & Co. bought earlier this year.
Among financial names getting hit, Goldman Sachs fell $18.51, or 14 percent, to $114.50 and Morgan Stanley fell $6.95, or 24 percent, to $21.75. AIG fell $1.70, or 45 percent, to $2.05.
Many of the investment banks are now being forced to pair up with regular banks, whose solid deposit base can provide ballast in a turbulent market.
"People are afraid of the unknown and they don't know what's on the books of these companies," said Joe Saluzzi, co-head of equity trading at Themis Trading.
"The first reaction in a situation like this is to sell."
Saluzzi noted that surging gold prices and other measures of investors jitters indicate that anxiety is building.
Indeed, the Chicago Board Options Exchange's volatility index, known as the VIX, and often referred to as the "fear index," jumped nearly 15 percent to its highest close since 2002.
A widely followed measure of financial stocks fell to its lowest close since mid-July.
Saluzzi is somewhat optimistic that the nervousness could be nearing a crescendo, which could squeeze out more investors and then clear the way for a snapback rally.
But the woes of the financial sector could also exacerbate problems facing other parts of the economy, given that individuals and businesses rely on the nation's money centers.
The Commerce Department reported Wednesday that home construction fell by 6.2 percent in August to 895,000 units, the slowest pace since January 1991.
Slumping demand for houses, sinking home prices and mortgage defaults have been the catalysts behind Wall Street's turmoil - and the risky mortgage-backed assets held by the nation's banks are not apt to regain in value until the housing market turns around.
NYSE volume came to a heavy 2.14 billion shares. - AP
http://biz.thestar.com.my/news/story.asp?file=/2008/9/18/business/20080918072548&sec=business
NEW YORK: Wall Street plunged again Wednesday as anxieties about the financial system ran high after the government's bailout of insurer American International Group Inc. and left investors with little confidence in many banking stocks.
The Dow Jones industrial average lost about 450 points, giving it a shortfall of more than 800 so far this week.
As investors fled stocks, they sought the safety of hard assets and government debt, sending gold, oil and short-term Treasurys soaring.
The market was more unnerved than comforted by news that the Federal Reserve is giving a two-year, US$85 billion loan to AIG in exchange for a nearly 80 percent stake in the company, which lost billions in the risky business of insuring against bond defaults.
Wall Street had feared that the conglomerate, which has extensive ties to various financial services industries around the world, would follow the investment bank Lehman Brothers Holdings Inc. into bankruptcy.
However, the ramifications of the world's largest insurer going under likely would have far surpassed the demise of Lehman.
"People are scared to death," said Bill Stone, chief investment strategist for PNC Wealth Management.
"Who would have imagined that AIG would have gotten into this position?''
He said the anxiety gripping the markets reflects investors' concerns that AIG wasn't able to find a lifeline in the private sector and that Wall Street is now fretting about what other institutions could falter.
Over the past year, companies including Lehman and AIG have sought to reassure investors that they weren't in trouble, but as market conditions have worsened the market appears distrustful of any assurances.
"No one's going to be believing anybody now because AIG said they were OK along with everybody else," Stone said.
The two independent Wall Street investment banks left standing - Goldman Sachs Group Inc. and Morgan Stanley - remain under scrutiny, as does Washington Mutual Inc., the country's largest thrift bank.
Morgan Stanley revealed better-than-expected quarterly results late Tuesday and insisted that it is surviving the credit crisis that has ravaged many of its peers.
Lehman filed for bankruptcy protection on Monday, and by late Tuesday had sold its North American investment banking and trading operations to Barclays, Britain's third-largest bank, for the bargain price of $250 million.
Over the weekend, Merrill Lynch & Co., the world's largest brokerage, sold itself to Bank of America Corp. in a quickly arranged plan to sidestep further slides in its stock.
"It's still uncertain ground we're treading. We just have to move on a daily basis," said Jack A. Ablin, chief investment officer at Harris Private Bank.
The Dow fell 449.36, or 4.06 percent, to 10,609.66, finishing not far off its lows of the session.
On Monday, the Dow lost 504 points, the largest tumble since its drop following the September 2001 terror attacks.
On Tuesday, it rose 141 points, after the Fed decided to leave interest rates unchanged.
The index is down more than 7 percent on the week, its worst showing since July 2002.
The blue chips have fallen more than 25 percent since reaching a record close of 14,164.53 on Oct. 9 last year.
Broader stock indicators also fell sharply Wednesday.
The Standard & Poor's 500 index dropped 57.21, or 4.71 percent, to 1,156.39.
The Nasdaq composite index fell 109.05, or 4.94 percent, to 2,098.85.
About 200 stocks rose on the New York Stock Exchange, while nearly 3,000 fell.
The stock market is likely to see heavy back-and-forth movement as traders continue to assess the flood of news that has poured in over the past several days.
Short-term Treasurys moved sharply higher as investors sought a safe place for at least the near future.
There was heavy buying in T-bills, which range from three months to a year in maturities.
But the yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 3.42 percent from 3.43 percent late Tuesday as longer-term debt fell.
Tom di Galoma, head of Treasurys trading at Jefferies & Co., characterized the mood of the bond market as "sheer panic."
With turmoil in markets such as credit default swaps, which are essentially insurance policies against bond defaults, investors sought out alternative short-duration assets, he said.
The US dollar was lower against other major currencies.
Commodities prices that have slumped in recent weeks amid growing signs of economic weakness, soared because of the appeal of hard assets.
Gold for December delivery shot up as much as $90.40, or 11.6 percent, to $870.90 an ounce in after-hours trading on the New York Mercantile Exchange after jumping $70 to settle at $850.50 in the regular session; that was its largest ever one-day gain in dollar terms.
Crude oil that had also skidded lower since midsummer $6.01 to settle at $97.16 a barrel on the Nymex after the government reported a drop in domestic crude and gas inventories.
Oil dropped by about $10 a barrel on Monday and Tuesday.
The government took other measures Tuesday to help alleviate the turmoil in the markets.
The Treasury said it will start selling bonds for the Fed to aid it with its lending efforts, while the Securities and Exchange Commission said it will strictly prohibit naked short-selling starting Thursday.
Short-selling occurs when traders borrow shares of a stock they expect will fall and sell them.
If the stock does indeed fall, the traders buy the cheaper shares to cover the borrowed ones and profit from the difference.
Naked short-selling occurs when sellers don't actually borrow the shares before selling them; it's a practice some say is partially responsible for the huge drop in the shares of investment banks like Lehman, Merrill Lynch and Bear Stearns Cos., which JPMorgan Chase & Co. bought earlier this year.
Among financial names getting hit, Goldman Sachs fell $18.51, or 14 percent, to $114.50 and Morgan Stanley fell $6.95, or 24 percent, to $21.75. AIG fell $1.70, or 45 percent, to $2.05.
Many of the investment banks are now being forced to pair up with regular banks, whose solid deposit base can provide ballast in a turbulent market.
"People are afraid of the unknown and they don't know what's on the books of these companies," said Joe Saluzzi, co-head of equity trading at Themis Trading.
"The first reaction in a situation like this is to sell."
Saluzzi noted that surging gold prices and other measures of investors jitters indicate that anxiety is building.
Indeed, the Chicago Board Options Exchange's volatility index, known as the VIX, and often referred to as the "fear index," jumped nearly 15 percent to its highest close since 2002.
A widely followed measure of financial stocks fell to its lowest close since mid-July.
Saluzzi is somewhat optimistic that the nervousness could be nearing a crescendo, which could squeeze out more investors and then clear the way for a snapback rally.
But the woes of the financial sector could also exacerbate problems facing other parts of the economy, given that individuals and businesses rely on the nation's money centers.
The Commerce Department reported Wednesday that home construction fell by 6.2 percent in August to 895,000 units, the slowest pace since January 1991.
Slumping demand for houses, sinking home prices and mortgage defaults have been the catalysts behind Wall Street's turmoil - and the risky mortgage-backed assets held by the nation's banks are not apt to regain in value until the housing market turns around.
NYSE volume came to a heavy 2.14 billion shares. - AP
http://biz.thestar.com.my/news/story.asp?file=/2008/9/18/business/20080918072548&sec=business
Barclays to buy Lehman banking divisions for US$250M
Wednesday September 17, 2008
NEW YORK: British bank Barclays PLC says it will acquire Lehman Brothers' North American investment banking and capital markets businesses for US$250 million in cash.
Lehman filed for bankruptcy protection Monday after it was unable to find financing or fresh capital to shore up its balance sheet amid the continued downturn in the credit markets.
Barclays said Tuesday it will acquire Lehman's North American banking operations, which include Lehman's fixed income and equities sales, trading and research and investment banking business.
About 10,000 employees work in the divisions.
Barclays will also purchase Lehman's New York headquarters and its two data centers in New Jersey for $1.5 billion. - AP
Earlier report
==============
NEW YORK: British bank Barclays PLC intends to unveil a plan to acquire all or part of Lehman Brothers Holdings Inc.'s investment banking and trading operations, a person close to the talks said Tuesday.
The deal, which was expected to be announced by early Wednesday, would throw a lifeline to more than 9,000 Lehman employees whose future was uncertain after Lehman filed for bankruptcy protection on Monday.
Lehman collapsed from massive exposure to risky real estate holdings.
Barclays President Robert Diamond has addressed Lehman investment bankers to inform them of his company's intentions, this person said.
He spoke on condition of anonymity because a final agreement had yet to be reached.
The third-biggest bank in the U.K. had withdrawn from weekend talks with Lehman Brothers about a possible outright acquisition.
There have been reports that Barclays can pick up the assets it wants for about $2 billion to $3 billion.
The deal must get approval from the bankruptcy court.
Lehman's first bankruptcy hearing began late Tuesday afternoon in a crowded courtroom at the U.S. bankruptcy court in Manhattan - just steps away from Wall Street's iconic bull statue.
Shai Waisman, a lawyer for Weil, Gotshal & Manges, LLP representing Lehman Brothers, in his opening statement argued that Lehman's Brothers' downfall was the result of a "chain reaction" of events that were largely out of the investment bank's control.
"Lehman operated in an extremely unfavorable business environment," Waisman said, referring to declining asset values and low levels of liquidity.
Requests to get initial approval of potential asset sales and to obtain loans to operate while in bankruptcy from a judge were postponed by one day to a hearing scheduled for Wednesday.
Judge James Peck approved a motion Tuesday confirming that "automatic stay" applies to Lehman.
Automatic stay is a typical bankruptcy rule that prevents creditors from taking actions - such as filing lawsuits - to collect debt from the company in question.
Peck also approved a motion Tuesday that JPMorgan Chase & Co. will remain Lehman's clearing house through the bankruptcy proceedings.
The issue arose over the past two days, during which JPMorgan advanced Lehman $138 billion to allow it to keep trading and "avoid a disruption of the financial markets," according to court filings.
JPMorgan advanced Lehman $87 billion when the market opened Monday, acting in part on a request by the Federal Reserve Bank of New York.
The New York Fed later repaid JPMorgan that amount. On Tuesday, JPMorgan advanced another $51 billion.
Also on Tuesday, the House Oversight and Government Reform committee said it would hold a hearing Sept. 25 to examine the "regulatory mistakes and financial excesses" that led to Lehman's bankruptcy filing.
It asked Lehman Chief Executive Richard Fuld to testify before the committee. - AP
http://thestar.com.my/news/story.asp?file=/2008/9/17/business/20080917072413&sec=business
NEW YORK: British bank Barclays PLC says it will acquire Lehman Brothers' North American investment banking and capital markets businesses for US$250 million in cash.
Lehman filed for bankruptcy protection Monday after it was unable to find financing or fresh capital to shore up its balance sheet amid the continued downturn in the credit markets.
Barclays said Tuesday it will acquire Lehman's North American banking operations, which include Lehman's fixed income and equities sales, trading and research and investment banking business.
About 10,000 employees work in the divisions.
Barclays will also purchase Lehman's New York headquarters and its two data centers in New Jersey for $1.5 billion. - AP
Earlier report
==============
NEW YORK: British bank Barclays PLC intends to unveil a plan to acquire all or part of Lehman Brothers Holdings Inc.'s investment banking and trading operations, a person close to the talks said Tuesday.
The deal, which was expected to be announced by early Wednesday, would throw a lifeline to more than 9,000 Lehman employees whose future was uncertain after Lehman filed for bankruptcy protection on Monday.
Lehman collapsed from massive exposure to risky real estate holdings.
Barclays President Robert Diamond has addressed Lehman investment bankers to inform them of his company's intentions, this person said.
He spoke on condition of anonymity because a final agreement had yet to be reached.
The third-biggest bank in the U.K. had withdrawn from weekend talks with Lehman Brothers about a possible outright acquisition.
There have been reports that Barclays can pick up the assets it wants for about $2 billion to $3 billion.
The deal must get approval from the bankruptcy court.
Lehman's first bankruptcy hearing began late Tuesday afternoon in a crowded courtroom at the U.S. bankruptcy court in Manhattan - just steps away from Wall Street's iconic bull statue.
Shai Waisman, a lawyer for Weil, Gotshal & Manges, LLP representing Lehman Brothers, in his opening statement argued that Lehman's Brothers' downfall was the result of a "chain reaction" of events that were largely out of the investment bank's control.
"Lehman operated in an extremely unfavorable business environment," Waisman said, referring to declining asset values and low levels of liquidity.
Requests to get initial approval of potential asset sales and to obtain loans to operate while in bankruptcy from a judge were postponed by one day to a hearing scheduled for Wednesday.
Judge James Peck approved a motion Tuesday confirming that "automatic stay" applies to Lehman.
Automatic stay is a typical bankruptcy rule that prevents creditors from taking actions - such as filing lawsuits - to collect debt from the company in question.
Peck also approved a motion Tuesday that JPMorgan Chase & Co. will remain Lehman's clearing house through the bankruptcy proceedings.
The issue arose over the past two days, during which JPMorgan advanced Lehman $138 billion to allow it to keep trading and "avoid a disruption of the financial markets," according to court filings.
JPMorgan advanced Lehman $87 billion when the market opened Monday, acting in part on a request by the Federal Reserve Bank of New York.
The New York Fed later repaid JPMorgan that amount. On Tuesday, JPMorgan advanced another $51 billion.
Also on Tuesday, the House Oversight and Government Reform committee said it would hold a hearing Sept. 25 to examine the "regulatory mistakes and financial excesses" that led to Lehman's bankruptcy filing.
It asked Lehman Chief Executive Richard Fuld to testify before the committee. - AP
http://thestar.com.my/news/story.asp?file=/2008/9/17/business/20080917072413&sec=business
Wednesday, September 17, 2008
Global finance still fragile
The Star: Wednesday September 17, 2008
Recovery will be slow and painful for everyone tied to it
THE slew of investments banks in the US that are either in trouble or have filed for bankruptcy is a worrying trend that has shaken global financial markets and dampened investors’ confidence.
The initial tangible signs that the US economy was in ill-health and likely headed for a major fall appeared about in February 2007 when home sales in the US began to fall drastically.
In fact, the plunge was the steepest since 1989, leading the US Treasury Secretary to call dub it the “bursting of the house bubble” and the most significant risk to the US economy.
That month and the next, over 25 subprime lenders declared bankruptcy.
But this, we now know, was just the tip of the iceberg, going by the number of high profile and large investment banks that have taken a dive, despite several prop-ups via interest rate cuts by the Federal Reserve (Fed) that proved only to be a stop-gap measure to the crisis.
The investment banks that went bust earlier included the largest US subprime lender then - New Century Financial. It filed for chapter 11 bankruptcy last April.
Barely four months later in August the world witnessed a global credit crunch as subprime mortgage-backed securities were discovered in portfolios of banks and hedge funds around the world: from BNP Paribas to Bank of China.
The European markets were also affected but to a lesser extent.
Meanwhile, more subprime lenders in the US such as American Home Mortgage and Country Financial Corp were tumbling or requesting funds to prop-up their organisations.
In March 2008, the US government tried to support Bear Stearns via Fed funding only to see it later being acquired by JPMorgan Chase for US$2 a share in a fire sale to avoid bankruptcy.
The Fed backed the deal to a tune of US$30bil to cover Bear Stearns’ losses.
And earlier this month, the US government bailed out mortgage giants Fannie Mae and Freddie Mac.
The latest to bite the dust is Lehman Brothers Holding Inc, the fourth-largest US investment bank, which filed for bankruptcy protection.
This time the Government has decided not to lend a hand, which does not augur well for the company.
The bankruptcy of Lehman Brothers and fears of more bank failures have US investors in jitters, which is reflected in the lacklustre performance of Wall Street, and deepening the credit crisis.
Monday’s trading on Wall Street saw the steepest sell-off since the lending crunch began as the blue-chip Dow Jones Industrial Average fell more than 500 points, or 4.4%, the biggest one-day drop since October 2002.
The broader Standard & Poor’s 500 Index plunged more than 4.7% — its lowest close since October 2005 and sharpest drop since the September 2001 attacks.
In Asia and Europe, stocks took a nosedive as fears of further bank failures in the world’s largest economy spread throughout global markets.
The latest financial firms under threat include bank Washington Mutual and American International Group Inc (AIG), the largest US insurer.
AIG reportedly needs to raise US$20bil in capital and sell another US$20bil in assets.
Local analysts and fund managers generally believe there is still more down side to the US credit crunch.
A fund manager with AmInvestment Bank said the US economy was still “fragile” and the road to recovery would be slow and painful for everyone tied to it.
http://biz.thestar.com.my/news/story.asp?file=/2008/9/17/business/2047075&sec=business
Recovery will be slow and painful for everyone tied to it
THE slew of investments banks in the US that are either in trouble or have filed for bankruptcy is a worrying trend that has shaken global financial markets and dampened investors’ confidence.
The initial tangible signs that the US economy was in ill-health and likely headed for a major fall appeared about in February 2007 when home sales in the US began to fall drastically.
In fact, the plunge was the steepest since 1989, leading the US Treasury Secretary to call dub it the “bursting of the house bubble” and the most significant risk to the US economy.
That month and the next, over 25 subprime lenders declared bankruptcy.
But this, we now know, was just the tip of the iceberg, going by the number of high profile and large investment banks that have taken a dive, despite several prop-ups via interest rate cuts by the Federal Reserve (Fed) that proved only to be a stop-gap measure to the crisis.
The investment banks that went bust earlier included the largest US subprime lender then - New Century Financial. It filed for chapter 11 bankruptcy last April.
Barely four months later in August the world witnessed a global credit crunch as subprime mortgage-backed securities were discovered in portfolios of banks and hedge funds around the world: from BNP Paribas to Bank of China.
The European markets were also affected but to a lesser extent.
Meanwhile, more subprime lenders in the US such as American Home Mortgage and Country Financial Corp were tumbling or requesting funds to prop-up their organisations.
In March 2008, the US government tried to support Bear Stearns via Fed funding only to see it later being acquired by JPMorgan Chase for US$2 a share in a fire sale to avoid bankruptcy.
The Fed backed the deal to a tune of US$30bil to cover Bear Stearns’ losses.
And earlier this month, the US government bailed out mortgage giants Fannie Mae and Freddie Mac.
The latest to bite the dust is Lehman Brothers Holding Inc, the fourth-largest US investment bank, which filed for bankruptcy protection.
This time the Government has decided not to lend a hand, which does not augur well for the company.
The bankruptcy of Lehman Brothers and fears of more bank failures have US investors in jitters, which is reflected in the lacklustre performance of Wall Street, and deepening the credit crisis.
Monday’s trading on Wall Street saw the steepest sell-off since the lending crunch began as the blue-chip Dow Jones Industrial Average fell more than 500 points, or 4.4%, the biggest one-day drop since October 2002.
The broader Standard & Poor’s 500 Index plunged more than 4.7% — its lowest close since October 2005 and sharpest drop since the September 2001 attacks.
In Asia and Europe, stocks took a nosedive as fears of further bank failures in the world’s largest economy spread throughout global markets.
The latest financial firms under threat include bank Washington Mutual and American International Group Inc (AIG), the largest US insurer.
AIG reportedly needs to raise US$20bil in capital and sell another US$20bil in assets.
Local analysts and fund managers generally believe there is still more down side to the US credit crunch.
A fund manager with AmInvestment Bank said the US economy was still “fragile” and the road to recovery would be slow and painful for everyone tied to it.
http://biz.thestar.com.my/news/story.asp?file=/2008/9/17/business/2047075&sec=business
Insurer Giant AIG Loses 60Pct Of Market Value; Being Pressured By Credit Rating Downgrades
New York, NY (AHN) - Insurer giant American International Group lost more than 60 percent of its market value Monday and was hit by a series of credit rating downgrades as it scrambled to try to raise capital to avoid that.
AIG is one of the world's largest insurance companies.
Moody's Investors Service, Standard & Poor's and Fitch ratings services each have lowered their ratings of AIG, which is the nation's largest insurer by assets.
The credit downgrades will make it more expensive to issue debt or regain the confidence of investors, industry observers say.
Even worse, if one or both of the other major rating agency downgrades AIG, it would be required to post an additional $10.5 billion to 13.3 billion in collateral at a time when doing so would be problematic. That is being referred to as meeting a margin call on credit defaults swaps that AIG had previously written.
News of AIG's financial woes came the day after Lehman Brothers filed for bankruptcy Bank of America took over financially-strapped Merrill Lynch.
But what is going on highlights the interdependence of the nation's financial systems, says Bank of America credit analyst Jeffrey Rosenberg.
He referred to it as "the circular dilemma facing financials with capital concerns," according to Barron's on Tuesday.
"The lack of capital-raising prompts a downgrade, further worsening the credit risk of the company, further constraining the capital-raising potential,." Rosenberg was quoted as writing by Barron's.
The Federal Reserve reportedly turned down a $40 billion loan to AIG, while suggesting a $75 billion financing package from JPMorgan and Goldman instead, although whether a loan of such magnitude could be arranged in the midst of this ongoing financial crisis is uncertain.
But AIG wasn't totally without friends.
New York State Gov. David Paterson has been granted access to $20 billion of assets that are currently held by its insurance subsidiaries in an attempt to help it work through its current difficulties.
However, although AIG's credit rating remains within that for investment grade securities, the current credit rating downgrades could spark what in effect would be a $14.5 million margin call. What that means, is that AIG would have to pay more to insure its debt - in what is known as the derivatives market - against the possibility of default.
That, in turn, means that instead of paying $1.722 million annually to insure $10 million of its debt for five years that AIG CDS will require a payment of $3.05 million plus another $500,000 annually.
AIG's dropping stock prices helped push the Dow Jones Industrial Average down more than 500 points. A huge loss and the largest one-day drop since the market opened after the Sept. 11, 2001, terrorist attacks.
http://www.allheadlinenews.com/articles/7012311438
AIG is one of the world's largest insurance companies.
Moody's Investors Service, Standard & Poor's and Fitch ratings services each have lowered their ratings of AIG, which is the nation's largest insurer by assets.
The credit downgrades will make it more expensive to issue debt or regain the confidence of investors, industry observers say.
Even worse, if one or both of the other major rating agency downgrades AIG, it would be required to post an additional $10.5 billion to 13.3 billion in collateral at a time when doing so would be problematic. That is being referred to as meeting a margin call on credit defaults swaps that AIG had previously written.
News of AIG's financial woes came the day after Lehman Brothers filed for bankruptcy Bank of America took over financially-strapped Merrill Lynch.
But what is going on highlights the interdependence of the nation's financial systems, says Bank of America credit analyst Jeffrey Rosenberg.
He referred to it as "the circular dilemma facing financials with capital concerns," according to Barron's on Tuesday.
"The lack of capital-raising prompts a downgrade, further worsening the credit risk of the company, further constraining the capital-raising potential,." Rosenberg was quoted as writing by Barron's.
The Federal Reserve reportedly turned down a $40 billion loan to AIG, while suggesting a $75 billion financing package from JPMorgan and Goldman instead, although whether a loan of such magnitude could be arranged in the midst of this ongoing financial crisis is uncertain.
But AIG wasn't totally without friends.
New York State Gov. David Paterson has been granted access to $20 billion of assets that are currently held by its insurance subsidiaries in an attempt to help it work through its current difficulties.
However, although AIG's credit rating remains within that for investment grade securities, the current credit rating downgrades could spark what in effect would be a $14.5 million margin call. What that means, is that AIG would have to pay more to insure its debt - in what is known as the derivatives market - against the possibility of default.
That, in turn, means that instead of paying $1.722 million annually to insure $10 million of its debt for five years that AIG CDS will require a payment of $3.05 million plus another $500,000 annually.
AIG's dropping stock prices helped push the Dow Jones Industrial Average down more than 500 points. A huge loss and the largest one-day drop since the market opened after the Sept. 11, 2001, terrorist attacks.
http://www.allheadlinenews.com/articles/7012311438
Insurance giant AIG faces failure as firestorm burns markets
US insurance giant AIG raced against the clock to avert collapse Tuesday after three blows to its credit standing, and central banks pumped out 160 billion dollars to prop up financial markets.AIG was at risk of following Lehman Brothers into bankruptcy despite approval for it to borrow 20 billion dollars and as report said the Federal Reserve had asked two banks to help provide 70-75 billion dollars.Economist Jeffrey Sachs of Columbia University warned: "There is more ahead. The US economy is definitely going into recession ... There's more financial turmoil ahead."
Stock markets fell for a second day on widespread recognition that the financial crisis is the worst since the crash of 1929. The fall in Europe was smaller than on Monday but Asia markets plunged and bank shares everywhere were showing big losses.
AIG was in the eye of the storm as the European Central Bank, and British and Japanese central banks injected 160 billion dollars so that banks, reluctant to lend to each other, have funds.
The US Treasury, as it had done for Lehman, ruled out using taxpayer money to prop up AIG.
The Wall Street Journal, citing people familiar with the situation, reported that on Monday the US Federal Reserve asked Goldman Sachs Group and JP Morgan Chase to help make 70-75 billion dollars in loans available to AIG.
New York state has thrown the only lifeline of sorts to AIG, announcing Monday that the company can, in effect, loan itself 20 billion dollars, by borrowing against its assets.
But even that failed to reassure credit rating agencies. In blow after blow late Monday, the three main agencies -- Standard & Poor's, Moody's and Fitch -- lowered AIG's credit score.
Bottom line: they judge the solvency of AIG, the largest US insurer, with a global reach, at risk.
As a consequence, AIG will need to raise huge amounts in new capital to survive, although it already has sought billions of dollars to keep it going.
The Wall Street Journal reported Tuesday that people close to the situation say AIG may be forced into filing for bankruptcy if it cannot raise the money by Wednesday.
"The situation is dire," an anonymous source close to AIG told the Journal.
The three ratings agencies gave essentially the same reasons for the downgrade: the US housing crisis, to which AIG is highly exposed, and its share freefall.
On Monday AIG shares plummeted 61 percent to 4.76 dollars; they have lost 93 percent of their value in a year.
"The rating actions reflect Fitch's view that AIG's financial flexibility and ability to raise holding company cash is extremely limited," Fitch said in a statement.
Standard & Poor's Ratings Services lowered its long-term counterparty rating to 'A-' from 'AA-' and its short-term counterparty credit rating on AIG to 'A-2' from 'A-1+' according to a statement. Moody's downgraded AIG to 'A2' from 'AA3' and Fitch lowered its rating to 'A' from 'AA.'
Far more than other insurers, AIG has been a big player in a complex parallel market called credit default swaps (CDS), financial instruments in which Wall Street companies take out a form of market insurance against the risks of bond default.
These products, often linked to the US real-estate market, are at the heart of the current banking crisis and have led to massive write-downs of assets around the world.
AIG alone has written down 25 billion dollars amid spiking defaults on US mortgage payments in the United States.
In a filing with US market regulator, the Securities and Exchange Commission, AIG said it would need 13.3 billion dollars to meet its CDS obligations, if S&P and Moody's lowered its rating a notch.
Moody's, in a dire warning, said that "further downgrades of the parent and certain operating units are likely if the immediate liquidity and capital concerns are not fully addressed. Such downgrades could amount to multiple notches."
The stakes are high for a company that until only recently had been long considered the world's largest insurer. In the past year it has been battered by the global credit crunch and the worst US housing slump in decades.
AIG has 74 million customers worldwide, most of them American, who would find themselves without insurance if the company goes bankrupt. It employed 116,000 people in 130 countries at the end of 2007.
According to US media reports, among the assets AIG is hoping to sell is its aircraft leasing business, International Lease Finance Corporation, which has a fleet of 1,000 planes.
Lehman Bros goes bust - US investment bank files for bankruptcy
Tuesday September 16, 2008
NEW YORK: Lehman Brothers Holdings Inc filed for bankruptcy protection, after trying to finance too many risky assets with too little capital, making it the largest and highest profile casualty of the global credit crisis.
The Chapter 11 filing on Monday did not include its broker dealer operations and other units, such as asset management firm Neuberger Berman. Those businesses will continue to operate, although Lehman is expected to liquidate them. It said it was in advanced talks on selling its investment management division.
Lehman is one of the biggest investment banks to collapse since 1990, when Drexel Burnham Lambert filed for bankruptcy protection amid a collapse in the junk bond market.
Time is of the essence as Lehman sells assets. Customers are often reluctant to trade with dealers whose parent companies are in bankruptcy, so the longer Lehman waits to sell its broker dealer unit, for example, the less it will be worth.
”Much of (Lehman’s) asset value at the end of the day is tied up in its credibility, and that takes a significant hit early in a bankruptcy case,” said Jack Williams, resident scholar at the American Bankruptcy Institute and a professor at Georgia State College of Law.
The Chapter 11 filing represents the end of a 158-year-old company that survived world wars, the Asian financial crisis and the collapse of LongTerm Capital Management but could not survive the global credit crunch.
Financial institutions globally have recorded more than US$500bil of writedowns and credit losses as the US subprime mortgage crisis has spread to other markets.
Bankruptcy also represents a bad end to chief executive Dick Fuld’s four decade career at Lehman. Fuld, who piloted the investment bank through prior crises with aplomb, was widely seen as too slow to recognise Lehman’s need to raise capital and shed bad assets.
Lehman had US$600bil of assets financed with just US$30bil of equity as of the end of August.
Having so little capital meant that a 5% decline in assets would wipe out the value of the company, which investors saw as a real risk thanks to the company’s billions of dollars of mortgage securities.
”Lehman decided to play chicken with the market, and they lost,” said James Ellman, portfolio manager at hedge fund Seacliff Capital, late on Sunday.
Lehman listed its biggest unsecured creditors as Citigroup Inc, Bank of New York Mellon Corp, Aozora Bank, and Mizuho Financial Group Inc Citi and Bank of New York Mellon are trustees for Lehman bonds.
The investment bank, once the fourth largest in the US, had hoped to raise capital by selling off a stake in its investment unit, and use that capital as well as other funds to spin off some of its toxic assets to shareholders.
But that plan did not satisfy investors, who pushed Lehman’s share price to just a few dollars, or rating agencies, who pressed the company to find a stronger partner.
The filing comes after a weekend of heated negotiations among regulators and Wall Street firms regarding Lehman’s fate.
The US government refused to backstop Lehman’s worst assets in the way it backstopped Bear Stearns Cos Inc’s sale to JP Morgan Chase. Government officials told banks to support Lehman or else be prepared for more investment banks to lose investor confidence and fail.
But prospective bidders refused to buy Lehman without government support, people briefed on the matter said. – REUTERS
http://thestar.com.my/news/story.asp?file=/2008/9/16/business/2033920&sec=business
NEW YORK: Lehman Brothers Holdings Inc filed for bankruptcy protection, after trying to finance too many risky assets with too little capital, making it the largest and highest profile casualty of the global credit crisis.
The Chapter 11 filing on Monday did not include its broker dealer operations and other units, such as asset management firm Neuberger Berman. Those businesses will continue to operate, although Lehman is expected to liquidate them. It said it was in advanced talks on selling its investment management division.
Lehman is one of the biggest investment banks to collapse since 1990, when Drexel Burnham Lambert filed for bankruptcy protection amid a collapse in the junk bond market.
Time is of the essence as Lehman sells assets. Customers are often reluctant to trade with dealers whose parent companies are in bankruptcy, so the longer Lehman waits to sell its broker dealer unit, for example, the less it will be worth.
”Much of (Lehman’s) asset value at the end of the day is tied up in its credibility, and that takes a significant hit early in a bankruptcy case,” said Jack Williams, resident scholar at the American Bankruptcy Institute and a professor at Georgia State College of Law.
The Chapter 11 filing represents the end of a 158-year-old company that survived world wars, the Asian financial crisis and the collapse of LongTerm Capital Management but could not survive the global credit crunch.
Financial institutions globally have recorded more than US$500bil of writedowns and credit losses as the US subprime mortgage crisis has spread to other markets.
Bankruptcy also represents a bad end to chief executive Dick Fuld’s four decade career at Lehman. Fuld, who piloted the investment bank through prior crises with aplomb, was widely seen as too slow to recognise Lehman’s need to raise capital and shed bad assets.
Lehman had US$600bil of assets financed with just US$30bil of equity as of the end of August.
Having so little capital meant that a 5% decline in assets would wipe out the value of the company, which investors saw as a real risk thanks to the company’s billions of dollars of mortgage securities.
”Lehman decided to play chicken with the market, and they lost,” said James Ellman, portfolio manager at hedge fund Seacliff Capital, late on Sunday.
Lehman listed its biggest unsecured creditors as Citigroup Inc, Bank of New York Mellon Corp, Aozora Bank, and Mizuho Financial Group Inc Citi and Bank of New York Mellon are trustees for Lehman bonds.
The investment bank, once the fourth largest in the US, had hoped to raise capital by selling off a stake in its investment unit, and use that capital as well as other funds to spin off some of its toxic assets to shareholders.
But that plan did not satisfy investors, who pushed Lehman’s share price to just a few dollars, or rating agencies, who pressed the company to find a stronger partner.
The filing comes after a weekend of heated negotiations among regulators and Wall Street firms regarding Lehman’s fate.
The US government refused to backstop Lehman’s worst assets in the way it backstopped Bear Stearns Cos Inc’s sale to JP Morgan Chase. Government officials told banks to support Lehman or else be prepared for more investment banks to lose investor confidence and fail.
But prospective bidders refused to buy Lehman without government support, people briefed on the matter said. – REUTERS
http://thestar.com.my/news/story.asp?file=/2008/9/16/business/2033920&sec=business
Merrill Lynch sold
Tuesday September 16, 2008
Bank of America offers US$50bil in all-stock deal
WASHINGTON/NEW YORK: Bank of America Corp said it agreed to buy Merrill Lynch & Co Inc in an all-stock deal worth US$50bil, snagging the world’s largest retail brokerage after one of the worst ever weekends on Wall Street.
The deal came after tense negotiations over the fate of Lehman Brothers Holdings Inc, which triggered concern that market participants would lose faith in other investment banks.
”It catapults Bank of America into positions of strength in three businesses where they were weak,” said James Ellman, portfolio manager at hedge fund Seacliff Capital.
”Now Bank of America has one of the best and largest retail brokerages in the country, one of the top investment banks in the world, and a large stake in one of the best investment managers in the world,” Ellman said.
Bank of America agreed to pay 0.8595 shares of Bank of America common stock for each Merrill Lynch share. The price is 1.8 times stated tangible book value.
The bank is buying about US$44bil of Merrill’s common shares, as well as US$6bil of options, convertibles, and restricted stock units.
Bank of America said it expected to achieve US$7bil in pre-tax expense savings, fully realised by 2012, and expects the deal to be accretive to earnings by 2010. The transaction is expected to close in the first quarter of next year.
The price, which comes to about US$29 per share, represents a 70% premium to Merrill’s share price on Friday, although Merrill’s shares were trading at US$50 in May and over US$90 at the beginning of January 2007.
The deal has been approved by directors of both companies. Three Merrill directors will join the Bank of America board.
Stuck with some of the same toxic debt – much of it mortgage-related – that torpedoed Lehman’s balance sheet, Merrill has been hit hard by the credit crisis and has written down more than US$40bil over the last year.
Last month, Thain arranged to sell over US$30bil in repackaged debt securities to Dallas-based private equity firm Lone Star Funds for 22 cents on the dollar.
In spite of its exposures to complex debt securities, the bank had been seen by some as undervalued, in part because of its massive brokerage business, which analysts have said is worth more than US$25bil. The brokerage is the largest in the world by assets under management and number of brokers.
Merrill also has a stake of about 45% in the profitable asset manager BlackRock Inc, worth more than US$10bil.
But this is not the first time Bank of America has done a quick acquisition. In 2005, the bank bought credit card company MBNA after less than a week of due diligence.
Bank of America has spent over US$100bil since 2004 buying other companies.
Most recently, it acquired troubled mortgage lender Countrywide Financial Corp. – Reuters
http://thestar.com.my/news/story.asp?file=/2008/9/16/business/2033806&sec=business
Bank of America offers US$50bil in all-stock deal
WASHINGTON/NEW YORK: Bank of America Corp said it agreed to buy Merrill Lynch & Co Inc in an all-stock deal worth US$50bil, snagging the world’s largest retail brokerage after one of the worst ever weekends on Wall Street.
The deal came after tense negotiations over the fate of Lehman Brothers Holdings Inc, which triggered concern that market participants would lose faith in other investment banks.
”It catapults Bank of America into positions of strength in three businesses where they were weak,” said James Ellman, portfolio manager at hedge fund Seacliff Capital.
”Now Bank of America has one of the best and largest retail brokerages in the country, one of the top investment banks in the world, and a large stake in one of the best investment managers in the world,” Ellman said.
Bank of America agreed to pay 0.8595 shares of Bank of America common stock for each Merrill Lynch share. The price is 1.8 times stated tangible book value.
The bank is buying about US$44bil of Merrill’s common shares, as well as US$6bil of options, convertibles, and restricted stock units.
Bank of America said it expected to achieve US$7bil in pre-tax expense savings, fully realised by 2012, and expects the deal to be accretive to earnings by 2010. The transaction is expected to close in the first quarter of next year.
The price, which comes to about US$29 per share, represents a 70% premium to Merrill’s share price on Friday, although Merrill’s shares were trading at US$50 in May and over US$90 at the beginning of January 2007.
The deal has been approved by directors of both companies. Three Merrill directors will join the Bank of America board.
Stuck with some of the same toxic debt – much of it mortgage-related – that torpedoed Lehman’s balance sheet, Merrill has been hit hard by the credit crisis and has written down more than US$40bil over the last year.
Last month, Thain arranged to sell over US$30bil in repackaged debt securities to Dallas-based private equity firm Lone Star Funds for 22 cents on the dollar.
In spite of its exposures to complex debt securities, the bank had been seen by some as undervalued, in part because of its massive brokerage business, which analysts have said is worth more than US$25bil. The brokerage is the largest in the world by assets under management and number of brokers.
Merrill also has a stake of about 45% in the profitable asset manager BlackRock Inc, worth more than US$10bil.
But this is not the first time Bank of America has done a quick acquisition. In 2005, the bank bought credit card company MBNA after less than a week of due diligence.
Bank of America has spent over US$100bil since 2004 buying other companies.
Most recently, it acquired troubled mortgage lender Countrywide Financial Corp. – Reuters
http://thestar.com.my/news/story.asp?file=/2008/9/16/business/2033806&sec=business
Bursa appoints new CIO
PETALING JAYA: Bursa Malaysia Bhd has appointed Lim Jit Jee as its new chief information officer effective Sept 15.
He has also been appointed as a new member of the management committee. Lim, who will head the technology group, will be responsible for both strategic and operational levels of information technology (IT) strategy and policy and IT management. His responsibilities also include management of new IT system development projects, systems upgrades and change requests.
Lim has more than 20 years of experience in the securities industry. He served the Association of Stockbroking Companies Malaysia as an executive director from January 2006 to May 2008. Prior to this, he was the head of exchange operations at Bursa Malaysia.
http://biz.thestar.com.my/news/story.asp?file=/2008/9/16/business/2035376&sec=business
He has also been appointed as a new member of the management committee. Lim, who will head the technology group, will be responsible for both strategic and operational levels of information technology (IT) strategy and policy and IT management. His responsibilities also include management of new IT system development projects, systems upgrades and change requests.
Lim has more than 20 years of experience in the securities industry. He served the Association of Stockbroking Companies Malaysia as an executive director from January 2006 to May 2008. Prior to this, he was the head of exchange operations at Bursa Malaysia.
http://biz.thestar.com.my/news/story.asp?file=/2008/9/16/business/2035376&sec=business
PIDM announces new terms and conditions for members
KUALA LUMPUR: National deposit insurer Perbadanan Insurans Deposit Malaysia (PIDM) has announced its terms and conditions for member banks.
The regulations were set following extensive consultation with Bank Negara, the banking industry and other interested parties.
One of the key requirements of the regulations is that member banks must maintain an adequate level of capital and liquid assets in accordance with the requirements of Bank Negara.
They must also have in place appropriate, effective and prudent risk management policies, procedures and controls, PIDM said in a statement yesterday.
”The regulations are also intended to promote the exchange of information, including communication of timely and relevant information on the condition of banks, as well as certain activities that could affect the depositing public,” said PIDM chief executive officer Jean Pierre Sabourin.
For instance, one condition calls for a member bank to inform PIDM within seven days of any event that is considered unusual in the course of its business.
In addition, the regulations set out a requirement for member banks to maintain appropriate records.
Member banks are required to prepare and maintain accurate records that correctly describe and disclose all their assets and liabilities including deposits.
All deposit records are to be retained in Malaysia. — Bernama
Currently, PIDM has 36 member banks, comprising 22 commercial banks and 14 Islamic banks.
http://biz.thestar.com.my/news/story.asp?file=/2008/9/16/business/2033180&sec=business
The regulations were set following extensive consultation with Bank Negara, the banking industry and other interested parties.
One of the key requirements of the regulations is that member banks must maintain an adequate level of capital and liquid assets in accordance with the requirements of Bank Negara.
They must also have in place appropriate, effective and prudent risk management policies, procedures and controls, PIDM said in a statement yesterday.
”The regulations are also intended to promote the exchange of information, including communication of timely and relevant information on the condition of banks, as well as certain activities that could affect the depositing public,” said PIDM chief executive officer Jean Pierre Sabourin.
For instance, one condition calls for a member bank to inform PIDM within seven days of any event that is considered unusual in the course of its business.
In addition, the regulations set out a requirement for member banks to maintain appropriate records.
Member banks are required to prepare and maintain accurate records that correctly describe and disclose all their assets and liabilities including deposits.
All deposit records are to be retained in Malaysia. — Bernama
Currently, PIDM has 36 member banks, comprising 22 commercial banks and 14 Islamic banks.
http://biz.thestar.com.my/news/story.asp?file=/2008/9/16/business/2033180&sec=business
Friday, September 12, 2008
Bond issuance to slow down in second half
This due to rising yield expectations to account for higher inflation
PETALING JAYA: Bond issuance in the second half year is expected to slow down due to rising yield expectations to account for higher inflation.
“There is a pricing gap between what the issuers are willing to pay and what investors expect from their investments,” said RAM Holdings Bhd chief economist Dr Yeah Kim Leng.
In addition, there are policy risks premium on selected projects, like power, which was earlier slapped with windfall taxes by the Government.
The independent power producers have agreed to renegotiate the power purchase agreements to be exempted from the windfall taxes. The discussions are still ongoing.
The uncertainty over the global economy will hold down appetite to raise funds in the debt market. “Europe and Japan have been hit with economic slowdown while the US has yet to see the (light at the) end of the tunnel,” Yeah said.
Nonetheless, the bond market is still an attractive funding alternative for large-scale, long-term projects. RAM currently has about RM60bil worth of bonds in the pipeline, waiting to be issued when the “time is right.”
“It’s a good indication of the demand,” Yeah said, adding that the sukuk market was growing strongly propelled by government initiatives to attract investors from oil-rich countries in the Middle East.
Based on Bank Negara data, 60% of the outstanding global sukuk were from Malaysia as at end-2007. The Malaysian sukuk market has been increasing at an annual rate of 20%, and accounts for about 56% of the outstanding bonds in the country.
Last year, Malaysia’s new issuance of bonds amounted to RM123bil. In the first half, new issues amounted to about RM62bil, of which RM4.5bil were new Islamic bonds.
Meanwhile, the spike in yield levels has dampened the secondary bond market.
According to Aseambankers Malaysia Bhd head of fixed income research Tan Chee Wee, yield levels spiked up in June when the Government announced the petrol hike, hence raising expectation of higher inflation.
This led to a big sell-down in the bond market, wiping out gains secured in the beginning of the year when yields were falling, he said.
“Yields are still on an upward trend for now but this will depend on whether Bank Negara would reduce or maintain interest rates.
“If the central bank decides to keep monetary policy rate at 3.5%, the yield will eventually come down,” Tan added.
He noted that companies that were previously vying to issue bonds to raise capital had mostly held back as “it’s too expensive now.”
http://thestar.com.my/news/story.asp?file=/2008/9/11/business/1998052&sec=business
PETALING JAYA: Bond issuance in the second half year is expected to slow down due to rising yield expectations to account for higher inflation.
“There is a pricing gap between what the issuers are willing to pay and what investors expect from their investments,” said RAM Holdings Bhd chief economist Dr Yeah Kim Leng.
In addition, there are policy risks premium on selected projects, like power, which was earlier slapped with windfall taxes by the Government.
The independent power producers have agreed to renegotiate the power purchase agreements to be exempted from the windfall taxes. The discussions are still ongoing.
The uncertainty over the global economy will hold down appetite to raise funds in the debt market. “Europe and Japan have been hit with economic slowdown while the US has yet to see the (light at the) end of the tunnel,” Yeah said.
Nonetheless, the bond market is still an attractive funding alternative for large-scale, long-term projects. RAM currently has about RM60bil worth of bonds in the pipeline, waiting to be issued when the “time is right.”
“It’s a good indication of the demand,” Yeah said, adding that the sukuk market was growing strongly propelled by government initiatives to attract investors from oil-rich countries in the Middle East.
Based on Bank Negara data, 60% of the outstanding global sukuk were from Malaysia as at end-2007. The Malaysian sukuk market has been increasing at an annual rate of 20%, and accounts for about 56% of the outstanding bonds in the country.
Last year, Malaysia’s new issuance of bonds amounted to RM123bil. In the first half, new issues amounted to about RM62bil, of which RM4.5bil were new Islamic bonds.
Meanwhile, the spike in yield levels has dampened the secondary bond market.
According to Aseambankers Malaysia Bhd head of fixed income research Tan Chee Wee, yield levels spiked up in June when the Government announced the petrol hike, hence raising expectation of higher inflation.
This led to a big sell-down in the bond market, wiping out gains secured in the beginning of the year when yields were falling, he said.
“Yields are still on an upward trend for now but this will depend on whether Bank Negara would reduce or maintain interest rates.
“If the central bank decides to keep monetary policy rate at 3.5%, the yield will eventually come down,” Tan added.
He noted that companies that were previously vying to issue bonds to raise capital had mostly held back as “it’s too expensive now.”
http://thestar.com.my/news/story.asp?file=/2008/9/11/business/1998052&sec=business
Sukuk issuance to exceed US$20bil this year
KUALA LUMPUR: The sukuk market is picking up again and the issuance is expected to exceeed US$20bil this year, Standard & Poor’s Rating Services (S&P) said in a report.
The Sukuk Market Continues To Grow Despite Gloomy Global Market Conditions report said the appetite from issuers in a large number of countries was growing.
In a statement yesterday, S&P said entities in more than 15 countries, predominately non-Muslim, had expressed interest or announced their intention to issue sukuks.
S&P credit analyst Mohamed Damak said more than 50% of sukuk issued in the first half of 2008 were “ijara” (lease financing), most probably as a direct consequence of the debate among some syariah scholars regarding the syariah-compliance of most sukuks previously issued.
Mohamed said the US dollar had lost its position as the currency of choice for sukuk issuance this year not only because of its weakness but also due to speculation about the depegging of some Gulf Cooperation Council (GCC) currencies from the dollar.
“Corporates remained the main issuers, with financial institutions and sovereigns far behind,” he said.
According to the report, total issuance stood at about US$14bil in the eight months to Aug 31, down from about US$23bil during the same period in 2007.
“The lower level of issuance was largely due to the deteriorated conditions on the global markets resulting in lower investor interest in buying the paper and the related widening of credit spreads,” it said.
It said most sukuks were issued in markets where liquidity was still abundant and/or appetite for syariah-compliant instruments was high, namely the countries of the GCC and Malaysia. — Bernama
http://thestar.com.my/news/story.asp?file=/2008/9/11/business/1995997&sec=business
Tuesday, September 9, 2008
Glossary - General Insurance
Abandonment Clause
In Marine insurance this gives an insured the right to abandon lost or damaged property and still claim full settlement from an insurer subject to certain restrictions.
Accidents
An unexpected and undesirable event, especially one resulting in damage or harm.
Act
When a Motor Insurance policy is issued against an "Act" only, the coverage is sufficient only to meet the minimum requirements of the Road Traffic Ordinance, that is, protection against liability arising from injury to third party.
Act of God
A natural and unavoidable catastrophe that interrupts the expected course of events.
Additional Perils Provision These are provisions that widens the scope of basic insurance coverage. Example: Fire Policy gives basic coverage of fire, lightning and explosion. However additional perils such as windstorm, flood and air craft damage can be covered by paying additional premium.
Actuaries
An actuary is an expert human computer who applies mathematical theories of probabilities and statistical techniques in risk calculation. Previously seen only in relation to life assurance, we now know we need general insurance actuaries, particularly in relation to loss reserving and premium calculations.
Acquisition Cost
How much it costs insurers to obtain and write new business. It would include intermediaries' commissions, underwriting and policy issue expenses.
Additional Perils
These are provisions that can widen the scope of basic insurance policies, for example, Fire policies, which often restrict coverage to a limited range of perils, such as fire, lightning and explosion. These provisions are sometimes called Special Perils and may include, for example, losses caused by storm, flood or damage by aircraft.
Adjustable Policies
Could you tell me today exactly what your payroll, turnover or average stock value on your premises will be in the next 12 months? I doubt it. But what happens if your insurance premiums are to be based on these figures? Often, the premium has to be based upon realistic estimates. Under an adjustable policy, these estimates can be adjusted appropriately, upwards or downwards, at the end of the period of insurance, when the actual figures are available.
Adjuster
A independent professional party appointed either by the insurance company or insured to assist in loss verification and assessment. See Loss Adjusters
Advance Loss of Profits Insurance
This type of insurance is arranged before the commencement of the insured's business. Such policies are usually taken up to guard against potential delay in putting a plant or machinery into operation, cause by loss or damage affecting the buildings or key machinery at any stage of the business set-up.
Adverse Selection (Anti Selection)
The Insured should not choose only a section of the property which has greater risk exposure to be insured. All properties should be insured at the same time.
Agent
A salesperson representing an insurance company to policyholders and assisting them in the placing, issuing and servicing of coverage.
Aggregate Limits
Payment limits of a policy during the period of insurance. Example: A Public Liability Policy has an aggregate limit of RM100,000. Claimant is entitled to make multiple claims during the period of insurance so long as the total amount claimed does not exceed the limit of RM100,000.
Aircraft Damage
This is a peril that can be extended under Fire Policy. It extends the cover to include loss or damage to the property insured directly caused by aircraft and other aerial devices and/ or articles dropped therefrom.
All Risks
This is a slightly misleading name for the types of insurance which provide wide cover but evertheless contain a number of exclusions depending on the risk. In other words, the term 'All Risks' should not be taken too literally, but policy wordings should be read thoroughly.
All Risk Insurance
This is a peril that can be extended under Fire Policy. It extends the cover to include loss or damage to the property insured directly caused by aircraft and other aerial devices and/ or articles dropped therefrom.
Application/Proposal Form
This type of insurance policy is issued to cover valuable articles like jewellery, camera, watches, paintings, and other personal effects. The coverage is very wide and includes loss of or damage by fire, theft or any other accidental circumstances except those specifically excluded by the Policy.
Arbitration Clause
This clause is found in the Conditions of many property policies. Any difficulty that the insurer and insured may have in agreeing on the amount of a claim can be referred to independent arbitrators rather than going through the Courts.
Architects', Surveyors' and Consulting Engineers' Fees Clause
This clause extends the coverage of the Policy to include professional fees arising from repairing or reinstating the damaged property.
Assured (Insured)
The person who has an insurable interest on the property insured and purchase the insurance policy to protect such property.
Assurer (Insurer)
The party who agrees to pay the money to another party on the happening of a stated contingency or event. The assurer is also sometimes referred to as the insurer.
Average Clause
This clause stipulates that in the event of under-insurance, the Insured shall be considered as a co-insurer and shall accordingly bear such proportion of the loss. In Marine insurance, however, 'average' means loss, while 'particular average' means partial loss. See also 'General Average'.
B
Bailee's Liability
Covers legal liability resulting from damage or destruction of the bailors property whilst under the bailee's temporary care, custody and control. For example, a suit being cleaned is under the temporary control of the bailee (cleaner). The bailor (owner) expects the suit to be returned in good condition. If the suit was stolen from the cleaners, the bailee's Liability insurance would cover the loss.
Banker's Blanket Bond
Wide form of cover available to Banks which includes Theft and Fidelity Guarantee risks. This is a specialist insurance written mostly in the London market.
Bid Bond
Sometimes required by a developer from a contractor submitting the lowest bid on a project. If the contractor subsequently refuses to undertake the project, then the bid bond will pay the developer the difference between the lowest and the next lowest bid. Its aim is to ensure contractors make serious bids.
Bloodstock Insurance
Applies only to horses kept for racing or breeding purposes (as opposed to Livestock insurance). It provides financial protection against death from sickness or diseases and accidents, including fire and lightning. It can also cover theft and malicious acts.
Boilers and Pressure Plant Cover
All boilers and vessels subject to internal pressure or vacuum should be insured against explosion or collapse. The insurance is normally extended to cover damage to surrounding property and third party liability arising from such explosion or collapse.
Bonds
These are, in essence, a financial backstop for a contractor's guarantee. A person or authority awarding a contract requires protection against the failure of the contractor to meet the terms of the contract. There are many forms of contract in commercial use, for example, performance bonds
(contract guarantees), bid bonds, customs bonds, supply bonds and so on. You may even have heard of maid bonds in certain countries.
Book Debts Insurance
This is also known as Accounts Receivable insurance. It covers the amounts in your account books (debit balances) that you are unable to collect because the books have been destroyed. With duplicate sets of computer records now the norm, this cover is less important to large clients, but small businesses may well need it.
Broker
An insurance intermediary who represents the interests of the client, not the insurance company. In certain countries, use of the word 'broker' is regulated and the intermediary needs to be a member of the appropriate Brokers Association and meet their minimum requirements. This is to ensure a
proper professional standard, and redress for the client in the event of problems.
Builders Risk Hull Insurance
Covers a boat/ship builder until possession passes to owners.
Usually All Risks cover on the completed value of the property.
Burglary Insurance
This insurance covers loss or damage to property inside the insured premise, due to theft that is accompanied by actual forcible and violent entry.
Business
An insurance policy covering business enterprises normally only covers you in respect of the 'business' described in the policy schedule. It is important, therefore, to ensure that your business is fully and correctly stated in the policy, especially if you engage in more than one activity, or run more than one company.
Business Interruption Insurance
This insurance covers loss against anticipated net profits and of necessarily continuing expenses (to the extent that such profits and expenses would have been earned had no interruption occurred) caused by interruption of business activity by the operation of an insuerd peril. For example, Mr Jones owns a profitable bakery, by which is destroyed by fire. Business interruption insurance would cover such continuing expenses like mortgage payments, equipment loans, and profits that would have been earned if there had been no fire. This insurance would not cover expenses that would not cease because of the fire such as purchase of raw material and use of electricity.
Business Machines
These should be insured against all risks - that is all the usual perils plus accidental damage. More sophisticated equipment, such- as computers, should be covered against possible breakdown.
Business Travel Insurance
When arranging travel insurance, companies and executives need to consider their own special needs. For example, the company may be faced with a second set of air fares if an executive travelling abroad falls ill and has to send a replacement to finalise an important deal.
C
Cancellation
In most of the policies, there is a cancellation condition which allows the Insured or the Insurer to cancel the policy by serving written notice in accordance to the condition stipulated in the Policy. In such circumstance, a refund premium will be allowed to the Insured for the unexpired period on short period scale or pro-rata basis depending on the reason furnished.
Captive
This is an insurance company formed primarily to insure the risks of its parent company. Reasons vary from tax savings to the fact that the conventional insurance market does not readily wish to write this type of risk. Example: dangerous chemicals or liability for cigarette manufacturers.
Cargo
This is usually covered under a Marine Insurance policy, whether for domestic or international journeys, by sea, air or land. There are three internationally recognised types of cover, known as 'Institute Cargo Clauses A, B and C'. These have replaced three old covers with antiquated wordings known as All Risks, With Average (WA) and Free of Particular Average (FPA).
Caveat Emptor
A phrase that means "Let the buyer beware"
Certificate Of Insurance
A document given to the requester, listing the coverages of an insured, including the name of the insurance company, the policy period, and the limitations of coverage. It also states that prior written notice will be given if any material change or cancellation takes place. 2. An individual verification of coverage on a group insurance master contract.
Chartered Insurance Institute (CII)
The UK based insurance education body which also operates through worldwide affiliates. This is the main professional examining body for the insurance industry outside the USA. Insurance personnel who have passed their insurance examinations can qualify as Associates or Fellows of the Institute.
Claims
Notification to an insurer for compensation of losses covered under a policy.
Co-Insurance
Co-insurance means the sharing of one insurance policy between two or more party/insurers. Usually, this entails each insurer paying directly to the insured their respective share of the loss. In other words, the insured has an insurance
contract with more than one insurer. This arrangement is cumbersome to administer and is used only on very large risks.
Collision Damage Waiver
Cover that can be purchased by someone renting a car where the rental company waives any right to recover the amount of damage to the car from the individual regardless of fault.
Computer Insurance
A relatively new type of insurance specially geared to cover delicate and high value computer equipment. Cover is usually on an All Risks basis and can be extended to include the costs of reinstating data, and business interruption cover such as increased costs of working, or loss of revenue/gross profit.
Computer Systems Records
Cover for these is often not available under basic Fire and Burglary policies. You can either extend your cover specifically to protect such records or, alternatively take out a special Computer insurance.
Condominium Insurance
A special policy taken out by owners or management corporations designed to cover the buildings of a condominium, sometimes carrying other benefits, such as Liability insurance for the management corporation or committee, plus Errors and Omissions cover.
Comprehensive Motor Policy
This type of motor insurance policy provides the widest form of protection for vehicles. It covers loss of, or damage to the insured vehicle and also the Insured's legal liability to a third party as required by the law.
Consequential Loss Insurance
Same as Business Interruption Insurance
Constructive Total Loss
Partial loss of such significance that the cost of restoring damaged property would exceed its value after restoration.
Contingent Liability
This is where a liability is incurred by a business for acts other than those of its own employees. If an independent contractor is hired to carry out some work, then the business may be held liable for the negligent acts of the
contractor if the contractor is acting under the direction or control of an employee of the business.
Contract of Indemnity
Property insurance that restores the insured to his original financial condition after suffering a loss. The idea is that the insured cannot profit by his misfortune. Personal Accident insurance, where a pre-agreed lump sum payment is made, is not a Contract of Indemnity.
Contractor's All Risks Insurance
This insurance covers the contractor against damage to the construction works from a wide range of perils. This policy would usually include Public Liability cover as well. It is often arranged in the joint names of the principal and the contractors.
Contribution
The right of an insurer who has paid claim under a policy, to call upon other insurers of the same loss to contribute proportionately to the cost of the indemnity payment.
Contributory Negligence
A principal of law recognising that injured persons may have contributed to their own injury.
Cost Insurance and Freight
This is a shipping terminology. Import or export of goods with 'CIF' terms mean that insurance is already included in the price.
Coupon Insurance
On some large schemes, the individual insured may receive a certificate or coupon confirming cover. Full terms and conditions would be contained on the Master Policy. Coupon insurance also refers to insurance sold by completing forms in newspaper advertisements.
Cover note
A temporary legal document issued as evidence of contract confirmed between insured and insurer. The usual validity period of a cover note does not exceed thirty (30) days.
Crop Insurance
Covers various growing crops in the event of loss or damage caused by insured perils, notably fire, flood or hailstorm. In many countries this is available through government bodies.
Counter Guarantee
If an insurance company issues a Bond, then it will usually ask for either cash collateral or a counter guarantee from a surety or directors of the company to whom it issues the Bond. If payment is made by insurers, then redress will be sought against such sureties under a counter guarantee.
D
Date of issue
Date when insurance company actually issues the policy document, which may well, be different from the commencement date of the insurance.
Debris Removal Clause
Policies covering buildings, machinery and stock do not always include the cost of removing debris and dismantling machinery. Yet these are usually necessary exercises after a loss of some kind.
Declaration
Information that the insured gives about the risk he wishes to insure, often, but not always, through the completion of a proposal form. On this information the insurance company decides the premium, and false declaration can lead to the policy being void.
Declaration Policies
These are adjustable policies offering you flexibility when it is difficult for you to predict accurately the value of your stocks over the next 12 months. At the start of the insurance period, you are asked to estimate the value at risk for the next year and to pay a deposit premium. You then declare the actual figure normally on a monthly basis and when your policy expires, the actual premium is calculated for final adjustment.
Deductible
Sometimes called excess, it refers to the amount the insured is required to pay before his insurance cover will operate. This deductible is imposed by insurers because of the nature of the risk.
Defence Costs
Litigation costs incurred while defending a lawsuit. This applies to liability policies.
Demurrage
In Marine Hull Insurance, this means any loss of hire period incurred by the ship owner due to his vessel being damaged through the fault of another party.
Denial of Access
This is an extension that is allowable under the Fire Consequential Loss Insurance. It covers loss resulting from damage in places other than the Insured's premises resulting in the prevention or hindrance to the use or access to the Insured's premises.
Defective Design
Although a Products Liability policy generally covers you against claims made by third parties when the product supplied by you has caused injury or damage, it does not do so if this has happened due to any defective design, faulty formula or wrong specification of your product.
Difference in Conditions Insurance
Often issued on a worldwide property cover which brings the more restrictive cover of policies issued in certain countries up to an agreed cover of a higher standard. For example, Fire and Perils upgraded by the Difference in Conditions Insurance to All Risks.
Directors and Officers
As a director or officer (that is, senior manager) of a company, you owe a duty of care to your company, and have, in certain circumstances, a personal responsibility to third parties. This type of policy is designed to protect senior company representatives against claims made against them for wrongful acts committed in their capacity as a director or officer of the company.
Disablement
If you are unable to work following an accident, a Personal Accident policy can offer compensation. A serious injury may mean you can never return to work. In such a case, a lump sum is paid. The compensation for a temporary absence from your job following an accident is a weekly payment
for as long as two years. Some companies also offer similar cover if you are merely ill.
Driving Other Cars
Most private motor policies also cover the policy holder when he is driving other motor vehicles, providing he has a licence to drive them. However, cover does not include damage to the vehicle being driven under this extension, even if you have a fully comprehensive cover on your own car.
Drink/Drugs
If a motor vehicle is being driven by a person under the influence of alcohol or drugs, they will not be able to effect a claim for any accident or damage encountered at that time.
Dual Basis Wages
This refers to a Business Interruption coverage for wages. When a business is seriously disrupted after an insured accident, this clause ensures that 100 % of the payroll for a few weeks after the accident will continue to be paid. If employees have no work, they may well be laid off and, consequently, the percentage of wages payable can be reduced.
Double Indemnity
The double payment of a specified benefit in a Personal Accident policy upon the happening of certain predefined incidents.
Duty of Disclosure
The proposer who wishes to take up an insurance cover has a duty to disclose all information, material to the type of insurance protection required.
E
Earthquake
This is one of several Additional Perils that can be added to a Fire policy. In many cases a deductible will be imposed depending on the location of the risk.
Effective Date
The date from which the insurance is in force. Also known as commencement date.
Electrical and Mechanical Plant
This term refers to all types of motors, generators, engines, pumps and so on. To protect against trouble with key machinery, businesses can arrange a breakdown and all- risks cover under an Engineering policy (see below).
Electrical Machines and Installation
Under a Fire policy damage to these caused by overrunning, short circuiting and the like is excluded.
Employee's Dishonesty
A Fidelity Guarantee policy protects the insured against money or property losses caused by the dishonesty of his own employees.
Employer's Liability
Insurance This insurance covers the Insured's legal liability as an employer against his employee's illness or injury.
Endorsement
A written or printed form attached to the policy which alters the provisions of the contract.
Engineering Insurance
The policy is intended to cover the insured in the event of the plant insured being damage either by extraneous cause or by its own breakdown.
Equipment Floater
Cover for property that moves from location to location, for example, usually against Fire and Additional Perils, or All Risks.
Erection All Risks Insurance
Similar to Contractor's All Risks (CAR) insurance except that CAR refers mainly to buildings and civil engineering contracts whereas Erection All Risk covers machinery and the likes.
Errors and Omissions Insurance
Policies generally available to the various professions, that require protection for negligent acts or failure to do something resulting in injury or damage to a client.
Exceptions (Exclusions)
Sometimes known as Exclusions. These are specific conditions or provisions on a policy document for which the policy will not respond.
Excess
The amount of your claim you have to pay before your insurance cover kicks in. See Deductible.
Excess of Loss
A form of reinsurance protection normally arranged between insurance companies. The cedant insurer decides the amount that it is prepared to bear on each and every loss, and arranges reinsurance with other companies to relieve it of any liability in excess of that amount.
Exclusions
See Exceptions.
Ex Gratia Payment
A payment made by the insurer to an insured out of grace or kindness.
Expediting Expenses
Payment by an insurer to speed up a return to business following a claim. For example, overtime may need to be worked following a Contractor's All Risks claim on a building site to catch up on the contract. These are not always automatically covered and so should be specially provided for.
Experience Refund
Certain large policies, usually Employee's Compensation insurances, provide for a refund of premium if losses sustained are less than anticipated when the insurance was taken out.
Explosion
Like earthquakes, explosions are considered an Additional Peril that can be insured. Although a fire policy insures a property against fire that results from explosions, the concussion damage that can result is not covered apart from the limited coverage extended to gas used for domestic purposes. This should be covered under an explosion.
Export Credit Insurance
Provides manufacturers and traders with credit cover that protects them against the risk of not being paid on a transaction - by a local or overseas buyer. Normally arranged by government companies.
Expropriation Insurance
This type of policy protects the holder against direct nationalisation or public confiscation of an overseas facility. It also protects against an indirect form of expropriation that results when some governments intentionally discriminate against foreign-based enterprises
Extension
This would involve either an extension of the original policy period or extension of policy coverage. Additional premium is chargeable on extensions.
Extortion Insurance
Specialised cover in the event of threats to injure an insured in some way. Nowadays seen all too frequently regarding tampering with goods on supermarket shelves in order to extort money.
F
Facultative Reinsurance
This means that each risk is reinsured separately. Under this system, the reinsurer decides how much of the risk he wishes to insure, according to the merits of each individual case.
Fees, Professional
Under a policy covering buildings and/or machinery against damage, it is possible to insure fees incurred for rebuilding or repair work resulting from damage, in a couple of ways.
These are normally calculated as a percentage of the value of the building, or machinery, and are limited according to the scales set out by professional bodies. If insured separately under a policy covering commercial property, such fees are not subject to Average.
Fidelity Guarantee
Insurance The policy provides cover in respect of direct pecuniary loss suffered by the insured as a result of any act of dishonesty, fraud or forgery committed by the employee in connection with his/her occupation and duties.
Fire Insurance
The policy is issued to provide cover for damages to the property caused by fire, lightning or explosion, where this explosion is brought about by gas or boilers not used for any industrial purposes.
Fire Waste
This is the absolute economic loss of wealth to the community caused by fire. Insurance can pay for the individual's insured losses resulting from a fire, but there is still an irreplaceable economic loss in the wastage of material and manufacturing cost.
First Loss Policies
Often used in Theft insurance. Rather than the usual full- value policy (insuring the total value at risk) the insured decides on a first-loss sum insured which should equal the maximum amount that could possibly be stolen at one time. Such a policy can be particularly useful for high-value machinery and plant which would be physically impossible to steal all in one go.
Fleet Policy
If a company owns several vehicles, they can all be insured under the one policy and usually enjoy a discount.
Floating Policy (Fire)
This covers contents or stock spread over more than one set of premises, or over more than one building. This is also available for contractors who want to cover all similar contracts undertaken in a year, with the premium adjustable at year-end on declaration of the actual contract values.
Floating Policy (Marine)
The insurance company first grants the insured a large initial sum-insured. Then each time the shipment is sent, the insured declares them to the insurer. The value of the shipment is then deducted from the outstanding sum insured. But it is more common nowadays to use an 'open' policy.
Flood
An Additional Peril in a Fire policy, normally granted together with 'storm' cover. It is subject to a small excess, that is, the insured pays the first agreed amount of loss, unless your premises have been particularly exposed, in which case it might be more.
FOB Contract
'Free On Board' means that the seller's interest in the goods will cease once they are loaded onboard the carrying vessel. Thereafter, the buyer takes over responsibility for them, including any insurance he considers necessary.
Foreign Use (Cars)
Motor policies in some countries are automatically extended to cover use in neighbouring countries, for example, Singapore policies cover use in Malaysia and Southern Thailand. In other countries, for example, Hong Kong, a special extension is required to cover use in China.
Foundations Clause
It is sometimes considered that the foundations of a building will not be affected, however serious the overall damage. The foundations are then excluded from the insurance by this clause, thus reducing the sum insured, and the premium. But beware earthquakes!.
Franchise
If a policy features a franchise expressed in money terms, there is no payment by the insurer if the total claim is below the franchise figure. If it is above the franchise figure, the agreed claim is then paid in full. Time franchises may also be used particularly for machinery breakdown covers.
Free of Particular Average (FPA)
Is the narrowest form of Marine Cargo insurance in common use. Nowadays referred to as Institute Cargo Clauses C cover, it provides that as well as total losses; partial losses resulting from perils of the sea are recoverable, but only in the event that the carrying vessel has stranded, sunk, burnt, been on fire or been in collision.
Free of Capture and Seizure Clause
Exclusion of cover in Marine insurance if damage results from war, capture or seizure. Covers can usually be suitably extended.
Full Theft Cover
If you import or export your goods on a 'CIF' basis, then insurance is included in the deal. 'C & F' excludes insurance - in this case, the buyer has to make his own insurance arrangements.
G
General Agent
In some parts of the world this term merely means an insurance agency involved in all types of insurance. In the Far East it is more likely to mean an insurance agency acting in loco parentis under a power of attorney from an overseas based insurer and empowered to underwrite risks and settle claims on behalf of that insurer.
General Average
If all parties involved benefit from a sea voyage that is saved from disaster although at the expense of sacrificing property or incurring extra costs, it seems only fair that parties should then each bear part of the expense. An example is when a cargo has to be jettisoned in order to save a vessel in danger of sinking during a storm. The cargo interests who lose out get some of their money back by
calling for 'General Average' contributions from all the parties, both hull and cargo, that benefited from this action.
General Exceptions
These apply to the whole policy rather than just a part of it. They usually relate to major catastrophes such as war, radioactive contamination and nuclear explosions. Coverage against such extraordinary events is not standard.
General Principles
Insurance practices have developed over several hundred years. Certain principles have been established and upheld by the courts or codified by acts of Parliament. These principles, including the concept of Contribution, Indemnity, Proximate Cause, and Utmost Good Faith, are now the
foundation stones of today's insurance practices.
Geographical Limits
These restrict the coverage of a policy to accidents or losses that occur within a specified boundary that may or may not correspond to a national border.
Glass
This is a class of insurance normally provided as part of a package for offices, shops, and hotels although separate insurance can be arranged when required. The basic cover is for breakage of fixed glass from any cause (although there are usually some exceptions, such as damage to frames or framework). Cover can also be obtained for showcases, neon signs, ornamental and lettered glass.
Golfer's Insurance
This is a readily available package policy covering loss of or damage to golfing equipment, liability to third parties, personal accident and 'hole-in-one' entertainment expenses.
Goods In Transit
Insurance The policy covers damages or loss to the goods while in transit.
Gross Premium
Normally refers to that premium payable by the Insured, that is, without deduction of intermediaries' commission.
Gross Profit
This is insured under a Consequential Loss Policy, also known as Business Interruption or Loss of Profits insurance. Gross profit in insurance terms may not match your accountant's definition, so check that you have given your insurer the figures he wants. Gross profit is normally defined by insurers as the amount by which the sum of the turnover and the closing stock shall exceed the sum of the opening stock and the uninsured working expenses (which are the variable or standing charges specified in the policy).
Group Insurance
A form of insurance covering a group of persons generally having some common interest, for example, employees of the same company.
H
Hague Protocol 1955
The amended Warsaw Convention Limits regarding an airline operator's liability to passengers and goods carried by air.
Hague Rules / Hague-Visby Rules
These set out the conditions upon which goods are carriedby sea - in other words, the obligations and responsibilities of the carrier and shipper.
Hail Insurance
Hail is the perennial worry of crop farmers. This can be included under a Crop Insurance policy.
Hazard
A condition that increases the chance of loss.
Hazardous Pursuits
Personal Accident policy exclusions vary on the subject of hazardous pursuits and pastimes, so check your fine print thoroughly. Parachuting, hang-gliding, mountaineering and racing (other than on foot) are normally excluded. The proposal form asks you whether you engage in any hazardous pursuits or pastimes normally regarded as dangerous. If in doubt, list them all.
Highly Protected Risk (HPR)
This is an American term to denote a risk where firm action has been taken to reduce the frequency and severity of a loss, such as sprinkler system and fire and smoke alarms.
The term is reserved for the best quality risks which consequently enjoy a lower premium rating.
Hijacking
Standard Aviation Hull Insurance usually excludes this form of cover, which can be purchased for an additional premium. As far as Personal Accident Insurance is concerned, unless the policy says otherwise, accidental bodily injury sustained as a result of hijacking will be covered.
Hired-in Plant
Your Machinery policy may have to be specifically endorsed to cover the sums that you may become legally liable to pay under the terms of your hiring agreement should you lose or damage the plant you have hired.
Hired Premises
If you hire premises for meetings, social gatherings and the like, you may have a responsibility to both the owners and the users. Your responsibility to the owners may arise out of your contract with them, so check the wording carefully and make sure that your Public Liability policy is extended to include the risk of damage to property that may be under your custody or control. If you also accept responsibility for the safety of the premises hired, then this may well involve substantial liability to people using the premises - take care!.
Hoists and Lifts
You need a licence to operate this kind of equipment, and the factory inspectorate will have to make regular inspections of it. Machinery Breakdown and Liability insurance is available from your insurer.
Hole-in-One
A golfer by tradition has to buy drinks for everyone in sight if he scores a coveted hole-in-one. A golfer's policy normally includes cover for these entertainment expenses up to a certain limit. Organisers of a tournament, or sponsors of a major prize for a hole-in-one, can also arrange a policy that will cover the cost of the prize if won.
Household Insurance
This insurance cover the contents of the house in the event of fire & allied perils. It also covers the Insured's legal liability against third party.
Hull Insurance
Insurance against loss due to damages to a yacht, cargo ship, houseboat or speedboat. This coverage also includes liabilities arising from damages due to the collision of the vessel with another boat.
I
Impact Damage
This additional peril is allowable under Fire Policy. It covers damage to property, notably buildings by any road vehicle.
Implied Warranty
A warranty assumed to be part of the insurance contract, even though not expressly included.
Increased Cost of Working
This type of cost can be insured under a Consequential Loss Policy. Normally suitable for office risks where profit would not be affected by, for example, a fire, but there would be increased costs, such as the rental of alternative premises or the reconstruction of records.
Incurred Losses
Losses, which have occurred within a specified time frame whether paid or still outstanding.
Indemnity
This principle requires the Insurer to restore the Insured to the same financial position as he had enjoyed immediately before the loss. The Insured shall not be better off than before the loss.
Index Linked Policies
These can increase sums insured automatically at each renewal. Usually buildings would be increased by the rebuilding cost index, and contents by the retail price index.
Industrial All Risks Insurance
This insurance provides a more comprehensive coverage than an ordinary fire policy. It is designed for an industrial risk with sum insured of at least RM 50 million.
Inherent Vice Exclusion
Damages arising solely due to the nature or condition of the goods shipped and not from any other cause. Example: Spontaneous combustion of an explosive goods or evaporation of a liquid goods.
In-Patient Cover
Medical Expenses restricted to hospitalisation, as opposed to out-patient cover which would cater for visits to doctors and the like.
Inspection
Lifting equipment, cranes, boilers and air compressors need to be inspected annually by a professional engineer approved by the factory inspectorate in most countries, and an inspection certificate must be obtained.
Institute Cargo Clauses
These define the extent of cover available under a Marine Cargo policy. Clauses A, B and C equate to All Risks, With Average (WA) and Free of Particular Average (FPA).
Insurable Interest
It is the legal right to insure arising from the legitimate financial interest which an Insured has in a subject matter of insurance
Intermediaries
The 'middlemen' of insurance who arranges insurance coverage between the insured and insurers. The main types are Brokers and Agents. The former are paid a brokerage fee, the later a commission by the insurers.
J
Jettison
A Marine Insurance term referring to the ditching of cargo to lighten the ship in order to save it from sinking. Covered under Institute Cargo Clauses A, B and C.
Jewellers Block
A specialist policy for jewellers and goldsmiths. There is a limited market available for this and it is a policy normally subject to fairly stringent security measures in view of the type of goods.
Jewellery
Personal jewellery is insured under an All Risks policy or section of a combined Personal Lines insurance. Cover is normally available for specified items, or unspecified up to a certain limit per item.
Judicial Bond
A type of Surety Bond that is either a fiduciary or court bond, that is, a contract by which one party agrees to make good the default or debt of another. A fiduciary bond guarantees that an individual, for example, a guardian, will safeguard assets belonging to others placed under the guardian's control, in this example, minors or deceased persons' estates. Court bonds come in many ways but
would include the .guaranteeing that a judgment will be paid if an appeal is lost in a higher court.
Jurisdiction Clause
Often endorsed on Liability policies to make sure any action is brought under a particular jurisdiction. Designed to stop plaintiffs 'forum shopping', that is shopping around the courts of the world in order to establish which would be the most favourable one for their claim.
K
Kidnap and Ransom
It is possible to obtain insurance from specialist markets to cover ransom demanded by kidnappers whether they be politically or just criminally motivated. Insurance can be purchased by individuals or companies worried about their key executives. This is a highly sensitive issue, with some governments declaring insurance to be contrary to public interest in that it may encourage criminals and terrorists to commit such crimes if they know there is insurance to pay for the losses.
Knock for Knock Agreement
In Motor Insurance, it frequently happens that an insured can make a claim under his policy or recover from a negligent third party. The usual procedure is for a claim to be made against his insurance company which will then pursue recovery under subrogation rights. To simplify recovery claims among insurers, there is sometimes an inter-company agreement whereby each insurer pays the vehicle's repair costs of its own policy-holder.
L
Laid-Up Returns
Marine Hull Insurance is either arranged on a Cancelling Returns Only (CRO) basis or on the basis of a pre-arranged refund should the vessel in question be laid up. CRO means that you can only get your premium returned if you cancel the policy. With a pre-arranged refund, usually, the definition of 'laid-up' means the ship must be out of action for at least 30 consecutive days.
Landslip
Also known as landslide. This is a peril that can be extended under Fire Policy.
Lapse
Expiring of policy due to failure to pay the renewal premium.
Legal Costs
Public Liability insurance includes cover for the costs and expenses of litigation recovered by any claimant against the insured, or incurred by the insured with his insurers' consent. Normally, these costs are covered over and above the limit of indemnity stated on the policy. However, the modern trend, especially for Products Liability, and particularly if there is any exposure in North America, is for the policy to be issued on a 'costs inclusive' basis. Third Party sections of Motor policies also include costs and expenses incurred with the insurers' consent, but that does not mean that the insurers will pay to defend you against a criminal charge arising out of an accident. When liability is in doubt, of course, they will normally do so, but with charges like drunken driving, failure to render assistance after an accident and the like, you will most likely find yourself on your own.
Legal Expenses Insurance
Becoming more prevalent in the western world, this would pay for a number of agreed legal services. For example, if a tenant in your house refused to move out at the expiry of the lease, this type of policy would meet the necessary legal costs.
Legal Liability
Obligations and responsibilities subject to evaluation and enforcement in a court of law. Public, Products and other Third Party Liability insurance would normally only cover your Legal liability for civil actions plus costs incurred.
Liability Insurance
The policy provides cover in respect of legal liability for accidental damage or bodily injury or damage to the third parties arising out of the insured's negligence.
Libel and Slander
You can rarely get this kind of cover as a separate policy, but you can add it to a Professional Indemnity cover.
Professional indemnity can also cover claims made against you for things like infringement of trademark, copyright or patent rights, as well as libel and slander. But professional indemnity will not cover criminal libel or actions arising out of your own personal spite towards a claimant.
Lightning
A standard Fire policy will automatically cover damage to property caused by lightning.
Limits of Liability
Except for Motor Third Party Injury, which is an unlimited policy, liability policies normally contain a Limit of Liability stating the maximum amount insurers will pay for a particular event. This limit usually applies to the total of all claims arising out of a single event. Some policies will also have a limit set for each policy period.
Liquidation
Receivers and the managers of companies in liquidation can get insurance packages to aid them in their hour of need. Such insurance usually provides automatic facilities to ease the managers' administration burden during the busy first few days.
Livestock
The cover-encompasses sickness or disease in animals as well as death from accidents, including fire and lightning. Bloodstock insurance covers the thoroughbred racers.
Livestock insurance includes the other farm type animals.
Lloyd's
This is probably the world's most famous insurance market, and certainly the top Marine insurance and shipping intelligence centre. It all started in a London coffee-house m the seventeenth century.
Long Term Agreement
These are no longer so commonly available, mainly because insurance rates have hit rock bottom and they were rarely enforced anyway. But they offer a discount if you agree to renew for a minimum period of three years.
Loss Adjusters
Adjusters are independent firms which deal with the investigation of insurance claims, their causes and the values involved. Although their fees are paid by insurers - who would have to maintain more technical claims staff if adjusters did not exist - loss adjusters are impartial.
Loss of Profits
Also known as Business Interruption or Consequential Loss insurance.
Loss of Use of Vehicle
Standard Motor policies do not include this cover but if Third Party is at fault, Insured can claim loss of use being the cost of hiring a replacement vehicle against the other party's insurers.
Loss Ratio
The ratio of losses paid and outstanding to earned premiums. If an insured suffers a number of expensive claims relative to the premium paid, they are described as having a poor loss ratio.
M
Machinery Insurance
Coverage for machines. There are two types available i.e. Machinery Breakdown Insurance and Machinery Breakdown Loss of Profit Insurance.
Maintenance Period
Under building and civil engineering contracts,contractors must carry out maintenance during a prescribed period after the completion of the contract.
Malicious Damage
This is an optional Additional Peril under a Fire policy to Cover against damage caused by 'malicious acts'.
Malpractice Insurance
Professional indemnity cover referring to doctors, hospitals and the like.
Marine Insurance
Generic term for covers in respect of both Hull and Cargo against perils of the sea e.g. incidental to the navigation of the sea and this includes fire, theft, collision, etc.
Master Policy
Policy that is issued to an employer or trustee, establishing a group insurance plan for designated members of an eligible group. The various insured members receive individual certificates, which described the insurance benefits to which they are entitled.
Material Damage Proviso
It is a condition in a Business Interruption policy that requires Material Damage policy (usually a Commercial Fire policy) to admit the liability prior to the Business Interruption Policy responding to a claim. For example, Fire Policy must be liable to pay a fire claim before Business Interruption Policy responses to the loss arising from interruption due to such fire occurrence.
Material Fact
Fact, which would affect the judgment of an underwriter in considering whether, he/she would enter into a contract of insurance.
Maximum Indemnity Period
Estimating the length of time during which you may still be paying for losses resulting from some interruption of business is a tricky business. But you have to make such an estimate when you take out Consequential Loss (Loss of Profits) cover against business interruption losses. You should play
safe and pick the longest possible time you think may be necessary to rehabilitate your business following damage caused by some catastrophe you have insured against. This period of time is called the maximum indemnity period.
Maximum Probable Loss
The maximum loss amount that probably can occur in a single event.
Misrepresentation The use of oral or written statements that do not truly reflect facts either by an insured on an application form or by an insurer or agent concerning the terms or benefits of an insurance policy.
Medical Insurance
There are many policies to choose from in this field. You tend to get what you pay for. This is certainly not the time to cut costs if you want wide cover and adequate limits for the protection of your own physical well-being.
Money Insurance
The policy provides cover to the insured in the event of money being stolen either from business premises, home, or while it is being carried to or from the bank.
Moral Hazard
A character defect in an individual that increases the chance of loss. Mortgagee Clause This clause protects the interest of the mortgagee under property insurance by paying him up to the value of his interest in the event of a major claim. Motor Insurance This insurance covers the loss or damage to the insured vehicle and also the liability arising from the insured vehicle as per requirement by the law.
Mortgagee Clause
Protects the interest of the mortgagee under a property insurance by paying to him up to the value of his interest in the event of a major claim.
Motor Insurers Bureau
Many countries have these systems where all motor insurers get together to make compassionate payments to injured people, or to the dependents of those killed, in motor accidents where the guilty driver cannot be traced, or is found to be uninsured. Sometimes the fund is paid totally by insurers, and in other countries it is funded by a policy holders levy.
Mysterious Disappearance Exclusion
This exclusion will allow Policy to deny any claim if the cause of loss is not able to be identified.
N
Named Drivers
Either as an underwriting restriction, or a method of premium reduction, driving can be restricted under a Motor insurance to named drivers only. If you have this restriction- be careful about the vehicle being driven by garage mechanics or jockey parkers.
Named Peril Policy
This type of policy only cover loss or damage directly caused by the peril (s) mentioned in the Policy.
Negligence
This is the most common form of breach of duty towards third parties under Common Law (also known as Tort). It is the failure to do something, which a reasonable person would have done under the same circumstances, or alternatively an action, which a 'reasonable' person would not have done.
'New for Old'
This is also termed as Reinstatement cover,where insurer agrees to settle the claim on the new replacement Value of the item, with no deduction for wear and tear provided the sum Insured is adequately insured.
No Claim Discount (NCD)
Under Motor Policy, insured is entitled for a discount on the renewal of his policy if there is no claim during the period of insurance. Non-admitted Insurer An insurer not licensed to do business in the particular country in question.
Non-admitted Insurer
An insurer not licensed to do business in the particular country in question.
Non-contribution Clause
The principle of Contribution is sometimes removed by a clause saying the policy will not apply where the insured is entitled to claim under another policy. If both policies contain the non-contribution clause, then court precedents exist for both insurers to contribute proportionately.
Non-disclosure
See Material Fact. Non-disclosure of a material fact gives an insurer grounds to avoid honoring the insurance contract.
Notice of Cancellation
Under the terms of most policies either the insured or the insurer may cancel the policy before expiry date by giving the requisite notice, according to the policy terms, to the other party and refunding a portion of the premium on pro-rata basis or short period scale basis. Notice of Claims When th loss incident occurs, the Insured is required to notify the Insurer on the happening in accordance to the terms or conditions stipulated.
Notice of Claims
Under a Marine Hull policy, Clause 10 requires the insured to give notice of any accident to the underwriters.
Notification
All policies have conditions on notification of claims to insurers. Some say notice should be given 'soon as possible' or 'forthwith' while others specify a period within which the incident must be reported. There is obviously no point in delaying. Even if you do not have full particulars of the claim, report the matter and ask advice from your insurers'
claims department as to the next step to take.
Nuclear Exclusion
With this exclusion, the Policy will exclude all losses directly or indirectly caused by nuclear risk or its related activity.
Nuisance
Like Negligence, this is an area where an insured person may incur liability. 'Nuisance' refers to the wrong done to a person by unlawfully disturbing him in the enjoyment of his property, or sometimes in his exercise of a common right. There are two kinds: private and public. A private nuisance affects the rights of an individual - damage caused by tree roots encroaching on a neighbour's property, for example. A public nuisance, on the other hand, affects the rights of the public generally - such a nuisance is a crime.
O
Observance of Conditions
It stresses that the insured person must comply with the terms of the policy before he can expect his insurers to pay the claim. This condition also links up with the declaration on the proposal form that answers given must be truthful.
Occupation
This refers to the use of the premise. It is an important factor to the underwriter as it determines the pricing and terms of a Policy. For example, in a Fire Policy, the premium charged for a workshop is higher than that of an office.
Occurrence Policy
This type of policy pays claims when an incident or event occurs during the period of insurance.
Operative Clause A clause in an insurance policy that details the type of event insured against.
Offer and Acceptance
A contract of insurance is made when one party makes an offer and the other party accepts it, both parties being in agreement as to the terms of the contract. Usually, the offer comes from the Proposer, the would-be insured person. But in Coupon insurance, it is the insurer who makes the offer and the person returning the coupon who accepts.
Ombudsman
This bemusing Scandinavian word simply means 'Arbiter of Disputes'. Insurance Ombudsman Bureaux are set up in various countries to give independent assistance to Personal Lines policy holders who are in dispute with their insurers. Also known as Claims Complaints Bureaux they make decisions binding on insurers but not affecting the legal rights of claimants. Check if your insurer is a member.
Onus of Proof
'Onus' is simply the Latin word for 'burden'. It is a concept relevant to Liability Insurance, where the onus, or burden, of proving negligence usually rests with the plaintiff. There are certain circumstances, however, in which a prima facie (a Latin term which means 'at first sight' or 'on first
impression') liability rests on one of the parties. Once it has been proven that an accident has occurred, for example, the onus is transferred to the defendant, to disprove his or her own negligence. See 'Res Ipsa Loquitor'.
Open Policy
This is a term commonly found in Marine Cargo insurance.
Instead of the annual premium being paid at the inception of the policy, individual shipment certificates are issued and charged for, or handled on a monthly basis.
Operative Clause
This clause in an insurance policy details the type of event insured against. Naturally, it varies greatly, depending on the type of policy involved.
Other Contents Clause
Under a Fire Policy, this clause provides cover for items that are not related to the Insured's business and not specifically stated in the schedule of policy, up to a limit stipulated under this clause.
Over insurance
Sum insured is more than the actual value of the property. Under Indemnity Policy, such as Motor Policy, Fire Policy, etc., claimants are not allowed to make profit from their claim. Therefore, it is meaningless to over-insure a property by paying a higher premium.
Own Damage
Under a Comprehensive Motor policy, this phrase refers to the accidental loss or damage cover on insured's vehicle. Insurers have the choice of compensating the insured person by paying for repairs, by replacing the car, or by making cash payment. Policies extend to include all accidental damages, but wear and tear, breakdown and the likes are excluded.
P
Package Policy
As the name suggests, you get a package deal under one policy. For example, with the package Personal Lines policy, you can be covered for a multiplicity of things pertaining to yourself and your personal belongings, such as home buildings and contents, jewellery, liability, personal accident, motor car and others, making it easier for you to insure all in one go.
Principle of Indemnity
This principle requires the Insurer to restore the Insured to the same financial position as he had enjoyed immediately before the loss. The Insured shall not be better off than before the loss.
Pair and Set Clause
This clause limits the insurers' liability in the event of loss of or damage to any article, which is part of a pair or set. The clause requires the insurer to pay only the value of that particular part lost, not any special value it might have because of being part of a pair or set.
Particular Average
This is the loss to a ship, freight or cargo interest which is not shared by contribution from all the interests involved - as in general average - but is borne only by the owner whose interest has been lost or damaged.
Performance Bond
A bond that pays to the principal under a contract if the contractor does not complete as per the specifications of the bid. Normally comes into play if the contractor goes into liquidation before completion, but can be called to pay
if there is undue delay.
Perils
Cause of loss.
Personal Accident Insurance
The policy provides cover for accidental bodily injury resulting in death or disablement.
Personal Liability
Hopefully, this will not happen to many of us, but in the course of our lives, there are many things we may be liable for, although quite unintended on our part. For instance, we may, by some silly accident, poke someone's eye out with an umbrella. Such an incident must, of course, result in some tangle with the law. Personal Liability coverage helps us pay for the compensation due after such accidents. Most good quality Personal Lines package policies would cover this sort of event.
Personal Lines
A generic term referring to insurances written for the individual, such as Householders, Jewellery All Risks, etc.
Pet Insurance
Not very common in this part of the world, but there are schemes elsewhere that would cover veterinary charges and even small amounts of compensation if your favourite pedigree is accidentally killed.
Physical Hazard
A physical chance that increases the condition of loss.
Plate Glass Insurance
The policy covers breakage of plate glass fixed to display windows or show-cases of commercial establishments by any cause whatsoever except those that are specifically excluded under the policy.
Pleasure Craft Insurance
Insurance for private pleasure boats covering both the hull and contents plus extensions for third party property damage and bodily injury.
Pluvius Insurance
'Pluvius' means 'rain' in Latin. You might guess that this term refers to Weather insurance. Rain can ruin outdoor activities, as we all know. In some cases, this may also mean a reduced profit or an actual financial loss if the outdoor event in question is major.
Policy
A written contract or certificate of insurance.
Policy Period / Term
The period or duration in which the policy is in force.
Policyholder
The person who is in actual possession of an insurance policy.
Political Risks
An exporter may wish to cover the risk of not being paid for his goods due to a sudden turn of political events such as civil wars or misappropriation by government authorities.
Pollution Exclusion
With this exclusion, a Policy will exclude all losses directly or indirectly caused by pollution.
Pre-existing Condition
Exclusion Found under many Medical Expenses policies, it is designed to exclude illnesses known by the insured before he takes out the insurance
Premium
The sum of money paid by a policyholder as consideration to the insurer for the contract (insurance policy) and for a specified period of time (usually one year).
Premium Adjustment
Some forms of insurance, such as Workmen's Compensation, Consequential Loss and Stock Covers, can be taken out initially based on estimated values, at a deposit premium. At the end of the period of insurance, actual values at risks are declared and the premium adjusted accordingly.
Premium Notice
A notice from an insurer to a policyowner that a premium payment is or will be due on a given date.
Premium Receipt
The receipt given to a policyowner as an evidence for the payment of a premium.
Premium Warranty
This warranty imposes an absolute condition on the insured to ensure that premium for the policy issued is paid to the Insurer within sixty (60) days from the date of inception of the policy, failing which the policy is automatically cancelled on the sixty first (61st) day and the Insurer becomes entitled to the proportionate premium for the 60 days in respect of which, insurance was provided.
Products Guarantee
This refers to insurance against legal liability for claims which arise from the failure of your products to perform as they are supposed to. For example, the cost of replacing faulty products or the consequential losses arising from the faulty products can be covered under this insurance. But this is not a widely available form of insurance and it is not included in the standard Products Liability policy.
Products Liability Insurance
This insurance cover legal liability of the Insured arising from the product sold or supplied. This cover is not available under Public Liability Insurance. Consequently, a separate policy need to be bought for the later.
Products Recall
Under certain circumstances, you can insure the costs necessary to recall a product series which has been found to be defective. An example would be a car manufacturerd.
Professional Indemnity Insurance
This insurance protects professionals, such as accountants, solicitors, architects, doctors, etc, against their legal liability to compensate third parties who have sustained some injury, loss or damage due to their professional negligence.
Proposal Form
A proposal form is an application form to be filled by any one who wants to take an insurance policy; he or she is then known as the proposer. This legal document forms the basis of contract between the proposer and Insurance Company. Once the Insurance Company has accepted a proposal, the information contained in the proposal form becomes the basis of the insurance contract. The proposer must disclose all relevant facts known to him or her. If the proposer fails to disclose such facts, he or she may find the policy virtually useless when the hour of need arises.
Proposer
One who wishes to purchase an insurance policy and submits a completed proposal form to an insurance company for its consideration.
Pro Rata Cancellation
If a policy is cancelled before its full term, the insured will receive a full proportional refund of the premium for the unexpired term. But insurers are usually entitled to charge a higher 'short period' rate depending on the circumstances of cancellation.
Protection and Indemnity Insurance
This is insurance for a shipowner against liability for loss of life, illness or injury ro passengers or crew and liability for property damage to the cargo, piers, or docks, caused by the insured's negligence. This type of insurance is usually undertaken by mutual associations called P & I Clubs.
Proximate Cause
The dominant cause of loss amongst many causes of loss. Onus of proof of loss rests on the Insured
Public Liability Insurance
This insurance covers the Insured's legal liability arising from his business activity in respect to bodily injury and property damage to third party.
Public Utilities
This clause is available under Fire Consequential Loss Insurance. It covers losses resulting form the interruption or interference with the business consequent upon failure of public supplies such as electricity, water and gas.
Punitive Damages
These are also known as Exemplary Damages. They are levied by courts of law to punish a defendant for acts of gross negligence. Although this is a concept usually exercised in US courts, some states there make it illegal to insure against such damages, to make sure the perpetrator is
punished without insurance protection.
Q
Quota Share
A form of reinsurance indemnifying the ceding company against a fixed percentage on each risk. For example, a ceding company may agree to retain 30 % on every risk and cede the remaining 70 % to its quota share reinsurers.
R
Radioactive Contamination Exclusion
With this exclusion, the Policy will not cover loss or damage to property insured directly or indirectly caused by ionising radiations or contamination by radioactivity.
Recital Clause
This is a clause included in all insurance policies. It principally refers to the proposal form and declaration, which form the basis of the contract, and formally incorporates these items into the policy.
Reinstatement by Insurers
Policies relating to the insurance coverage of property commonly state that the insurer may choose to pay for, repair or reinstate the property in the event of its loss or damage.
Reinstatement Cover
This is cover for buildings and machinery where no deduction is made for wear and tear in the event of a claim.
Reinstatement of the Sum Insured Clause
After a claim, the sum insured of the Policy will be less by the amount of the claim. This clause reinstates the loss amount back to the sum assured. It is nd subject to additional premium to be charged.
Reinsurance
Under this system, one insurer accepts insurance from another insurer. There are various types of reinsurance, as there are specialist reinsurance companies and brokers.
Rejection Risks
In certain countries, especially the US, import regulations with regard, particularly, to frozen foods are very stringent.
Any imports which do not meet the required standards are rejected, and cover is sometimes available against the risk of such rejection.
Removal of Debris
With this clause, the Policy will cover the cost necessarily incurred in the removal of debris and/ or dismantling, demolishing, shoring up or propping of the property insured following loss or damage by way of perils insured.
Renewal
Renewal is the continuation of an annual insurance contract beyond the original stipulated period by the insurer's acceptance of premium for another annual policy period.
Renewal Notice
This is the notice sent by the Insurer to the Insured for inviting the renewal of the insurance. The premium of the renewal and the period of insurance will be stated on the notice.
Replacement-as-new
Household Contents insurance cover is available where an item lost or destroyed may be replaced with a brand-new replacement. Obviously, the total sum insured would also have to reflect this replacement-as-new cost. Also referred to as 'New for Old' cover.
Res Ipsa Loquitur
This Latin phrase means 'action speaks for itself'. It refers to a legal liability situation. In cases where the cause of an accident lays solely within the control of the defendant, the plaintiff does not have to prove negligence - in other words, the facts of the case speak for themselves.
Retention
This is the maximum liability that an underwriter is prepared to assume as his own. He may then reinsure the balance of the risk, or just accept the risk up to the retention only.
Retrospective Rating
Retro rating for short, this is a method of establishing premium and is charged and adjusted depending on the actual loss experience.
Riot Strike and Malicious Damage
With this extension, the Policy shall covers loss directly caused by riot strike and malicious damage as defined in the clause wordings. The coverage does not include war or warlike operation, mutiny, civil commotion and terrorism. For details, please refer to policy/ extension wordings.
Risk
An uncertainty regarding loss.
Risk Control
This is virtually a science now, encompassing many methods of reducing the frequency or severity of losses, including loss-prevention measures, such as fire extinguishing apparatus or burglar alarms.
Risk Financing
The use of several methods, or sources of funds, to pay for losses. Can the company stand a large deductible on its insurances? Should some risks be self-insured, perhaps.
Risk Management
A systematic approach to dealing with risks that threaten assets and earnings of a business or enterprise.
Robbery
The act or an instance of unlawfully taking the property of another by the use of violence
Running Down Clause
Under Marine Hull insurance, if the insured vessel collides with another and payments have to be made for damage, loss of use and delay to the other vessel, then underwriters will only pay three-fourths of that amount.
S
Salvage
To save damaged property for further use, thereby reducing the amount of any loss.
Salvage Charges
The expense of recovering property by a salvor. In Marine insurance, these charges would be properly apportioned between hull, the vessel itself, and cargo interests, in the event of a ship being salvaged.
Sea-worthiness Admitted Clause
A clause in Marine Cargo Insurance which exempts the policyholder from vouching for the sea-worthiness of the vessel. A shipper of goods has no control over the ship's condition, although he can, to a certain extent, choose which ship he wishes to despatch his goods in.
Self Insurance
Some large industrial concerns prefer to set aside their own funds to cover any future losses, rather than insure with an outside insurer. It is a step which should never be taken without the benefit of professional advice first.Whilst day-to-day losses might not prove too much of a financial burden to a really large company, a truly catastrophic event, such as an earthquake, could put it out of business for lack of insurance.
Self Inflicted Injury
Excluded under Medical insurances as this is intentional and not accidental.
Short Period Rate
A premium charged in accordance to the time for which insurance is required, usually for periods ranging from one (1) week up to eight (8) months.
Single Article Limit
This is the maximum amount claimable for each article or item in the Policy.
Slander
It may seem odd that insurance is available against such a deliberate act as libel and slander, but a limited insurance market does exist, normally for the large corporations.
Solvency Margin
The ratio by which assets exceed liabilities and is, to some extent, a yardstick of financial health of an insurance company. In many countries legislation exists to set minimum standards.
Special (or Additional) Perils
The perils which are allowed to be included in addition to the basic cover provided by standard policy with additional premium to be charged.
Specified Working Expenses
Factors in the calculation of gross profit under a Business Interruption policy, such as raw materials, packing, carriage and other variables. 'Working expenses' may also include wages if they are insured as a separate item.
Spontaneous Combustion
Some goods, such as copra or coal, can spontaneously heat and catch fire, when stored in bulk. Under a standard Fire policy, damage to such goods is normally excluded, unless specifically requested. However, any damage resulting to other property from such a fire is covered.
Sprinkler Leakage Endorsement
With this endorsement, the Policy covers loss or damage resulting from leakage form an Automatic Sprinkler Installation.
Standing Charges
These are expenses, which still have to be met in full even if a business cannot earn its full income owing to fire or other damage.
Statute of Limitations
Period of time within which claims against third parties for damage or injury have to be made.
Storm, Tempest
This is an additonal peril that can be extended under Fire Insurance. It covers loss or damage directly caused by Hurricane, Cyclone, Typhoon and Windstorm.
Strict Liability
This is a liability for which the client need not prove a breach of duty owed. It is a liability imposed by law, where the defendant will be considered liable even when he has exercised reasonable care.
Subrogation
This priciple provides an insurer who has indemnified an insured for a loss may exercise the Insured's rights to claim from the third party in respect of loss.
Subsidence and landslip
This is an additonal peril that can be extended under Fire Insurance. It covers loss or damage to the property insured caused by subsidence (sinking of land or building) and/or heave (raise up) of the site on which the building stands or land belonging thereto or landslip subject to the exclusions mentioned under the endorsement in details.
Sue and Labour
This clause under a Marine Hull policy allows the insured to recover the cost of his or her reasonable efforts to avert or minimise a loss.
Sum Insured
The amount stated under the policy and the maximum claim that will be paid out.
T
Target Risk
'The big one'. This is an insurer's term for a large, sometimes hazardous risk. Such a risk may well be the biggest on a schedule of risks and may therefore have to be treated separately in order to arrange reinsurance to cover it fully.
Tariff
The Tariff is a Manual and Guide which regulates the rates, policy conditions and coverage for the Fire and Motor insurance classes in Malaysia.
Temporary Disablement
Benefits payable under Personal Accident policies where disability is short-term, measured in weeks, as opposed to permanent. Temporary disablement can be total or partial.
Temporary Removal
An extension to the standard Fire policy to cover property temporarily removed from insured premises for repair, cleaning or some other stated reason.
Tenant's Liability
This clause covers the Insured's legal liability in respect of the damage to rented building.
Territorial Limits
The Policy will only response to the incident or loss occurs within the geographical limit stated in the policy.
Terrorism Exlcusion
This is an excluded peril in the Policy. The Policy will not cover loss or damage directly or indirectly caused by terrorism. Terrorism means the use of violence for political ends and include any use of violence for the purpose of putting the public or any section of the public in fear.
Theft Insurance
This is a vital part of any modern insurance programme. You would be amazed at the variety of possessions, products and commodities that thieves apparently find attractive. Don't forget that even ordinary office premises nowadays contain sophisticated and expensive machines likely to attract thieves' unwelcome attentions. Theft insurance on business premises usually limits cover to incidents involving forcible or violent entry to, or exit from, the premises. A wider form of cover, known as Full Theft Cover, which waives this restriction, is available for certain trades.
Third Party Cover
This coverage is provided under Motor Insurance. It provides protection against the standard coverage required by the law as well as the damages caused to third party vehicles.
Third Party Liability
Liability to third Party. A third party is one who is not a party to the contract .
Three-Fourths Collision
Liability Under Marine Hull insurance, this clause covers liability for damages to another vessel caused by the negligence of the insured vessel. This cover, which is supplementary to the cover on the vessel itself, covers up to three quarters of the extent of liability. The last quarter of the amount is included in the ship owner's P & I Club cover (type of a group coverage taken up by Marine Clubs).
Time-on-Risk Charge
Premium charged for a period during which an insurer is holding a risk covered, by means of a temporary cover note, for example, rather than an annual policy. It is important to note that, if you take out an initial cover note but then a short while later change your mind and decide to change your insurers, or your policy, you will still have to pay the first insurer pro-rata for the time you have been insured with him since he issued you a cover note. As far as the insurer is concerned, you have been covered for that time, whether you have been paid or not, and whether or not you are still arguing about details of the cover. Had you claimed during that time, he would have honoured your claim.
Time Policy
This is one of the various types of Marine insurance policies.
A Time policy is more common for Hull insurance and refers to cover for a fixed period, usually not more than 12 months.
Tort
A civil breach of personal duty owed to one's fellow citizens in general, as opposed to a breach of contract. The injured person has the right to damages from the wrongdoers.
Total Loss
The complete loss or destruction of all the property insured under a particular policy. Under Marine insurance, it is quite common to find a Total-loss-only insurance.
Travel Insurance
Type of insurance designed for travelling needs. There are quite a few different covers available, including Personal Accident, Medical, Loss of Luggage and Money, and Personal Liability.
Turnover
The money earned for goods supplied or services rendered. Insurers need to have this statistic when managing earnings-related insurance such as Business Interruption or Products Liability, where it is a rating factor.
U
Umbrella Liability
Term used mainly in the US market describing a liability policy where the limits of liability are in excess of the amount covered under a primary policy. It can also fill in gaps in cover such as a Difference in Conditions/Difference in Limits policy in the UK market.
Under-Insurance
A situation where the Insured did not adequatly insure his property. Under such circumstance, the average clause (refer definition in 1st page) will apply and the Insured will be considered as co-insurer for the differences.
Underwriter
A person who are technically trained in assessing the risk and determine the pricing and the coverage of the Policy for a proposed risk.
Underwriting Agency
An intermediary who is allowed to underwrite and accept risk on behalf of an insurer, subject to certain laid-down criteria and limits.
Uninsurable Risks
Risks that can not be insured due to various reasons, i.e. speculation in the stock exchange is against the basic principles of insurance.
Uninsured / Untraced Drivers
The Motor Insurers' Bureau collectively financed by all motor insurance companies, deals with third-party injury claims arising from uninsured drivers and hit-and-run accidents.
Unoccupancy
Some policies have a condition that if the insured premise is left unoccupied for a specific period of time, it will pose greater hazard than if it is occupied. Premiums for such policies are normally higher as there are greater risk involved.
Unspecified Valuables
Collective cover for valuable items such as jewellery, which are individually worth less than a certain specified limit. This cover saves having to individually specify each item, and if evidence of value is provided, the claim can be made up to the specified limit.
Utmost Good Faith / 'Uberrimae Fides'
It is a basic principle of insurance contracts whereby the proposer must disclose all material facts, which he knows or ought to know.
V
Valuations
Claims are much more easily and satisfactorily handled if you have valuations. With buildings, of course, you have to look at rebuilding costs rather than market value, as you do not insure the land. With other property, such as jewellery, it is equally important to keep valuations up to date.
Valued or Agreed Value Policy
This provides a pre-determined fixed amount to be paid out for the total loss of the property.
Variable Charges Those expenses which vary in direct proportion to business activity or volume of production, and which are included as 'specified working expenses' when calculating the sum insured under a Business Interruption policy.
Variable Charges
Those expenses which vary in direct proportion to business activity or volume of production, and which are included as 'specified working expenses' when calculating the sum insured under a Business Interruption policy.
Void Contract
A void contract is one that is legally uneforceable. In other words, it cannot be carried out because of a lack of capacity to contract. Example: Customer wants to buy insurance for shipment of illegal VCDs. As the subject matter is not legal, the insurance contract, entered into unkowningly or knowingly, cannot be enforceable.
Voidable Contract
Some contracts though valid when first entered into, can be subsequently set aside due to mistakes like non-disclosure of important facts. Consequently, the victimised party is given the option either to continue with the contract or set it aside.
Voyage Policy
Marine insurance covering goods for as long as they are moving from one place to another, as opposed to a Time policy where cover is simply for a definite period of time.
W
Waiting Period
A period of time which must lapse after, say, the inception of a disability, before benefits become payable. Commonly found in permanent Health insurance policies.
War Risks
Excluded under standard policy forms. In Marine insurance, it can be readily included subject to cancellation provisions. In non-marine insurance, war risks tend to only be covered in a specialist market. Insurers are always wary of selection against them. In other words, why should they grant cover if hostilities look likely when the insured did not request cover when there were no problems.
Warehouse to Warehouse
This cover is quite usual under any Marine Cargo policy covering goods moving from the manufacturer's premises to the consignee's warehouse at the final destination.
Warranty
A policy condition which, if not complied with, may have the effect of invalidating the whole policy. An example is the requirement to use a burglar alarm in a jewellery shop.
Wear and Tear
Policies exclude this sort of damage. It is not accidental but inevitable with most goods.
With Average
Marine Cargo insurance term where cover includes partial losses. The term is now obsolete since the introduction of the Institute Cargo Clauses.
Worker's (Workman's) Compensation Insurance
The policy provides cover for the insured in respect of his liability towards employees who are considered workmen (under the Workmen's Compensation Act) for bodily injuries or death arising out of and in the course of employment.
Y
Yacht Insurance
Available under Pleasure Craft Insurances. Special provision needs to be made if you race them.
York Antwerp Rules
The treaty adopted by most major countries to determine adjustment for general average in Marine Insurance.
In Marine insurance this gives an insured the right to abandon lost or damaged property and still claim full settlement from an insurer subject to certain restrictions.
Accidents
An unexpected and undesirable event, especially one resulting in damage or harm.
Act
When a Motor Insurance policy is issued against an "Act" only, the coverage is sufficient only to meet the minimum requirements of the Road Traffic Ordinance, that is, protection against liability arising from injury to third party.
Act of God
A natural and unavoidable catastrophe that interrupts the expected course of events.
Additional Perils Provision These are provisions that widens the scope of basic insurance coverage. Example: Fire Policy gives basic coverage of fire, lightning and explosion. However additional perils such as windstorm, flood and air craft damage can be covered by paying additional premium.
Actuaries
An actuary is an expert human computer who applies mathematical theories of probabilities and statistical techniques in risk calculation. Previously seen only in relation to life assurance, we now know we need general insurance actuaries, particularly in relation to loss reserving and premium calculations.
Acquisition Cost
How much it costs insurers to obtain and write new business. It would include intermediaries' commissions, underwriting and policy issue expenses.
Additional Perils
These are provisions that can widen the scope of basic insurance policies, for example, Fire policies, which often restrict coverage to a limited range of perils, such as fire, lightning and explosion. These provisions are sometimes called Special Perils and may include, for example, losses caused by storm, flood or damage by aircraft.
Adjustable Policies
Could you tell me today exactly what your payroll, turnover or average stock value on your premises will be in the next 12 months? I doubt it. But what happens if your insurance premiums are to be based on these figures? Often, the premium has to be based upon realistic estimates. Under an adjustable policy, these estimates can be adjusted appropriately, upwards or downwards, at the end of the period of insurance, when the actual figures are available.
Adjuster
A independent professional party appointed either by the insurance company or insured to assist in loss verification and assessment. See Loss Adjusters
Advance Loss of Profits Insurance
This type of insurance is arranged before the commencement of the insured's business. Such policies are usually taken up to guard against potential delay in putting a plant or machinery into operation, cause by loss or damage affecting the buildings or key machinery at any stage of the business set-up.
Adverse Selection (Anti Selection)
The Insured should not choose only a section of the property which has greater risk exposure to be insured. All properties should be insured at the same time.
Agent
A salesperson representing an insurance company to policyholders and assisting them in the placing, issuing and servicing of coverage.
Aggregate Limits
Payment limits of a policy during the period of insurance. Example: A Public Liability Policy has an aggregate limit of RM100,000. Claimant is entitled to make multiple claims during the period of insurance so long as the total amount claimed does not exceed the limit of RM100,000.
Aircraft Damage
This is a peril that can be extended under Fire Policy. It extends the cover to include loss or damage to the property insured directly caused by aircraft and other aerial devices and/ or articles dropped therefrom.
All Risks
This is a slightly misleading name for the types of insurance which provide wide cover but evertheless contain a number of exclusions depending on the risk. In other words, the term 'All Risks' should not be taken too literally, but policy wordings should be read thoroughly.
All Risk Insurance
This is a peril that can be extended under Fire Policy. It extends the cover to include loss or damage to the property insured directly caused by aircraft and other aerial devices and/ or articles dropped therefrom.
Application/Proposal Form
This type of insurance policy is issued to cover valuable articles like jewellery, camera, watches, paintings, and other personal effects. The coverage is very wide and includes loss of or damage by fire, theft or any other accidental circumstances except those specifically excluded by the Policy.
Arbitration Clause
This clause is found in the Conditions of many property policies. Any difficulty that the insurer and insured may have in agreeing on the amount of a claim can be referred to independent arbitrators rather than going through the Courts.
Architects', Surveyors' and Consulting Engineers' Fees Clause
This clause extends the coverage of the Policy to include professional fees arising from repairing or reinstating the damaged property.
Assured (Insured)
The person who has an insurable interest on the property insured and purchase the insurance policy to protect such property.
Assurer (Insurer)
The party who agrees to pay the money to another party on the happening of a stated contingency or event. The assurer is also sometimes referred to as the insurer.
Average Clause
This clause stipulates that in the event of under-insurance, the Insured shall be considered as a co-insurer and shall accordingly bear such proportion of the loss. In Marine insurance, however, 'average' means loss, while 'particular average' means partial loss. See also 'General Average'.
B
Bailee's Liability
Covers legal liability resulting from damage or destruction of the bailors property whilst under the bailee's temporary care, custody and control. For example, a suit being cleaned is under the temporary control of the bailee (cleaner). The bailor (owner) expects the suit to be returned in good condition. If the suit was stolen from the cleaners, the bailee's Liability insurance would cover the loss.
Banker's Blanket Bond
Wide form of cover available to Banks which includes Theft and Fidelity Guarantee risks. This is a specialist insurance written mostly in the London market.
Bid Bond
Sometimes required by a developer from a contractor submitting the lowest bid on a project. If the contractor subsequently refuses to undertake the project, then the bid bond will pay the developer the difference between the lowest and the next lowest bid. Its aim is to ensure contractors make serious bids.
Bloodstock Insurance
Applies only to horses kept for racing or breeding purposes (as opposed to Livestock insurance). It provides financial protection against death from sickness or diseases and accidents, including fire and lightning. It can also cover theft and malicious acts.
Boilers and Pressure Plant Cover
All boilers and vessels subject to internal pressure or vacuum should be insured against explosion or collapse. The insurance is normally extended to cover damage to surrounding property and third party liability arising from such explosion or collapse.
Bonds
These are, in essence, a financial backstop for a contractor's guarantee. A person or authority awarding a contract requires protection against the failure of the contractor to meet the terms of the contract. There are many forms of contract in commercial use, for example, performance bonds
(contract guarantees), bid bonds, customs bonds, supply bonds and so on. You may even have heard of maid bonds in certain countries.
Book Debts Insurance
This is also known as Accounts Receivable insurance. It covers the amounts in your account books (debit balances) that you are unable to collect because the books have been destroyed. With duplicate sets of computer records now the norm, this cover is less important to large clients, but small businesses may well need it.
Broker
An insurance intermediary who represents the interests of the client, not the insurance company. In certain countries, use of the word 'broker' is regulated and the intermediary needs to be a member of the appropriate Brokers Association and meet their minimum requirements. This is to ensure a
proper professional standard, and redress for the client in the event of problems.
Builders Risk Hull Insurance
Covers a boat/ship builder until possession passes to owners.
Usually All Risks cover on the completed value of the property.
Burglary Insurance
This insurance covers loss or damage to property inside the insured premise, due to theft that is accompanied by actual forcible and violent entry.
Business
An insurance policy covering business enterprises normally only covers you in respect of the 'business' described in the policy schedule. It is important, therefore, to ensure that your business is fully and correctly stated in the policy, especially if you engage in more than one activity, or run more than one company.
Business Interruption Insurance
This insurance covers loss against anticipated net profits and of necessarily continuing expenses (to the extent that such profits and expenses would have been earned had no interruption occurred) caused by interruption of business activity by the operation of an insuerd peril. For example, Mr Jones owns a profitable bakery, by which is destroyed by fire. Business interruption insurance would cover such continuing expenses like mortgage payments, equipment loans, and profits that would have been earned if there had been no fire. This insurance would not cover expenses that would not cease because of the fire such as purchase of raw material and use of electricity.
Business Machines
These should be insured against all risks - that is all the usual perils plus accidental damage. More sophisticated equipment, such- as computers, should be covered against possible breakdown.
Business Travel Insurance
When arranging travel insurance, companies and executives need to consider their own special needs. For example, the company may be faced with a second set of air fares if an executive travelling abroad falls ill and has to send a replacement to finalise an important deal.
C
Cancellation
In most of the policies, there is a cancellation condition which allows the Insured or the Insurer to cancel the policy by serving written notice in accordance to the condition stipulated in the Policy. In such circumstance, a refund premium will be allowed to the Insured for the unexpired period on short period scale or pro-rata basis depending on the reason furnished.
Captive
This is an insurance company formed primarily to insure the risks of its parent company. Reasons vary from tax savings to the fact that the conventional insurance market does not readily wish to write this type of risk. Example: dangerous chemicals or liability for cigarette manufacturers.
Cargo
This is usually covered under a Marine Insurance policy, whether for domestic or international journeys, by sea, air or land. There are three internationally recognised types of cover, known as 'Institute Cargo Clauses A, B and C'. These have replaced three old covers with antiquated wordings known as All Risks, With Average (WA) and Free of Particular Average (FPA).
Caveat Emptor
A phrase that means "Let the buyer beware"
Certificate Of Insurance
A document given to the requester, listing the coverages of an insured, including the name of the insurance company, the policy period, and the limitations of coverage. It also states that prior written notice will be given if any material change or cancellation takes place. 2. An individual verification of coverage on a group insurance master contract.
Chartered Insurance Institute (CII)
The UK based insurance education body which also operates through worldwide affiliates. This is the main professional examining body for the insurance industry outside the USA. Insurance personnel who have passed their insurance examinations can qualify as Associates or Fellows of the Institute.
Claims
Notification to an insurer for compensation of losses covered under a policy.
Co-Insurance
Co-insurance means the sharing of one insurance policy between two or more party/insurers. Usually, this entails each insurer paying directly to the insured their respective share of the loss. In other words, the insured has an insurance
contract with more than one insurer. This arrangement is cumbersome to administer and is used only on very large risks.
Collision Damage Waiver
Cover that can be purchased by someone renting a car where the rental company waives any right to recover the amount of damage to the car from the individual regardless of fault.
Computer Insurance
A relatively new type of insurance specially geared to cover delicate and high value computer equipment. Cover is usually on an All Risks basis and can be extended to include the costs of reinstating data, and business interruption cover such as increased costs of working, or loss of revenue/gross profit.
Computer Systems Records
Cover for these is often not available under basic Fire and Burglary policies. You can either extend your cover specifically to protect such records or, alternatively take out a special Computer insurance.
Condominium Insurance
A special policy taken out by owners or management corporations designed to cover the buildings of a condominium, sometimes carrying other benefits, such as Liability insurance for the management corporation or committee, plus Errors and Omissions cover.
Comprehensive Motor Policy
This type of motor insurance policy provides the widest form of protection for vehicles. It covers loss of, or damage to the insured vehicle and also the Insured's legal liability to a third party as required by the law.
Consequential Loss Insurance
Same as Business Interruption Insurance
Constructive Total Loss
Partial loss of such significance that the cost of restoring damaged property would exceed its value after restoration.
Contingent Liability
This is where a liability is incurred by a business for acts other than those of its own employees. If an independent contractor is hired to carry out some work, then the business may be held liable for the negligent acts of the
contractor if the contractor is acting under the direction or control of an employee of the business.
Contract of Indemnity
Property insurance that restores the insured to his original financial condition after suffering a loss. The idea is that the insured cannot profit by his misfortune. Personal Accident insurance, where a pre-agreed lump sum payment is made, is not a Contract of Indemnity.
Contractor's All Risks Insurance
This insurance covers the contractor against damage to the construction works from a wide range of perils. This policy would usually include Public Liability cover as well. It is often arranged in the joint names of the principal and the contractors.
Contribution
The right of an insurer who has paid claim under a policy, to call upon other insurers of the same loss to contribute proportionately to the cost of the indemnity payment.
Contributory Negligence
A principal of law recognising that injured persons may have contributed to their own injury.
Cost Insurance and Freight
This is a shipping terminology. Import or export of goods with 'CIF' terms mean that insurance is already included in the price.
Coupon Insurance
On some large schemes, the individual insured may receive a certificate or coupon confirming cover. Full terms and conditions would be contained on the Master Policy. Coupon insurance also refers to insurance sold by completing forms in newspaper advertisements.
Cover note
A temporary legal document issued as evidence of contract confirmed between insured and insurer. The usual validity period of a cover note does not exceed thirty (30) days.
Crop Insurance
Covers various growing crops in the event of loss or damage caused by insured perils, notably fire, flood or hailstorm. In many countries this is available through government bodies.
Counter Guarantee
If an insurance company issues a Bond, then it will usually ask for either cash collateral or a counter guarantee from a surety or directors of the company to whom it issues the Bond. If payment is made by insurers, then redress will be sought against such sureties under a counter guarantee.
D
Date of issue
Date when insurance company actually issues the policy document, which may well, be different from the commencement date of the insurance.
Debris Removal Clause
Policies covering buildings, machinery and stock do not always include the cost of removing debris and dismantling machinery. Yet these are usually necessary exercises after a loss of some kind.
Declaration
Information that the insured gives about the risk he wishes to insure, often, but not always, through the completion of a proposal form. On this information the insurance company decides the premium, and false declaration can lead to the policy being void.
Declaration Policies
These are adjustable policies offering you flexibility when it is difficult for you to predict accurately the value of your stocks over the next 12 months. At the start of the insurance period, you are asked to estimate the value at risk for the next year and to pay a deposit premium. You then declare the actual figure normally on a monthly basis and when your policy expires, the actual premium is calculated for final adjustment.
Deductible
Sometimes called excess, it refers to the amount the insured is required to pay before his insurance cover will operate. This deductible is imposed by insurers because of the nature of the risk.
Defence Costs
Litigation costs incurred while defending a lawsuit. This applies to liability policies.
Demurrage
In Marine Hull Insurance, this means any loss of hire period incurred by the ship owner due to his vessel being damaged through the fault of another party.
Denial of Access
This is an extension that is allowable under the Fire Consequential Loss Insurance. It covers loss resulting from damage in places other than the Insured's premises resulting in the prevention or hindrance to the use or access to the Insured's premises.
Defective Design
Although a Products Liability policy generally covers you against claims made by third parties when the product supplied by you has caused injury or damage, it does not do so if this has happened due to any defective design, faulty formula or wrong specification of your product.
Difference in Conditions Insurance
Often issued on a worldwide property cover which brings the more restrictive cover of policies issued in certain countries up to an agreed cover of a higher standard. For example, Fire and Perils upgraded by the Difference in Conditions Insurance to All Risks.
Directors and Officers
As a director or officer (that is, senior manager) of a company, you owe a duty of care to your company, and have, in certain circumstances, a personal responsibility to third parties. This type of policy is designed to protect senior company representatives against claims made against them for wrongful acts committed in their capacity as a director or officer of the company.
Disablement
If you are unable to work following an accident, a Personal Accident policy can offer compensation. A serious injury may mean you can never return to work. In such a case, a lump sum is paid. The compensation for a temporary absence from your job following an accident is a weekly payment
for as long as two years. Some companies also offer similar cover if you are merely ill.
Driving Other Cars
Most private motor policies also cover the policy holder when he is driving other motor vehicles, providing he has a licence to drive them. However, cover does not include damage to the vehicle being driven under this extension, even if you have a fully comprehensive cover on your own car.
Drink/Drugs
If a motor vehicle is being driven by a person under the influence of alcohol or drugs, they will not be able to effect a claim for any accident or damage encountered at that time.
Dual Basis Wages
This refers to a Business Interruption coverage for wages. When a business is seriously disrupted after an insured accident, this clause ensures that 100 % of the payroll for a few weeks after the accident will continue to be paid. If employees have no work, they may well be laid off and, consequently, the percentage of wages payable can be reduced.
Double Indemnity
The double payment of a specified benefit in a Personal Accident policy upon the happening of certain predefined incidents.
Duty of Disclosure
The proposer who wishes to take up an insurance cover has a duty to disclose all information, material to the type of insurance protection required.
E
Earthquake
This is one of several Additional Perils that can be added to a Fire policy. In many cases a deductible will be imposed depending on the location of the risk.
Effective Date
The date from which the insurance is in force. Also known as commencement date.
Electrical and Mechanical Plant
This term refers to all types of motors, generators, engines, pumps and so on. To protect against trouble with key machinery, businesses can arrange a breakdown and all- risks cover under an Engineering policy (see below).
Electrical Machines and Installation
Under a Fire policy damage to these caused by overrunning, short circuiting and the like is excluded.
Employee's Dishonesty
A Fidelity Guarantee policy protects the insured against money or property losses caused by the dishonesty of his own employees.
Employer's Liability
Insurance This insurance covers the Insured's legal liability as an employer against his employee's illness or injury.
Endorsement
A written or printed form attached to the policy which alters the provisions of the contract.
Engineering Insurance
The policy is intended to cover the insured in the event of the plant insured being damage either by extraneous cause or by its own breakdown.
Equipment Floater
Cover for property that moves from location to location, for example, usually against Fire and Additional Perils, or All Risks.
Erection All Risks Insurance
Similar to Contractor's All Risks (CAR) insurance except that CAR refers mainly to buildings and civil engineering contracts whereas Erection All Risk covers machinery and the likes.
Errors and Omissions Insurance
Policies generally available to the various professions, that require protection for negligent acts or failure to do something resulting in injury or damage to a client.
Exceptions (Exclusions)
Sometimes known as Exclusions. These are specific conditions or provisions on a policy document for which the policy will not respond.
Excess
The amount of your claim you have to pay before your insurance cover kicks in. See Deductible.
Excess of Loss
A form of reinsurance protection normally arranged between insurance companies. The cedant insurer decides the amount that it is prepared to bear on each and every loss, and arranges reinsurance with other companies to relieve it of any liability in excess of that amount.
Exclusions
See Exceptions.
Ex Gratia Payment
A payment made by the insurer to an insured out of grace or kindness.
Expediting Expenses
Payment by an insurer to speed up a return to business following a claim. For example, overtime may need to be worked following a Contractor's All Risks claim on a building site to catch up on the contract. These are not always automatically covered and so should be specially provided for.
Experience Refund
Certain large policies, usually Employee's Compensation insurances, provide for a refund of premium if losses sustained are less than anticipated when the insurance was taken out.
Explosion
Like earthquakes, explosions are considered an Additional Peril that can be insured. Although a fire policy insures a property against fire that results from explosions, the concussion damage that can result is not covered apart from the limited coverage extended to gas used for domestic purposes. This should be covered under an explosion.
Export Credit Insurance
Provides manufacturers and traders with credit cover that protects them against the risk of not being paid on a transaction - by a local or overseas buyer. Normally arranged by government companies.
Expropriation Insurance
This type of policy protects the holder against direct nationalisation or public confiscation of an overseas facility. It also protects against an indirect form of expropriation that results when some governments intentionally discriminate against foreign-based enterprises
Extension
This would involve either an extension of the original policy period or extension of policy coverage. Additional premium is chargeable on extensions.
Extortion Insurance
Specialised cover in the event of threats to injure an insured in some way. Nowadays seen all too frequently regarding tampering with goods on supermarket shelves in order to extort money.
F
Facultative Reinsurance
This means that each risk is reinsured separately. Under this system, the reinsurer decides how much of the risk he wishes to insure, according to the merits of each individual case.
Fees, Professional
Under a policy covering buildings and/or machinery against damage, it is possible to insure fees incurred for rebuilding or repair work resulting from damage, in a couple of ways.
These are normally calculated as a percentage of the value of the building, or machinery, and are limited according to the scales set out by professional bodies. If insured separately under a policy covering commercial property, such fees are not subject to Average.
Fidelity Guarantee
Insurance The policy provides cover in respect of direct pecuniary loss suffered by the insured as a result of any act of dishonesty, fraud or forgery committed by the employee in connection with his/her occupation and duties.
Fire Insurance
The policy is issued to provide cover for damages to the property caused by fire, lightning or explosion, where this explosion is brought about by gas or boilers not used for any industrial purposes.
Fire Waste
This is the absolute economic loss of wealth to the community caused by fire. Insurance can pay for the individual's insured losses resulting from a fire, but there is still an irreplaceable economic loss in the wastage of material and manufacturing cost.
First Loss Policies
Often used in Theft insurance. Rather than the usual full- value policy (insuring the total value at risk) the insured decides on a first-loss sum insured which should equal the maximum amount that could possibly be stolen at one time. Such a policy can be particularly useful for high-value machinery and plant which would be physically impossible to steal all in one go.
Fleet Policy
If a company owns several vehicles, they can all be insured under the one policy and usually enjoy a discount.
Floating Policy (Fire)
This covers contents or stock spread over more than one set of premises, or over more than one building. This is also available for contractors who want to cover all similar contracts undertaken in a year, with the premium adjustable at year-end on declaration of the actual contract values.
Floating Policy (Marine)
The insurance company first grants the insured a large initial sum-insured. Then each time the shipment is sent, the insured declares them to the insurer. The value of the shipment is then deducted from the outstanding sum insured. But it is more common nowadays to use an 'open' policy.
Flood
An Additional Peril in a Fire policy, normally granted together with 'storm' cover. It is subject to a small excess, that is, the insured pays the first agreed amount of loss, unless your premises have been particularly exposed, in which case it might be more.
FOB Contract
'Free On Board' means that the seller's interest in the goods will cease once they are loaded onboard the carrying vessel. Thereafter, the buyer takes over responsibility for them, including any insurance he considers necessary.
Foreign Use (Cars)
Motor policies in some countries are automatically extended to cover use in neighbouring countries, for example, Singapore policies cover use in Malaysia and Southern Thailand. In other countries, for example, Hong Kong, a special extension is required to cover use in China.
Foundations Clause
It is sometimes considered that the foundations of a building will not be affected, however serious the overall damage. The foundations are then excluded from the insurance by this clause, thus reducing the sum insured, and the premium. But beware earthquakes!.
Franchise
If a policy features a franchise expressed in money terms, there is no payment by the insurer if the total claim is below the franchise figure. If it is above the franchise figure, the agreed claim is then paid in full. Time franchises may also be used particularly for machinery breakdown covers.
Free of Particular Average (FPA)
Is the narrowest form of Marine Cargo insurance in common use. Nowadays referred to as Institute Cargo Clauses C cover, it provides that as well as total losses; partial losses resulting from perils of the sea are recoverable, but only in the event that the carrying vessel has stranded, sunk, burnt, been on fire or been in collision.
Free of Capture and Seizure Clause
Exclusion of cover in Marine insurance if damage results from war, capture or seizure. Covers can usually be suitably extended.
Full Theft Cover
If you import or export your goods on a 'CIF' basis, then insurance is included in the deal. 'C & F' excludes insurance - in this case, the buyer has to make his own insurance arrangements.
G
General Agent
In some parts of the world this term merely means an insurance agency involved in all types of insurance. In the Far East it is more likely to mean an insurance agency acting in loco parentis under a power of attorney from an overseas based insurer and empowered to underwrite risks and settle claims on behalf of that insurer.
General Average
If all parties involved benefit from a sea voyage that is saved from disaster although at the expense of sacrificing property or incurring extra costs, it seems only fair that parties should then each bear part of the expense. An example is when a cargo has to be jettisoned in order to save a vessel in danger of sinking during a storm. The cargo interests who lose out get some of their money back by
calling for 'General Average' contributions from all the parties, both hull and cargo, that benefited from this action.
General Exceptions
These apply to the whole policy rather than just a part of it. They usually relate to major catastrophes such as war, radioactive contamination and nuclear explosions. Coverage against such extraordinary events is not standard.
General Principles
Insurance practices have developed over several hundred years. Certain principles have been established and upheld by the courts or codified by acts of Parliament. These principles, including the concept of Contribution, Indemnity, Proximate Cause, and Utmost Good Faith, are now the
foundation stones of today's insurance practices.
Geographical Limits
These restrict the coverage of a policy to accidents or losses that occur within a specified boundary that may or may not correspond to a national border.
Glass
This is a class of insurance normally provided as part of a package for offices, shops, and hotels although separate insurance can be arranged when required. The basic cover is for breakage of fixed glass from any cause (although there are usually some exceptions, such as damage to frames or framework). Cover can also be obtained for showcases, neon signs, ornamental and lettered glass.
Golfer's Insurance
This is a readily available package policy covering loss of or damage to golfing equipment, liability to third parties, personal accident and 'hole-in-one' entertainment expenses.
Goods In Transit
Insurance The policy covers damages or loss to the goods while in transit.
Gross Premium
Normally refers to that premium payable by the Insured, that is, without deduction of intermediaries' commission.
Gross Profit
This is insured under a Consequential Loss Policy, also known as Business Interruption or Loss of Profits insurance. Gross profit in insurance terms may not match your accountant's definition, so check that you have given your insurer the figures he wants. Gross profit is normally defined by insurers as the amount by which the sum of the turnover and the closing stock shall exceed the sum of the opening stock and the uninsured working expenses (which are the variable or standing charges specified in the policy).
Group Insurance
A form of insurance covering a group of persons generally having some common interest, for example, employees of the same company.
H
Hague Protocol 1955
The amended Warsaw Convention Limits regarding an airline operator's liability to passengers and goods carried by air.
Hague Rules / Hague-Visby Rules
These set out the conditions upon which goods are carriedby sea - in other words, the obligations and responsibilities of the carrier and shipper.
Hail Insurance
Hail is the perennial worry of crop farmers. This can be included under a Crop Insurance policy.
Hazard
A condition that increases the chance of loss.
Hazardous Pursuits
Personal Accident policy exclusions vary on the subject of hazardous pursuits and pastimes, so check your fine print thoroughly. Parachuting, hang-gliding, mountaineering and racing (other than on foot) are normally excluded. The proposal form asks you whether you engage in any hazardous pursuits or pastimes normally regarded as dangerous. If in doubt, list them all.
Highly Protected Risk (HPR)
This is an American term to denote a risk where firm action has been taken to reduce the frequency and severity of a loss, such as sprinkler system and fire and smoke alarms.
The term is reserved for the best quality risks which consequently enjoy a lower premium rating.
Hijacking
Standard Aviation Hull Insurance usually excludes this form of cover, which can be purchased for an additional premium. As far as Personal Accident Insurance is concerned, unless the policy says otherwise, accidental bodily injury sustained as a result of hijacking will be covered.
Hired-in Plant
Your Machinery policy may have to be specifically endorsed to cover the sums that you may become legally liable to pay under the terms of your hiring agreement should you lose or damage the plant you have hired.
Hired Premises
If you hire premises for meetings, social gatherings and the like, you may have a responsibility to both the owners and the users. Your responsibility to the owners may arise out of your contract with them, so check the wording carefully and make sure that your Public Liability policy is extended to include the risk of damage to property that may be under your custody or control. If you also accept responsibility for the safety of the premises hired, then this may well involve substantial liability to people using the premises - take care!.
Hoists and Lifts
You need a licence to operate this kind of equipment, and the factory inspectorate will have to make regular inspections of it. Machinery Breakdown and Liability insurance is available from your insurer.
Hole-in-One
A golfer by tradition has to buy drinks for everyone in sight if he scores a coveted hole-in-one. A golfer's policy normally includes cover for these entertainment expenses up to a certain limit. Organisers of a tournament, or sponsors of a major prize for a hole-in-one, can also arrange a policy that will cover the cost of the prize if won.
Household Insurance
This insurance cover the contents of the house in the event of fire & allied perils. It also covers the Insured's legal liability against third party.
Hull Insurance
Insurance against loss due to damages to a yacht, cargo ship, houseboat or speedboat. This coverage also includes liabilities arising from damages due to the collision of the vessel with another boat.
I
Impact Damage
This additional peril is allowable under Fire Policy. It covers damage to property, notably buildings by any road vehicle.
Implied Warranty
A warranty assumed to be part of the insurance contract, even though not expressly included.
Increased Cost of Working
This type of cost can be insured under a Consequential Loss Policy. Normally suitable for office risks where profit would not be affected by, for example, a fire, but there would be increased costs, such as the rental of alternative premises or the reconstruction of records.
Incurred Losses
Losses, which have occurred within a specified time frame whether paid or still outstanding.
Indemnity
This principle requires the Insurer to restore the Insured to the same financial position as he had enjoyed immediately before the loss. The Insured shall not be better off than before the loss.
Index Linked Policies
These can increase sums insured automatically at each renewal. Usually buildings would be increased by the rebuilding cost index, and contents by the retail price index.
Industrial All Risks Insurance
This insurance provides a more comprehensive coverage than an ordinary fire policy. It is designed for an industrial risk with sum insured of at least RM 50 million.
Inherent Vice Exclusion
Damages arising solely due to the nature or condition of the goods shipped and not from any other cause. Example: Spontaneous combustion of an explosive goods or evaporation of a liquid goods.
In-Patient Cover
Medical Expenses restricted to hospitalisation, as opposed to out-patient cover which would cater for visits to doctors and the like.
Inspection
Lifting equipment, cranes, boilers and air compressors need to be inspected annually by a professional engineer approved by the factory inspectorate in most countries, and an inspection certificate must be obtained.
Institute Cargo Clauses
These define the extent of cover available under a Marine Cargo policy. Clauses A, B and C equate to All Risks, With Average (WA) and Free of Particular Average (FPA).
Insurable Interest
It is the legal right to insure arising from the legitimate financial interest which an Insured has in a subject matter of insurance
Intermediaries
The 'middlemen' of insurance who arranges insurance coverage between the insured and insurers. The main types are Brokers and Agents. The former are paid a brokerage fee, the later a commission by the insurers.
J
Jettison
A Marine Insurance term referring to the ditching of cargo to lighten the ship in order to save it from sinking. Covered under Institute Cargo Clauses A, B and C.
Jewellers Block
A specialist policy for jewellers and goldsmiths. There is a limited market available for this and it is a policy normally subject to fairly stringent security measures in view of the type of goods.
Jewellery
Personal jewellery is insured under an All Risks policy or section of a combined Personal Lines insurance. Cover is normally available for specified items, or unspecified up to a certain limit per item.
Judicial Bond
A type of Surety Bond that is either a fiduciary or court bond, that is, a contract by which one party agrees to make good the default or debt of another. A fiduciary bond guarantees that an individual, for example, a guardian, will safeguard assets belonging to others placed under the guardian's control, in this example, minors or deceased persons' estates. Court bonds come in many ways but
would include the .guaranteeing that a judgment will be paid if an appeal is lost in a higher court.
Jurisdiction Clause
Often endorsed on Liability policies to make sure any action is brought under a particular jurisdiction. Designed to stop plaintiffs 'forum shopping', that is shopping around the courts of the world in order to establish which would be the most favourable one for their claim.
K
Kidnap and Ransom
It is possible to obtain insurance from specialist markets to cover ransom demanded by kidnappers whether they be politically or just criminally motivated. Insurance can be purchased by individuals or companies worried about their key executives. This is a highly sensitive issue, with some governments declaring insurance to be contrary to public interest in that it may encourage criminals and terrorists to commit such crimes if they know there is insurance to pay for the losses.
Knock for Knock Agreement
In Motor Insurance, it frequently happens that an insured can make a claim under his policy or recover from a negligent third party. The usual procedure is for a claim to be made against his insurance company which will then pursue recovery under subrogation rights. To simplify recovery claims among insurers, there is sometimes an inter-company agreement whereby each insurer pays the vehicle's repair costs of its own policy-holder.
L
Laid-Up Returns
Marine Hull Insurance is either arranged on a Cancelling Returns Only (CRO) basis or on the basis of a pre-arranged refund should the vessel in question be laid up. CRO means that you can only get your premium returned if you cancel the policy. With a pre-arranged refund, usually, the definition of 'laid-up' means the ship must be out of action for at least 30 consecutive days.
Landslip
Also known as landslide. This is a peril that can be extended under Fire Policy.
Lapse
Expiring of policy due to failure to pay the renewal premium.
Legal Costs
Public Liability insurance includes cover for the costs and expenses of litigation recovered by any claimant against the insured, or incurred by the insured with his insurers' consent. Normally, these costs are covered over and above the limit of indemnity stated on the policy. However, the modern trend, especially for Products Liability, and particularly if there is any exposure in North America, is for the policy to be issued on a 'costs inclusive' basis. Third Party sections of Motor policies also include costs and expenses incurred with the insurers' consent, but that does not mean that the insurers will pay to defend you against a criminal charge arising out of an accident. When liability is in doubt, of course, they will normally do so, but with charges like drunken driving, failure to render assistance after an accident and the like, you will most likely find yourself on your own.
Legal Expenses Insurance
Becoming more prevalent in the western world, this would pay for a number of agreed legal services. For example, if a tenant in your house refused to move out at the expiry of the lease, this type of policy would meet the necessary legal costs.
Legal Liability
Obligations and responsibilities subject to evaluation and enforcement in a court of law. Public, Products and other Third Party Liability insurance would normally only cover your Legal liability for civil actions plus costs incurred.
Liability Insurance
The policy provides cover in respect of legal liability for accidental damage or bodily injury or damage to the third parties arising out of the insured's negligence.
Libel and Slander
You can rarely get this kind of cover as a separate policy, but you can add it to a Professional Indemnity cover.
Professional indemnity can also cover claims made against you for things like infringement of trademark, copyright or patent rights, as well as libel and slander. But professional indemnity will not cover criminal libel or actions arising out of your own personal spite towards a claimant.
Lightning
A standard Fire policy will automatically cover damage to property caused by lightning.
Limits of Liability
Except for Motor Third Party Injury, which is an unlimited policy, liability policies normally contain a Limit of Liability stating the maximum amount insurers will pay for a particular event. This limit usually applies to the total of all claims arising out of a single event. Some policies will also have a limit set for each policy period.
Liquidation
Receivers and the managers of companies in liquidation can get insurance packages to aid them in their hour of need. Such insurance usually provides automatic facilities to ease the managers' administration burden during the busy first few days.
Livestock
The cover-encompasses sickness or disease in animals as well as death from accidents, including fire and lightning. Bloodstock insurance covers the thoroughbred racers.
Livestock insurance includes the other farm type animals.
Lloyd's
This is probably the world's most famous insurance market, and certainly the top Marine insurance and shipping intelligence centre. It all started in a London coffee-house m the seventeenth century.
Long Term Agreement
These are no longer so commonly available, mainly because insurance rates have hit rock bottom and they were rarely enforced anyway. But they offer a discount if you agree to renew for a minimum period of three years.
Loss Adjusters
Adjusters are independent firms which deal with the investigation of insurance claims, their causes and the values involved. Although their fees are paid by insurers - who would have to maintain more technical claims staff if adjusters did not exist - loss adjusters are impartial.
Loss of Profits
Also known as Business Interruption or Consequential Loss insurance.
Loss of Use of Vehicle
Standard Motor policies do not include this cover but if Third Party is at fault, Insured can claim loss of use being the cost of hiring a replacement vehicle against the other party's insurers.
Loss Ratio
The ratio of losses paid and outstanding to earned premiums. If an insured suffers a number of expensive claims relative to the premium paid, they are described as having a poor loss ratio.
M
Machinery Insurance
Coverage for machines. There are two types available i.e. Machinery Breakdown Insurance and Machinery Breakdown Loss of Profit Insurance.
Maintenance Period
Under building and civil engineering contracts,contractors must carry out maintenance during a prescribed period after the completion of the contract.
Malicious Damage
This is an optional Additional Peril under a Fire policy to Cover against damage caused by 'malicious acts'.
Malpractice Insurance
Professional indemnity cover referring to doctors, hospitals and the like.
Marine Insurance
Generic term for covers in respect of both Hull and Cargo against perils of the sea e.g. incidental to the navigation of the sea and this includes fire, theft, collision, etc.
Master Policy
Policy that is issued to an employer or trustee, establishing a group insurance plan for designated members of an eligible group. The various insured members receive individual certificates, which described the insurance benefits to which they are entitled.
Material Damage Proviso
It is a condition in a Business Interruption policy that requires Material Damage policy (usually a Commercial Fire policy) to admit the liability prior to the Business Interruption Policy responding to a claim. For example, Fire Policy must be liable to pay a fire claim before Business Interruption Policy responses to the loss arising from interruption due to such fire occurrence.
Material Fact
Fact, which would affect the judgment of an underwriter in considering whether, he/she would enter into a contract of insurance.
Maximum Indemnity Period
Estimating the length of time during which you may still be paying for losses resulting from some interruption of business is a tricky business. But you have to make such an estimate when you take out Consequential Loss (Loss of Profits) cover against business interruption losses. You should play
safe and pick the longest possible time you think may be necessary to rehabilitate your business following damage caused by some catastrophe you have insured against. This period of time is called the maximum indemnity period.
Maximum Probable Loss
The maximum loss amount that probably can occur in a single event.
Misrepresentation The use of oral or written statements that do not truly reflect facts either by an insured on an application form or by an insurer or agent concerning the terms or benefits of an insurance policy.
Medical Insurance
There are many policies to choose from in this field. You tend to get what you pay for. This is certainly not the time to cut costs if you want wide cover and adequate limits for the protection of your own physical well-being.
Money Insurance
The policy provides cover to the insured in the event of money being stolen either from business premises, home, or while it is being carried to or from the bank.
Moral Hazard
A character defect in an individual that increases the chance of loss. Mortgagee Clause This clause protects the interest of the mortgagee under property insurance by paying him up to the value of his interest in the event of a major claim. Motor Insurance This insurance covers the loss or damage to the insured vehicle and also the liability arising from the insured vehicle as per requirement by the law.
Mortgagee Clause
Protects the interest of the mortgagee under a property insurance by paying to him up to the value of his interest in the event of a major claim.
Motor Insurers Bureau
Many countries have these systems where all motor insurers get together to make compassionate payments to injured people, or to the dependents of those killed, in motor accidents where the guilty driver cannot be traced, or is found to be uninsured. Sometimes the fund is paid totally by insurers, and in other countries it is funded by a policy holders levy.
Mysterious Disappearance Exclusion
This exclusion will allow Policy to deny any claim if the cause of loss is not able to be identified.
N
Named Drivers
Either as an underwriting restriction, or a method of premium reduction, driving can be restricted under a Motor insurance to named drivers only. If you have this restriction- be careful about the vehicle being driven by garage mechanics or jockey parkers.
Named Peril Policy
This type of policy only cover loss or damage directly caused by the peril (s) mentioned in the Policy.
Negligence
This is the most common form of breach of duty towards third parties under Common Law (also known as Tort). It is the failure to do something, which a reasonable person would have done under the same circumstances, or alternatively an action, which a 'reasonable' person would not have done.
'New for Old'
This is also termed as Reinstatement cover,where insurer agrees to settle the claim on the new replacement Value of the item, with no deduction for wear and tear provided the sum Insured is adequately insured.
No Claim Discount (NCD)
Under Motor Policy, insured is entitled for a discount on the renewal of his policy if there is no claim during the period of insurance. Non-admitted Insurer An insurer not licensed to do business in the particular country in question.
Non-admitted Insurer
An insurer not licensed to do business in the particular country in question.
Non-contribution Clause
The principle of Contribution is sometimes removed by a clause saying the policy will not apply where the insured is entitled to claim under another policy. If both policies contain the non-contribution clause, then court precedents exist for both insurers to contribute proportionately.
Non-disclosure
See Material Fact. Non-disclosure of a material fact gives an insurer grounds to avoid honoring the insurance contract.
Notice of Cancellation
Under the terms of most policies either the insured or the insurer may cancel the policy before expiry date by giving the requisite notice, according to the policy terms, to the other party and refunding a portion of the premium on pro-rata basis or short period scale basis. Notice of Claims When th loss incident occurs, the Insured is required to notify the Insurer on the happening in accordance to the terms or conditions stipulated.
Notice of Claims
Under a Marine Hull policy, Clause 10 requires the insured to give notice of any accident to the underwriters.
Notification
All policies have conditions on notification of claims to insurers. Some say notice should be given 'soon as possible' or 'forthwith' while others specify a period within which the incident must be reported. There is obviously no point in delaying. Even if you do not have full particulars of the claim, report the matter and ask advice from your insurers'
claims department as to the next step to take.
Nuclear Exclusion
With this exclusion, the Policy will exclude all losses directly or indirectly caused by nuclear risk or its related activity.
Nuisance
Like Negligence, this is an area where an insured person may incur liability. 'Nuisance' refers to the wrong done to a person by unlawfully disturbing him in the enjoyment of his property, or sometimes in his exercise of a common right. There are two kinds: private and public. A private nuisance affects the rights of an individual - damage caused by tree roots encroaching on a neighbour's property, for example. A public nuisance, on the other hand, affects the rights of the public generally - such a nuisance is a crime.
O
Observance of Conditions
It stresses that the insured person must comply with the terms of the policy before he can expect his insurers to pay the claim. This condition also links up with the declaration on the proposal form that answers given must be truthful.
Occupation
This refers to the use of the premise. It is an important factor to the underwriter as it determines the pricing and terms of a Policy. For example, in a Fire Policy, the premium charged for a workshop is higher than that of an office.
Occurrence Policy
This type of policy pays claims when an incident or event occurs during the period of insurance.
Operative Clause A clause in an insurance policy that details the type of event insured against.
Offer and Acceptance
A contract of insurance is made when one party makes an offer and the other party accepts it, both parties being in agreement as to the terms of the contract. Usually, the offer comes from the Proposer, the would-be insured person. But in Coupon insurance, it is the insurer who makes the offer and the person returning the coupon who accepts.
Ombudsman
This bemusing Scandinavian word simply means 'Arbiter of Disputes'. Insurance Ombudsman Bureaux are set up in various countries to give independent assistance to Personal Lines policy holders who are in dispute with their insurers. Also known as Claims Complaints Bureaux they make decisions binding on insurers but not affecting the legal rights of claimants. Check if your insurer is a member.
Onus of Proof
'Onus' is simply the Latin word for 'burden'. It is a concept relevant to Liability Insurance, where the onus, or burden, of proving negligence usually rests with the plaintiff. There are certain circumstances, however, in which a prima facie (a Latin term which means 'at first sight' or 'on first
impression') liability rests on one of the parties. Once it has been proven that an accident has occurred, for example, the onus is transferred to the defendant, to disprove his or her own negligence. See 'Res Ipsa Loquitor'.
Open Policy
This is a term commonly found in Marine Cargo insurance.
Instead of the annual premium being paid at the inception of the policy, individual shipment certificates are issued and charged for, or handled on a monthly basis.
Operative Clause
This clause in an insurance policy details the type of event insured against. Naturally, it varies greatly, depending on the type of policy involved.
Other Contents Clause
Under a Fire Policy, this clause provides cover for items that are not related to the Insured's business and not specifically stated in the schedule of policy, up to a limit stipulated under this clause.
Over insurance
Sum insured is more than the actual value of the property. Under Indemnity Policy, such as Motor Policy, Fire Policy, etc., claimants are not allowed to make profit from their claim. Therefore, it is meaningless to over-insure a property by paying a higher premium.
Own Damage
Under a Comprehensive Motor policy, this phrase refers to the accidental loss or damage cover on insured's vehicle. Insurers have the choice of compensating the insured person by paying for repairs, by replacing the car, or by making cash payment. Policies extend to include all accidental damages, but wear and tear, breakdown and the likes are excluded.
P
Package Policy
As the name suggests, you get a package deal under one policy. For example, with the package Personal Lines policy, you can be covered for a multiplicity of things pertaining to yourself and your personal belongings, such as home buildings and contents, jewellery, liability, personal accident, motor car and others, making it easier for you to insure all in one go.
Principle of Indemnity
This principle requires the Insurer to restore the Insured to the same financial position as he had enjoyed immediately before the loss. The Insured shall not be better off than before the loss.
Pair and Set Clause
This clause limits the insurers' liability in the event of loss of or damage to any article, which is part of a pair or set. The clause requires the insurer to pay only the value of that particular part lost, not any special value it might have because of being part of a pair or set.
Particular Average
This is the loss to a ship, freight or cargo interest which is not shared by contribution from all the interests involved - as in general average - but is borne only by the owner whose interest has been lost or damaged.
Performance Bond
A bond that pays to the principal under a contract if the contractor does not complete as per the specifications of the bid. Normally comes into play if the contractor goes into liquidation before completion, but can be called to pay
if there is undue delay.
Perils
Cause of loss.
Personal Accident Insurance
The policy provides cover for accidental bodily injury resulting in death or disablement.
Personal Liability
Hopefully, this will not happen to many of us, but in the course of our lives, there are many things we may be liable for, although quite unintended on our part. For instance, we may, by some silly accident, poke someone's eye out with an umbrella. Such an incident must, of course, result in some tangle with the law. Personal Liability coverage helps us pay for the compensation due after such accidents. Most good quality Personal Lines package policies would cover this sort of event.
Personal Lines
A generic term referring to insurances written for the individual, such as Householders, Jewellery All Risks, etc.
Pet Insurance
Not very common in this part of the world, but there are schemes elsewhere that would cover veterinary charges and even small amounts of compensation if your favourite pedigree is accidentally killed.
Physical Hazard
A physical chance that increases the condition of loss.
Plate Glass Insurance
The policy covers breakage of plate glass fixed to display windows or show-cases of commercial establishments by any cause whatsoever except those that are specifically excluded under the policy.
Pleasure Craft Insurance
Insurance for private pleasure boats covering both the hull and contents plus extensions for third party property damage and bodily injury.
Pluvius Insurance
'Pluvius' means 'rain' in Latin. You might guess that this term refers to Weather insurance. Rain can ruin outdoor activities, as we all know. In some cases, this may also mean a reduced profit or an actual financial loss if the outdoor event in question is major.
Policy
A written contract or certificate of insurance.
Policy Period / Term
The period or duration in which the policy is in force.
Policyholder
The person who is in actual possession of an insurance policy.
Political Risks
An exporter may wish to cover the risk of not being paid for his goods due to a sudden turn of political events such as civil wars or misappropriation by government authorities.
Pollution Exclusion
With this exclusion, a Policy will exclude all losses directly or indirectly caused by pollution.
Pre-existing Condition
Exclusion Found under many Medical Expenses policies, it is designed to exclude illnesses known by the insured before he takes out the insurance
Premium
The sum of money paid by a policyholder as consideration to the insurer for the contract (insurance policy) and for a specified period of time (usually one year).
Premium Adjustment
Some forms of insurance, such as Workmen's Compensation, Consequential Loss and Stock Covers, can be taken out initially based on estimated values, at a deposit premium. At the end of the period of insurance, actual values at risks are declared and the premium adjusted accordingly.
Premium Notice
A notice from an insurer to a policyowner that a premium payment is or will be due on a given date.
Premium Receipt
The receipt given to a policyowner as an evidence for the payment of a premium.
Premium Warranty
This warranty imposes an absolute condition on the insured to ensure that premium for the policy issued is paid to the Insurer within sixty (60) days from the date of inception of the policy, failing which the policy is automatically cancelled on the sixty first (61st) day and the Insurer becomes entitled to the proportionate premium for the 60 days in respect of which, insurance was provided.
Products Guarantee
This refers to insurance against legal liability for claims which arise from the failure of your products to perform as they are supposed to. For example, the cost of replacing faulty products or the consequential losses arising from the faulty products can be covered under this insurance. But this is not a widely available form of insurance and it is not included in the standard Products Liability policy.
Products Liability Insurance
This insurance cover legal liability of the Insured arising from the product sold or supplied. This cover is not available under Public Liability Insurance. Consequently, a separate policy need to be bought for the later.
Products Recall
Under certain circumstances, you can insure the costs necessary to recall a product series which has been found to be defective. An example would be a car manufacturerd.
Professional Indemnity Insurance
This insurance protects professionals, such as accountants, solicitors, architects, doctors, etc, against their legal liability to compensate third parties who have sustained some injury, loss or damage due to their professional negligence.
Proposal Form
A proposal form is an application form to be filled by any one who wants to take an insurance policy; he or she is then known as the proposer. This legal document forms the basis of contract between the proposer and Insurance Company. Once the Insurance Company has accepted a proposal, the information contained in the proposal form becomes the basis of the insurance contract. The proposer must disclose all relevant facts known to him or her. If the proposer fails to disclose such facts, he or she may find the policy virtually useless when the hour of need arises.
Proposer
One who wishes to purchase an insurance policy and submits a completed proposal form to an insurance company for its consideration.
Pro Rata Cancellation
If a policy is cancelled before its full term, the insured will receive a full proportional refund of the premium for the unexpired term. But insurers are usually entitled to charge a higher 'short period' rate depending on the circumstances of cancellation.
Protection and Indemnity Insurance
This is insurance for a shipowner against liability for loss of life, illness or injury ro passengers or crew and liability for property damage to the cargo, piers, or docks, caused by the insured's negligence. This type of insurance is usually undertaken by mutual associations called P & I Clubs.
Proximate Cause
The dominant cause of loss amongst many causes of loss. Onus of proof of loss rests on the Insured
Public Liability Insurance
This insurance covers the Insured's legal liability arising from his business activity in respect to bodily injury and property damage to third party.
Public Utilities
This clause is available under Fire Consequential Loss Insurance. It covers losses resulting form the interruption or interference with the business consequent upon failure of public supplies such as electricity, water and gas.
Punitive Damages
These are also known as Exemplary Damages. They are levied by courts of law to punish a defendant for acts of gross negligence. Although this is a concept usually exercised in US courts, some states there make it illegal to insure against such damages, to make sure the perpetrator is
punished without insurance protection.
Q
Quota Share
A form of reinsurance indemnifying the ceding company against a fixed percentage on each risk. For example, a ceding company may agree to retain 30 % on every risk and cede the remaining 70 % to its quota share reinsurers.
R
Radioactive Contamination Exclusion
With this exclusion, the Policy will not cover loss or damage to property insured directly or indirectly caused by ionising radiations or contamination by radioactivity.
Recital Clause
This is a clause included in all insurance policies. It principally refers to the proposal form and declaration, which form the basis of the contract, and formally incorporates these items into the policy.
Reinstatement by Insurers
Policies relating to the insurance coverage of property commonly state that the insurer may choose to pay for, repair or reinstate the property in the event of its loss or damage.
Reinstatement Cover
This is cover for buildings and machinery where no deduction is made for wear and tear in the event of a claim.
Reinstatement of the Sum Insured Clause
After a claim, the sum insured of the Policy will be less by the amount of the claim. This clause reinstates the loss amount back to the sum assured. It is nd subject to additional premium to be charged.
Reinsurance
Under this system, one insurer accepts insurance from another insurer. There are various types of reinsurance, as there are specialist reinsurance companies and brokers.
Rejection Risks
In certain countries, especially the US, import regulations with regard, particularly, to frozen foods are very stringent.
Any imports which do not meet the required standards are rejected, and cover is sometimes available against the risk of such rejection.
Removal of Debris
With this clause, the Policy will cover the cost necessarily incurred in the removal of debris and/ or dismantling, demolishing, shoring up or propping of the property insured following loss or damage by way of perils insured.
Renewal
Renewal is the continuation of an annual insurance contract beyond the original stipulated period by the insurer's acceptance of premium for another annual policy period.
Renewal Notice
This is the notice sent by the Insurer to the Insured for inviting the renewal of the insurance. The premium of the renewal and the period of insurance will be stated on the notice.
Replacement-as-new
Household Contents insurance cover is available where an item lost or destroyed may be replaced with a brand-new replacement. Obviously, the total sum insured would also have to reflect this replacement-as-new cost. Also referred to as 'New for Old' cover.
Res Ipsa Loquitur
This Latin phrase means 'action speaks for itself'. It refers to a legal liability situation. In cases where the cause of an accident lays solely within the control of the defendant, the plaintiff does not have to prove negligence - in other words, the facts of the case speak for themselves.
Retention
This is the maximum liability that an underwriter is prepared to assume as his own. He may then reinsure the balance of the risk, or just accept the risk up to the retention only.
Retrospective Rating
Retro rating for short, this is a method of establishing premium and is charged and adjusted depending on the actual loss experience.
Riot Strike and Malicious Damage
With this extension, the Policy shall covers loss directly caused by riot strike and malicious damage as defined in the clause wordings. The coverage does not include war or warlike operation, mutiny, civil commotion and terrorism. For details, please refer to policy/ extension wordings.
Risk
An uncertainty regarding loss.
Risk Control
This is virtually a science now, encompassing many methods of reducing the frequency or severity of losses, including loss-prevention measures, such as fire extinguishing apparatus or burglar alarms.
Risk Financing
The use of several methods, or sources of funds, to pay for losses. Can the company stand a large deductible on its insurances? Should some risks be self-insured, perhaps.
Risk Management
A systematic approach to dealing with risks that threaten assets and earnings of a business or enterprise.
Robbery
The act or an instance of unlawfully taking the property of another by the use of violence
Running Down Clause
Under Marine Hull insurance, if the insured vessel collides with another and payments have to be made for damage, loss of use and delay to the other vessel, then underwriters will only pay three-fourths of that amount.
S
Salvage
To save damaged property for further use, thereby reducing the amount of any loss.
Salvage Charges
The expense of recovering property by a salvor. In Marine insurance, these charges would be properly apportioned between hull, the vessel itself, and cargo interests, in the event of a ship being salvaged.
Sea-worthiness Admitted Clause
A clause in Marine Cargo Insurance which exempts the policyholder from vouching for the sea-worthiness of the vessel. A shipper of goods has no control over the ship's condition, although he can, to a certain extent, choose which ship he wishes to despatch his goods in.
Self Insurance
Some large industrial concerns prefer to set aside their own funds to cover any future losses, rather than insure with an outside insurer. It is a step which should never be taken without the benefit of professional advice first.Whilst day-to-day losses might not prove too much of a financial burden to a really large company, a truly catastrophic event, such as an earthquake, could put it out of business for lack of insurance.
Self Inflicted Injury
Excluded under Medical insurances as this is intentional and not accidental.
Short Period Rate
A premium charged in accordance to the time for which insurance is required, usually for periods ranging from one (1) week up to eight (8) months.
Single Article Limit
This is the maximum amount claimable for each article or item in the Policy.
Slander
It may seem odd that insurance is available against such a deliberate act as libel and slander, but a limited insurance market does exist, normally for the large corporations.
Solvency Margin
The ratio by which assets exceed liabilities and is, to some extent, a yardstick of financial health of an insurance company. In many countries legislation exists to set minimum standards.
Special (or Additional) Perils
The perils which are allowed to be included in addition to the basic cover provided by standard policy with additional premium to be charged.
Specified Working Expenses
Factors in the calculation of gross profit under a Business Interruption policy, such as raw materials, packing, carriage and other variables. 'Working expenses' may also include wages if they are insured as a separate item.
Spontaneous Combustion
Some goods, such as copra or coal, can spontaneously heat and catch fire, when stored in bulk. Under a standard Fire policy, damage to such goods is normally excluded, unless specifically requested. However, any damage resulting to other property from such a fire is covered.
Sprinkler Leakage Endorsement
With this endorsement, the Policy covers loss or damage resulting from leakage form an Automatic Sprinkler Installation.
Standing Charges
These are expenses, which still have to be met in full even if a business cannot earn its full income owing to fire or other damage.
Statute of Limitations
Period of time within which claims against third parties for damage or injury have to be made.
Storm, Tempest
This is an additonal peril that can be extended under Fire Insurance. It covers loss or damage directly caused by Hurricane, Cyclone, Typhoon and Windstorm.
Strict Liability
This is a liability for which the client need not prove a breach of duty owed. It is a liability imposed by law, where the defendant will be considered liable even when he has exercised reasonable care.
Subrogation
This priciple provides an insurer who has indemnified an insured for a loss may exercise the Insured's rights to claim from the third party in respect of loss.
Subsidence and landslip
This is an additonal peril that can be extended under Fire Insurance. It covers loss or damage to the property insured caused by subsidence (sinking of land or building) and/or heave (raise up) of the site on which the building stands or land belonging thereto or landslip subject to the exclusions mentioned under the endorsement in details.
Sue and Labour
This clause under a Marine Hull policy allows the insured to recover the cost of his or her reasonable efforts to avert or minimise a loss.
Sum Insured
The amount stated under the policy and the maximum claim that will be paid out.
T
Target Risk
'The big one'. This is an insurer's term for a large, sometimes hazardous risk. Such a risk may well be the biggest on a schedule of risks and may therefore have to be treated separately in order to arrange reinsurance to cover it fully.
Tariff
The Tariff is a Manual and Guide which regulates the rates, policy conditions and coverage for the Fire and Motor insurance classes in Malaysia.
Temporary Disablement
Benefits payable under Personal Accident policies where disability is short-term, measured in weeks, as opposed to permanent. Temporary disablement can be total or partial.
Temporary Removal
An extension to the standard Fire policy to cover property temporarily removed from insured premises for repair, cleaning or some other stated reason.
Tenant's Liability
This clause covers the Insured's legal liability in respect of the damage to rented building.
Territorial Limits
The Policy will only response to the incident or loss occurs within the geographical limit stated in the policy.
Terrorism Exlcusion
This is an excluded peril in the Policy. The Policy will not cover loss or damage directly or indirectly caused by terrorism. Terrorism means the use of violence for political ends and include any use of violence for the purpose of putting the public or any section of the public in fear.
Theft Insurance
This is a vital part of any modern insurance programme. You would be amazed at the variety of possessions, products and commodities that thieves apparently find attractive. Don't forget that even ordinary office premises nowadays contain sophisticated and expensive machines likely to attract thieves' unwelcome attentions. Theft insurance on business premises usually limits cover to incidents involving forcible or violent entry to, or exit from, the premises. A wider form of cover, known as Full Theft Cover, which waives this restriction, is available for certain trades.
Third Party Cover
This coverage is provided under Motor Insurance. It provides protection against the standard coverage required by the law as well as the damages caused to third party vehicles.
Third Party Liability
Liability to third Party. A third party is one who is not a party to the contract .
Three-Fourths Collision
Liability Under Marine Hull insurance, this clause covers liability for damages to another vessel caused by the negligence of the insured vessel. This cover, which is supplementary to the cover on the vessel itself, covers up to three quarters of the extent of liability. The last quarter of the amount is included in the ship owner's P & I Club cover (type of a group coverage taken up by Marine Clubs).
Time-on-Risk Charge
Premium charged for a period during which an insurer is holding a risk covered, by means of a temporary cover note, for example, rather than an annual policy. It is important to note that, if you take out an initial cover note but then a short while later change your mind and decide to change your insurers, or your policy, you will still have to pay the first insurer pro-rata for the time you have been insured with him since he issued you a cover note. As far as the insurer is concerned, you have been covered for that time, whether you have been paid or not, and whether or not you are still arguing about details of the cover. Had you claimed during that time, he would have honoured your claim.
Time Policy
This is one of the various types of Marine insurance policies.
A Time policy is more common for Hull insurance and refers to cover for a fixed period, usually not more than 12 months.
Tort
A civil breach of personal duty owed to one's fellow citizens in general, as opposed to a breach of contract. The injured person has the right to damages from the wrongdoers.
Total Loss
The complete loss or destruction of all the property insured under a particular policy. Under Marine insurance, it is quite common to find a Total-loss-only insurance.
Travel Insurance
Type of insurance designed for travelling needs. There are quite a few different covers available, including Personal Accident, Medical, Loss of Luggage and Money, and Personal Liability.
Turnover
The money earned for goods supplied or services rendered. Insurers need to have this statistic when managing earnings-related insurance such as Business Interruption or Products Liability, where it is a rating factor.
U
Umbrella Liability
Term used mainly in the US market describing a liability policy where the limits of liability are in excess of the amount covered under a primary policy. It can also fill in gaps in cover such as a Difference in Conditions/Difference in Limits policy in the UK market.
Under-Insurance
A situation where the Insured did not adequatly insure his property. Under such circumstance, the average clause (refer definition in 1st page) will apply and the Insured will be considered as co-insurer for the differences.
Underwriter
A person who are technically trained in assessing the risk and determine the pricing and the coverage of the Policy for a proposed risk.
Underwriting Agency
An intermediary who is allowed to underwrite and accept risk on behalf of an insurer, subject to certain laid-down criteria and limits.
Uninsurable Risks
Risks that can not be insured due to various reasons, i.e. speculation in the stock exchange is against the basic principles of insurance.
Uninsured / Untraced Drivers
The Motor Insurers' Bureau collectively financed by all motor insurance companies, deals with third-party injury claims arising from uninsured drivers and hit-and-run accidents.
Unoccupancy
Some policies have a condition that if the insured premise is left unoccupied for a specific period of time, it will pose greater hazard than if it is occupied. Premiums for such policies are normally higher as there are greater risk involved.
Unspecified Valuables
Collective cover for valuable items such as jewellery, which are individually worth less than a certain specified limit. This cover saves having to individually specify each item, and if evidence of value is provided, the claim can be made up to the specified limit.
Utmost Good Faith / 'Uberrimae Fides'
It is a basic principle of insurance contracts whereby the proposer must disclose all material facts, which he knows or ought to know.
V
Valuations
Claims are much more easily and satisfactorily handled if you have valuations. With buildings, of course, you have to look at rebuilding costs rather than market value, as you do not insure the land. With other property, such as jewellery, it is equally important to keep valuations up to date.
Valued or Agreed Value Policy
This provides a pre-determined fixed amount to be paid out for the total loss of the property.
Variable Charges Those expenses which vary in direct proportion to business activity or volume of production, and which are included as 'specified working expenses' when calculating the sum insured under a Business Interruption policy.
Variable Charges
Those expenses which vary in direct proportion to business activity or volume of production, and which are included as 'specified working expenses' when calculating the sum insured under a Business Interruption policy.
Void Contract
A void contract is one that is legally uneforceable. In other words, it cannot be carried out because of a lack of capacity to contract. Example: Customer wants to buy insurance for shipment of illegal VCDs. As the subject matter is not legal, the insurance contract, entered into unkowningly or knowingly, cannot be enforceable.
Voidable Contract
Some contracts though valid when first entered into, can be subsequently set aside due to mistakes like non-disclosure of important facts. Consequently, the victimised party is given the option either to continue with the contract or set it aside.
Voyage Policy
Marine insurance covering goods for as long as they are moving from one place to another, as opposed to a Time policy where cover is simply for a definite period of time.
W
Waiting Period
A period of time which must lapse after, say, the inception of a disability, before benefits become payable. Commonly found in permanent Health insurance policies.
War Risks
Excluded under standard policy forms. In Marine insurance, it can be readily included subject to cancellation provisions. In non-marine insurance, war risks tend to only be covered in a specialist market. Insurers are always wary of selection against them. In other words, why should they grant cover if hostilities look likely when the insured did not request cover when there were no problems.
Warehouse to Warehouse
This cover is quite usual under any Marine Cargo policy covering goods moving from the manufacturer's premises to the consignee's warehouse at the final destination.
Warranty
A policy condition which, if not complied with, may have the effect of invalidating the whole policy. An example is the requirement to use a burglar alarm in a jewellery shop.
Wear and Tear
Policies exclude this sort of damage. It is not accidental but inevitable with most goods.
With Average
Marine Cargo insurance term where cover includes partial losses. The term is now obsolete since the introduction of the Institute Cargo Clauses.
Worker's (Workman's) Compensation Insurance
The policy provides cover for the insured in respect of his liability towards employees who are considered workmen (under the Workmen's Compensation Act) for bodily injuries or death arising out of and in the course of employment.
Y
Yacht Insurance
Available under Pleasure Craft Insurances. Special provision needs to be made if you race them.
York Antwerp Rules
The treaty adopted by most major countries to determine adjustment for general average in Marine Insurance.
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