SOA Exam ALTAM (Advanced Long-Term Actuarial Mathematics) Glossary
26 essential terms and definitions for SOA Exam ALTAM (Advanced Long-Term Actuarial Mathematics). Each definition is written for exam preparation, covering the concepts as they are tested on the 2026 syllabus.
A
- An asset share is a per-policy asset-accumulation projection reflecting gross premiums, investment returns, expenses, mortality, and lapses. It is used in profit testing to assess pricing adequacy under realistic assumptions.
B
- Best-Estimate Assumption
- A best-estimate assumption represents the expected outcome with no margin for adverse deviation. It contrasts with the prudent or stressed assumptions used in reserve calculations and capital tests.
C
- Cash Surrender Value (CSV)
- Cash surrender value is the contractual amount payable to a policyholder on voluntary policy termination. CSV is typically lower than the policy reserve in early policy years and rises toward the face amount over time.
- Commutation Function
- Commutation functions (Dx, Nx, Mx) are tabulated quantities that simplify life-contingencies calculations under deterministic interest assumptions. Modern computing has largely replaced them, but they appear throughout traditional notation and texts.
- Cross-Subsidization
- Cross-subsidization is a pricing practice where one class of policyholders pays more than its expected cost to subsidize another class. It can be permitted in some markets but is constrained by fairness norms and regulatory limits.
D
- Defined-Benefit (DB) Pension
- A defined-benefit pension promises a specified benefit at retirement, typically as a function of salary and service. The employer bears investment and longevity risk for the duration of the obligation.
- Defined-Contribution (DC) Pension
- A defined-contribution pension specifies the employer's contribution (and often the employee's). The participant bears investment risk and the benefit equals the accumulated account, with no guarantee of a specific income level at retirement.
E
- Embedded Option (Insurance)
- An embedded option is an option-like feature in a life or annuity contract such as a guaranteed minimum benefit or surrender option. Valuation typically uses risk-neutral techniques given the option-like cash flows depend on market-driven account values.
- Equity-Indexed Annuity
- An equity-indexed annuity credits interest based on the performance of an equity index, subject to a floor (typically 0%) and a cap or participation rate. The contract embeds a complex equity call option financed by the participation in upside.
F
- Funded Status (Pension)
- Funded status is the difference between a pension plan's assets and the present value of its accrued benefit obligations. Surplus (assets > obligations) and deficit (obligations > assets) drive contribution and accounting outcomes.
G
- A gross premium is the price charged to the policyholder. It includes the expected cost of benefits plus loadings for expenses, profit margin, taxes, and margin for adverse deviation.
- Guaranteed Minimum Death Benefit (GMDB)
- A GMDB is a variable annuity feature that guarantees a minimum death benefit (typically the greater of premiums paid or account value) regardless of investment performance. Valuation uses risk-neutral option-pricing techniques given the dependence on account value paths.
- Guaranteed Minimum Withdrawal Benefit (GMWB)
- A GMWB is a variable annuity feature that guarantees a stream of withdrawals for life or a period certain, regardless of investment performance. It is one of the most complex embedded options in retail insurance products.
J
- Joint Life Annuity
- A joint life annuity pays as long as at least one of two (or more) designated lives is still alive. It is a common retirement product for couples and reduces longevity risk versus single life by spreading mortality across two lives.
L
- Lapse Rate
- Lapse rate is the rate at which policyholders voluntarily surrender or stop paying premiums. It is a critical assumption in pricing and reserving for life insurance and annuity products and depends on policy year, surrender charges, and market conditions.
M
- Multi-State Model
- A multi-state model describes transitions among health, disability, retirement, or death states with specified transition intensities. It generalizes the single-decrement life table to cover disability income, long-term care, and pension plans with multiple decrements.
N
- A net premium reserve is calculated as the expected present value of future benefits minus the expected present value of future net premiums. It is a regulatory and accounting standard reserve method used in many traditional life products.
P
- Pension Buy-In
- A pension buy-in is an arrangement in which a pension plan purchases an annuity contract that is held as a plan asset. It transfers investment and longevity risk to the insurer while the plan retains the legal obligation.
- Pension Buy-Out
- A pension buy-out is an arrangement in which an insurer assumes responsibility for pension liabilities. Assets and obligations move off the sponsor's balance sheet, completing the de-risking of the relevant cohort.
- Persistency
- Persistency is the degree to which policyholders maintain their policies in force. It is the complement of the lapse rate and is a positive driver of profitability for products with significant front-end acquisition costs.
- Profit Testing
- Profit testing is a scenario-based projection of a policy's expected cash flows and reserves used to assess profitability and pricing adequacy. The standard metric is the present value of distributable profits under specified assumptions.
R
- Reserves (Insurance)
- Reserves are liabilities recorded by an insurer for future policyholder obligations. They are computed by prescribed actuarial methods and differ across statutory, GAAP, and IFRS reporting bases.
- Reserving Basis
- A reserving basis is the set of assumptions (interest, mortality, lapses, expenses, margins) used to compute reserves. Statutory, GAAP, and economic bases can differ materially, and the IFRS 17 framework introduces a fair-value-influenced approach.
T
- Term Insurance
- Term insurance provides death benefit for a stated period. Premiums increase annually with age or are level for the term, but coverage expires at the end of the term with no cash value.
U
- Universal Life
- Universal life is a flexible-premium life insurance product with an accumulation account, transparent pricing of mortality and expenses, and adjustable death benefits. The policyholder bears more responsibility for ongoing premium adequacy than under traditional whole life.
W
- Whole Life Insurance
- Whole life is permanent life insurance with level premiums, guaranteed cash value, and a guaranteed death benefit for the insured's life. It is the traditional permanent contract and provides the most predictable cash flows of any permanent product.