Overseas Banks in Malaysia

1. OCBC
Oversea-Chinese Banking Corporation Berhad (OCBC Bank) was born out of the Great Depression with the merger of three banks in 1932 - The Chinese Commercial Bank Limited (1912), the Ho Hong Bank Limited (1917) and the Oversea-Chinese Bank Limited (1919). OCBC Bank flourished to become one of the largest banks in Singapore and Malaysia. OCBC Bank was also the only foreign bank to have branches in China in the 1950s - its long history in China dates back to 1925 when it opened its first branch in Xiamen, the first Singapore bank to do so.
The Ho Hong Bank was a Malaysian bank established in (1917 - 1932) to provide banking services that prior to 1912 were solely delivered by European Banks. The Ho Hong Bank was founded by Lim Peng Siang, Dr. Lim Boon Keng and Seow Poh Leng all of whom were, before that time, officers of The Chinese Commercial Bank.


2. UOB
United Overseas Bank (UOB) was founded on 6 August 1935 by Sarawak-born Datuk Wee Kheng Chiang together with 6 other Chinese businessmen, under the name of United Chinese Bank (UCB). Through a series of acquisitions, UOB is now a leading bank in Asia.
In 1965, UCB changed name to United Overseas Bank and opened its first overseas branch in Hong Kong. In 1971, UOB acquired a majority interest in Chung Khiaw Bank Limited and its branch network in Singapore, Malaysia and Hong Kong, and introduced its red five-barred logo still in use today. In 1973, it acquired 100% shareholding in Lee Wah Bank Limited and its branch network in Singapore and Malaysia. UOB subsequently acquired Far Eastern Bank Limited in 1984, and Industrial & Commercial Bank Limited in 1987. Chung Khiaw Bank became a wholly-owned banking subsidiary of UOB in 1988. UOB acquired Westmont Bank in Philippines and Radanasin Bank in Thailand in 1999. In 2001, UOB acquired 100% shareholding in Overseas Union Bank Limited, and ICB in 2002. In 2005, UOB acquired a controlling stake of 53% in PT Bank Buana in Indonesia and renamed the bank to PT Bank UOB Buana (UOB Buana) in 2007.
Lee Wah Bank was incorporated in Singapore in 1920 and opened its first Malaysian branch in 1956.

3. Standard Chartered
The Standard Chartered Group was formed in 1969 through a merger of two banks. The Standard Bank of British South Africa founded in 1863, and the Chartered Bank of India, Australia and China (The Chartered Bank). The Chartered Bank was founded in 1851/1853 following the grant of a Royal Charter from Queen Victoria. It opened its first branches in 1858 in Calcutta and Bombay and soon after in Shanghai. The Standard Chartered Bank first began operations in Malaysia in Penang in 1875. The Bank has evolved from a bank supporting the trading community to a one-stop financial centre today, offering a full range of banking products and services in retail and wholesale banking. It has three core businesses namely Consumer Banking, Corporate and Institutional Banking and Treasury.

4. HSBC
The Hong Kong and Shanghai Banking Corporation (HSBC) was established in Hong Kong in March 1865 to finance the growing trade between China and Europe, with an office opened in Shanghai during April of that year. HSBC's presence in Malaysia dates back to more than 125 years. The Hongkong and Shanghai Banking Corporation Limited established its first branch in Malaysia in 1884, on the island of Penang, with privileges to issue currency notes. Thereafter, it opened branches in Ipoh in 1909 followed by branches in Malacca, Johore Bahru and Kuala Lumpur in 1910. The Kota Bharu branch was opened in 1912. By 1959, The Hongkong and Shanghai Banking Corporation Limited had embarked on a programme of acquisitions - including The Mercantile Bank and alliances and has network of 40 branches throughout Malaysia. Through the acquisition of The Mercantile Bank, which started operations in Malaysia in 1860, HSBC is indirectly the oldest bank in Malaysia.
The Mercantile Bank of India, London and China was established in October 1853 in Bombay (now Mumbai), but its headquarters moved to London in 1858.


5. RBS
The Royal Bank of Scotland was founded in 1727, with the first premises in the Old Town of Edinburgh, and has become one of the largest financial services groups in the world. During the 1900’s, it acquired several English banks including Williams Deacon's Bank, Glyn, Mills & Co and Drummonds Bank. In 1969, it merged with National Commercial Bank of Scotland to achieve a greater market share in Scotland. In 2000, it acquired National Westminster Bank (NatWest) in the biggest banking takeover ever in Britain and so inherited a rich heritage covering more than 200 banks that had made up NatWest. In 2007, in the biggest takeover in banking history, it led a unique consortium to acquire the Dutch bank ABN Amro.
ABN Amro was a prominent international bank, which traces its origins to Nederlandsche Handel-Maatschappij or Netherlands Trading Society (NTS) which was founded on the initiative of the Merchant Monarch, King Willem I, in the Hague on 29 March 1824. The object was to resuscitate national trade and industry in the wake of the period of French rule (1795-1813). NTS was an import/export company set up to expand existing trade relations and open up new channels. The growing concentration of banking in the Netherlands reached a climax in October 1964 when a merger between two of the Big Four Dutch bank, NTS and Twentsche Bank merged to become Algemene Bank Nederland (ABN Bank). A very important acquisition occurred in 1979 with ABN Bank’s take-over of Chicago-based LaSalle National Bank. This take-over laid the foundation for what would become the second home market of the bank. Founded in 1927 as National Builders Bank of Chicago, LaSalle Bank gave ABN its first firm foothold in the US Midwest. In 1990, Exchange Bancorp of Chicago was incorporated in LaSalle.
ABN Bank and Amro Bank decided in mid-1990 to combined forces, and the merger was completed rapidly after ABN AMRO Holding N.V. made a successful bid for the shares of both banks in August 1990. On 22 September 1991, the new ABN AMRO Bank was established, with its head office in Amsterdam.
Twentsche Bankvereeniging (TB) was established in Amsterdam on 24 June 1861 targeting the textile industry in the Twente region in the eastern part of the Netherlands and on financing textile exports to the Dutch East Indies. TB's first major post-war takeover was Van Ranzow's Bank in Arnhem in 1950, followed in 1952 by Van Mierlo en Zoon in Breda. The latter, however, continued to trade under its own name.
Amsterdam-Rotterdam Bank (Amro Bank) was created in 1964 between the merger of Amsterdamsche Bank (AB) and Rotterdamsche Bank (RB), after plans for a merger in 1939 were shelved due to the Second World War.
Rotterdamsche Bank (RB) was founded in Rotterdam on 16 May 1863 by a group of businessmen and bankers. On 19 April 1911, RB merged with Rotterdam's Deposito- en Administratie Bank (est. 1900) to form Rotterdamsche Bankvereeniging (Robaver).
Amsterdamsche Bank (AB) was established in Amsterdam on 5 December, 1871 by a group of mainly German banks led by Bank für Handel und Industrie of Darmstadt. Amsterdamsche Bank and Incasso-Bank signed an agreement in October 1947 under which the two banks merged. This considerably expanded AB’s branch network.


References:
http://www.rbs.com/about-rbs/g2/heritage/our-story/history-highlights.ashx

Malaysian Achor Banks of 1999

In 1999, emerging from the Asian Financial Crisis and other financial issues, and in line with the Government’s plan to consolidate the banking and finance industry, the Government announced the following 10 anchor banks:
1. Malayan Banking
2. Bumiputra-Commerce Bank
3. Public Bank
4. RHB Bank
5. Arab-Malaysian Bank
6. EON Bank
7. Multi-Purpose Bank
8. Hong Leong Bank
9. Affin Bank
10. Southern Bank

Maybank
Malayan Banking, or Maybank, is the largest financial services group in Malaysia boasting group assets worth RM301 billion (USD$87 billion), placing it among the top 120 banks worldwide. It has the largest network of branches with over 374 branches and owns the largest ATM network in Malaysia with over 900 ATMs. Todate, Maybank has more than 4 million deposit accounts and more than half a million loan accounts.
In August 2000, Maybank announced the merger of the commercial banking business under Phileo Allied Bank and the securities business under Phileo Securities with that of Maybank and Mayban Securities respectively.
On 1 January 2001, Maybank also announced the merger of The Pacific Bank with Maybank.
Malayan Banking was formed by Malaysian business tycoon Khoo Teck Puat with a few partners in Kuala Lumpur. It was incorporated on 31 May 1960 and commenced operations on 12 September 1960. The bank grew rapidly to more than 150 branches within 3 years, but in 1965, Khoo Teck Puat was ousted from Maybank by the Government of Malaysia under the then Deputy Prime Minister Tun Abdul Razak's administration on the pretext of pumping the bank's money into his own private firm in Singapore. The bank formed its own investment banking subsidiary, Aseambankers Malaysia Berhad (Asian & Euro-American Merchant Banking (Malaysia) Berhad) in 1973. In 1993, the bank acquired a local insurance company, Safety Life & General insurance Sdn Bhd, and relaunched it as Mayban Life Assurance to focus solely in bankassurance. In 2005, the insurance arm acquired MNI Insurance and Takaful Nasional, and subsequently rebranded its insurance companies to Eitqa in 2008.
The Pacific Bank was established in 1919 and was listed on the KLSE in August 1990 …
PhileoAllied Bank ….

CIMB Bank
CIMB Bank, the consumer banking are of CIMB Group, was rebranded to its current name in 2006 to reflect its group restructuring and the completion of the merger between Bumiputra-Commerce Bank and Southern Bank Berhad.
Bumiputra-Commerce Bank (BCB) was formed in October 1999 through the merger of Bank of Commerce (BoC) and Bumiputra Bank Malaysia Berhad (BBMB) resulting in the biggest merger in Malaysia's banking history.
Bank Bumiputra was established in 1965 in line with government initiatives to increase the Bumiputra participation in the national economy. By the 1980s, it had become the largest bank in the country in terms of assets and was the first domestic bank to have operations in New York, London, Tokyo, Bahrain and Hong Kong. In 1982, it was listed as the largest bank in Southeast Asia by Asian Finance magazine.
The history of Bank of Commerce goes back to November 1979 when Bian Chiang Bank was renamed Bank of Commerce on the acquisition by the UMNO-owned Fleet Group and co-shareholder JP Morgan. Bian Chiang Bank was established in 194 in Kuching by Wee Kheng Chiang, focusing mainly in business financing and the issuance of bills of exchange.
In November 1991, the acquisition of United Asian Bank (UAB) by Bank of Commerce was the starting point for the significant expansion of this nascent force in banking. With the acquisition, the Bank of Commerce branch network increased almost fourfold, complementing its established reputation in the corporate lending market.
United Asian Bank (UAB) was established in Kuala Lumpur in 1972 as a result of the merger of three Indian-owned banks; Indian Overseas Bank Ltd, Indian Bank Ltd and United Commercial Bank Ltd. UAB started as a joint-venture in banking between Malaysia and India, taking over the operations of the Malaysian branches of the Indian banks in 1972.
Southern Bank was founded as Southern Banking Limited in 1965 by the late Tan Sri Saw Seng Kew in Penang and quickly expanded to other parts of the country. In 1978, the bank set up operations in Kuala Lumpur and became recognised as an important player in wealth management products, credit cards and SME lending. The bank was the first in the country to set up the MEPS / ATM system used throughout Malaysia today. Southern Bank was one of the anchor banks announced in 1999, in which Southern Bank acquired Ban Hin Lee Bank. Ban Hin Lee Bank (BHLB) was also established in Penang. Formed in 1935 by “Towkay” Yeap Chor Ee, it originally focused on serving local businessmen in their trading and merchant activities. In the 1960's, it branched into real estate and house financing eventually reaching throughout Malaysia and Singapore from its headquarters in Penang, though it mainly served the Penang region.

RHB Bank
RHB Bank was formed in 1997 as a result of the merger between DCB Bank and Kwong Yik Bank. In line with the government’s plan to consolidate the banking industry, the merger between Sime Bank and RHB Bank was finalized in 1999 to form the RHB Banking Group, resulting in the third largest banking group in Malaysia. In 2003, the RHB Banking Group completed its merger with Bank Utama, offering its customers a wider network of 200 branches nationwide, 470 ATMs and new products and services, such as internet banking.

DCB Bank was established in 1966 as Development and Commercial Bank (D&C Bank) by the late Tun Sir H. S. Lee, a well known entrepreneur and the first Minister of Finance for the country. D&C Bank became the 5th largest Malaysian bank by the late 80’s. In 1990, a majority shareholding of the bank was sold to Abdul Rashid Hussain, the owner of the then largest stock brokerage firm, Rashid Hussain Bhd which was founded in 1982.

Kwong Yik Bank was established in 1913 with a start-up capital of RM300,000 at the Old Market Square in Kuala Lumpur, making it Malaya’s first local bank . In 1996, Abdul Rashid Hussain acquired a 75% stake in Kwong Yik Bank at RM2.3bil and its merger with DCB Bank in 1997 formed the RHB Bank, making it the country’s biggest ever banking merger at that time. 1999, he bought the troubled Sime Bank for RM852.2mil.

Sime Bank was initially set up in 1959 as the United Malayan Banking Corporation (UMBC) by a group of businessmen, led by Mr Chang Ming Thien, a prominent figure in the rubber industry in Malaya and Singapore. The bank was officially declared open by the then Prime Minister, Tunku Abdul Rahman in 1960 as the first commercial bank to be established in independent Malaya. In 1996, UMBC became part of the Sime Darby Group and was renamed Sime Bank Berhad.
Bank Utama (Malaysia) Berhad was first incorporated in 1976 in Sarawak as the first bumiputra-owned bank.

Public Bank
Public Bank merged with Hock Hua Bank in 1999 as part of the government’s merger programme for domestic banking institutions. With this merger, Public Bank saw an increase in its domestic branch network to 381 branches in Malaysia from 345 branches, comprising 213 commercial bank branches and 168 finance company branches.
Public Bank was founded in 1966 by Tan Sri Teh Hong Piow, who began his banking career in 1950 as a bank clerk in Overseas-Chinese Banking Corporation Ltd. and rose in rank to officer within five years. He joined Malayan Banking Berhad as Manager in 1960, and later in 1964, was promoted to the position of General Manager at the age of 34. He left Malayan Banking in 1966 to set up Public Bank. Public Bank is the largest domestic bank in Malaysia by market capitalisation and the third largest by balance sheet. The Public Bank Group employs close to 16,000 people in 2009 – with about 90% of the staff in Malaysia and the remaining spread across Hong Kong and the People’s Republic of China, Cambodia, Vietnam, Laos and Sri Lanka.
Hock Hua Bank was founded in 1952 and became Sarawak’s regional bank. With an established customer base in the state of Sarawak especially in the retail consumer and commercial sectors, Hock Hua Bank complemented and enhanced Public Bank’s similar focus and specialization in the retail and commercial segment.

AmBank
Arab-Malaysian Bank Berhad commenced operations on 1 August 1994, when the AMMB Group acquired the Malaysian operations of Security Pacific Asian Bank Limited from Bank of America (Asia) Limited. On 1 June 2005, the merger of AmBank and AmFinance took place to create AmBank (M) Berhad, the sixth largest domestic bank in the country. On 18 May 2007, AmBank Group commemorated the entry of Australia and New Zealand Banking Group Limited (ANZ Bank) as its strategic partner and major investor.
The AMMB Group began its finance business in 1977, when the Group acquired a 70.0% shareholding in Malaysian Industrial Finance Company Limited (“MIFCL”), which was later renamed Arab-Malaysian Finance Berhad (“AMFB”). In 1990, AMFB acquired First Malaysia Finance Berhad. In line with the Government’s plan to consolidate the industry, AMFB acquired Abrar Finance Berhad in 1998, and MBf Finance Berhad in 2001.
The AMMB Group traces its roots to Arab-Malaysian Development Bank Berhad which was incorporated on 5 August 1975 as a joint venture between Malaysian Industrial Development Finance Berhad, with a 55.0% shareholding, Arab Investments for Asia (Kuwait) with a 33.0% shareholding, and the National Commercial Bank (Saudi Arabia) holding 12.0%.
Mbf Finance was a major finance institution in the country which was built up by the late Loy Hean Heong from the time he purchased Malaysia Borneo Finance Corp. in 1974.

Hong Leong Bank
Hong Leong Bank merged with Wah Tat Bank Berhad and Credit Corporation (Malaysia) Berhad in 2000 as part of the government’s directive for the domestic banking institutions consolidation programme. In 2004, the finance business of Hong Leong Finance Berhad was acquired by Hong Leong Bank. Hong Leong Finance was operating in Malaysia since 1968.
Hong Leong Bank started its humble beginnings in 1905 in Kuching, Sarawak, Malaysia under the name of Kwong Lee Mortgage & Remittance Company and later in 1934, incorporated as Kwong Lee Bank Limited. On 2 February 1983, it changed its name to Malayan United Bank Berhad after the acquisition by Khoo Kay Peng of Malayan Industries Bhd, a former OCBC banker. On 26 June 1989, it changed name to MUI Bank Berhad, operating in 35 branches. In January 1994, the Hong Leong Group acquired MUI Bank and assumed its present name. In that the same year in October, Hong Leong Bank was listed on the Kuala Lumpur Stock Exchange.
Wah Tat Bank started business as Wah Tat Money Exchange and Remittances in Sibu, Sarawak during the Rajah Brooke’s reign in 1929.

EON Bank
EON Bank as of 2008 has a branch network of 136 branches and over 5,000 employees serving a customer base of more than 1,000,000. Its total assets stood at RM41,563 billion as at 30 June 2008.
Kong Ming Bank was founded by the late Datuk Sri Ling Beng Sung in Sarawak in 1965, serving mostly the Sarawak region. In 1991, the bank was acquired by the Edaran Otomobil Nasional (EON) and assumed its present name. EON was established to distribute Malaysia's first national car, Proton. In 2006?, Hong Kong-based principal investment company Primus Pacific Partners, acquired a 20% stake in EON Capital Bhd to enable it to exploit the opportunities in the Malaysian financial sector.
Oriental Bank was founded in 1937…

Affin Bank
Affin Bank commenced operations using its current name in January 2001 following a merger between the former Perwira Affin Bank Berhad and BSN Commercial (M) Berhad in August 2000. In June 2005, pursuant to the amendment to the BAFIA 1989, it again merged with the former Affin-ACF Finance Berhad. To date, Affin Bank has a network of 82 branches nationwide.
Affin Bank was established incorporated in 1975 under the name Perwira Habib Bank Malaysia Berhad. It started as a joint venture between several Malaysian parties including LTAT, Syarikat Permodalan Kebangsaan Berhad, and Habib Bank Limited of Pakistan. In 1991, the Bank embarked on a capital restructuring resulting in the emergence of Affin Holdings Berhad as its largest shareholder in 1992. It later changed its name to Perwira Affin Bank Berhad.
BSN Commercial Bank was incorporated in Malaysia on 16 July 1975 under the name of Bank Buruh (Malaysia) Berhad. It changed its name to BSN Commercial Bank after it was acquired by Bank Simpanan Nasional (BSN) from bankrupt Central Co-operative Bank (CCB) on 11 March 1995.

Alliance Bank
Alliance Financial Group (formerly known as Alliance Banking Group) was founded in early 2001 through a consolidation of 7 financial institutions, in which Multi Purpose Bank Berhad anchored the merger. Besides Multi-Purpose Bank Bhd, the other institutions were International Bank Malaysia Bhd, Bolton Finance Bhd, Bumiputra Merchant Bankers Bhd, Sabah Bank Bhd, Sabah Finance Bhd and Amanah Merchant Bank Bhd.
Multi Purpose Bank first commenced operations in 1958 as Banque de L'indochine, and later changed its name to Banque Indosuez in 1975. In 1982, Banque Indosuez was incorporated into the Malaysian French Bank Berhad. With the corporate restructuring resulting in a majority stake in the bank by Multi-Purpose Capital Holdings Berhad, it was renamed as Multi-Purpose Bank in 1996.
Sabah Bank was incorporated by the State Government of Sabah on 9 August 1977 under the name of Bank Pembangunan Sabah Berhad, as a public limited company under the Companies Act, 1965.

==

Banking Groups announced by Bank Negara

1.Malayan Banking Bhd (MayBank) :
Mayban Finance Bhd, Aseambankers Malaysia Bhd, PhileoAllied Bank Bhd, Pacific Bank Bhd, Sime Finance Bhd and Kewangan Bersatu Bhd

2. The Bumiputra – Commerce Bank Bhd
Bumiputra-Commerce Finance Bhd and Commerce International Merchant Bankers Bhd

3. RHB Bank Bhd
RHB Sakura Merchant Bankers Bhd, Delta Finance Bhd and Interfinance Bhd

4. Public Bank
Public Bank Bhd, Public Finance Bhd, Hock Hua Bank Bhd, Advance Finance Bhd and Sime Merchant Bankers Bhd

5. The Arab Malaysian Bank Bhd (AMMB)
Arab Malaysian Finance Bhd, Arab Malaysian Merchant Bank Bhd, Bank Utama Malaysia Bhd and Utama Merchant Bankers Bhd

6. Hong Leong Bank Bhd
Hong Leong Finance Bhd, Wah Tat Bank Bhd and Credit Corporation Malaysia Bhd

7. Perwira Affin Bank Bhd
Affin Finance Bhd, Perwira Affin Merchant Bankers Bhd, BSN Commercial Bank Bhd, BSN Finance Bhd and BSN Merchant Bank Bhd

8. Multi-Purpose Bank Bhd
International Bank Malaysia Bhd, Sabah Bank Berhad, MBf Finance Bhd, Bolton Finance Bhd, Sabah Finance Bhd, Bumiputra Merchant Bankers Bhd and Amanah Merchant Bank Bhd

9. EON Bank Bhd
EON Finance Bhd, Oriental Bank Bhd, City Finance Bhd, Perkasa Finance Bhd and Malaysian International Merchant Bankers Bhd

10. Southern Bank Bhd
Ban Hin Lee Bank Bhd, Cempaka Finance Bhd, United Merchant Finance Bhd, Perdana Finance Bhd and Perdana Merchant Bankers Bhd

Source: Bank Negara Malaysia


Reference
http://www.maybank2u.com.my/corporate/achievement.shtml
http://www.maybank2u.com.my/corporate/notice3.shtml
http://www.maybank2u.com.my/corporate/press_release/archives/aug30_2.shtml
http://www.cimb.com/index.php?ch=group_ch_acg&pg=group_pg_acg_oh&ac=609&tpt=cimb_group
http://www.rhb.com.my/corporate_profile/history.shtm
http://www.ambg.com.my/ambank_webmedia/file/Our%20History.pdf
http://www.hlb.com.my/ahlb/inv_his.jsp?flag=inv_his
http://www.alliancebank.com.my/ourhistory.html

FRS 139 and its bearing on transfer pricing

Wednesday November 11, 2009

COME Jan 1, the Malaysian Accounting Standards Board’s Financial Reporting Standard 139 – Financial Instruments: Recognition and Measurement (FRS 139) will finally be implemented in Malaysia. Four years since its implementation date was set, it is still considered uncharted waters for many corporations. This is not surprising since FRS 139 is considered the “mother” of all standards by some.

Under FRS 139, many financial assets and financial liabilities are required to be carried at fair value. This will have a significant impact on loans between related parties, which generally can be interest-free or carry interest rates which are well below the market rates.

The definition of fair value under FRS 139 is “the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction”. Paragraph 48A of FRS 139 further states that “The best evidence of fair value is quoted prices in an active market ... Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties, if available ... ”

Interestingly, it loosely echoes the Organisation for Economic Cooperation and Development’s guide for an arm’s length interest rate:
“... an arm’s length interest rate shall be an interest rate which was charged, or would have been charged, at the time the financial assistance was granted, to uncontrolled transactions with or between independent persons under similar circumstances.”

It could well imply that the measurement of related party loans initially at their respective fair values and subsequently at amortised cost using the effective interest method, may be deemed to be in line with the arm’s length principle since market interest rate is used.

Following the introduction of Section 140A of the Income Tax Act 1967 (ITA) which basically requires taxpayers to ensure that their related party transactions are carried out at arm’s length, would this then mean that an assessment of the fair value of related party loans by the auditors under FRS 139 can serve as contemporaneous documentation for transfer pricing purposes?

The corporate taxpayers do not have an option as to whether to accept the fair value accounting treatment in their financial statements – it is a requirement of FRS 139 and also the Companies Act 1965.

Further, requiring corporations to measure related-party loans initially at their respective fair value may not only affect the income statement. However, for certain, the subsequent amortisation amounts, measured at amortised costs, will represent accounting interest income or interest expense in the income statement. Book entries are generally not the actual receipts or payments, and in tax terms are not real costs or income earned.

At this point, it would be helpful to look at what other tax jurisdictions have done under similar circumstances. Hong Kong, Singapore and New Zealand tax authorities have issued departmental interpretation and practice notes on the income tax implications arising from the adoption of IAS 39 or its local equivalent.

While in general most tax authorities require the tax treatments to follow or be consistent with the accounting treatment under FRS 139 as far as possible, they also acknowledge that the revenue versus capital consideration would need to be considered in determining the tax treatment.

As an example, in Singapore, the tax adjustment is such that the discount on the interest-free loan recognised in the income statement will not be allowed as a tax deduction and the interest income recorded will not be taxed because these are merely book entries.

The auditor’s primary role is still that of expressing an opinion as to the true and fair view of the financial statements. This means that corporations would still need to provide auditors with supporting evidence of the fair value of the related-party loans to enable auditors to express an opinion.

The fair value measurement rests on the rebuttable presumption that effective interest rates used in the amortised cost method is the market interest rate and is thus, at arm’s length. While this is generally true, loan arrangements made with unrelated parties in the current business environment should be considered as arm’s length, although they may not carry the same market interest rates due to various factors such as level of credit risks, tenure, size of collaterals, etc.

So, what would corporations provide to the auditors? Section 140A of the ITA provides that the acquisition or supply of property or services with related parties be conducted at arm’s length, failing which the Director General of Inland Revenue may adjust the transfer prices.

Since 2003, transfer pricing guidelines have been issued, setting out the extent of information required in a transfer pricing report. The guidelines also stipulate that it is a pre-requisite that a comparable analysis (benchmarking) be carried out to substantiate the arm’s length pricing.
To ensure that corporations provide auditors with the correct arm’s length and market rate interest for related-party loans in the FRS 139 measurement of fair value, it is very likely that a comparable analysis would need to be carried out. This should then provide the setting not only for the auditors but for the tax authorities in support of the argument for arm’s length. Any fair value book entries put through the financial statements should then be met with minimum queries from the tax authorities.

http://biz.thestar.com.my/news/story.asp?file=/2009/11/11/business/5084831&sec=business

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.