Glossary

Financial disclosure claims are made against corporate directors and officers pertaining to statements made about anticipated earnings or other financial issues. The basis of such claims is that directors' and officers' failure to disclose or untimely disclosure of certain information has caused stockholders to suffer losses. Financial disclosure claims most frequently arise when quarterly earnings fall below expectations based upon earlier statements made by directors and officers and when directors and officers do not disclose some unfavorable but foreseeable event (e.g., severe losses from uninsured product liability claims) on a timely basis.

Financial guarantee insurance covers financial loss resulting from default or insolvency, interest rate level changes, currency exchange rate changes, restrictions imposed by foreign governments, or changes in the value of specific goods or products.

The Financial Institutions Reform, Recovery, and Enforcement Act is a 1989 law passed in response to a series of savings and loan failures during the 1980s.The Act provides a comprehensive regulatory and enforcement apparatus that establishes higher minimum capital requirements and sets stricter operating standards for all savings institutions. The Act provides a comprehensive regulatory and enforcement apparatus that establishes higher minimum capital requirements and sets stricter operating standards for all savings institutions. Among other provisions, FIRREA imposes a three-tier schedule of civil monetary penalties that may be assessed against institutions and their directors and officers for breaches of fiduciary duty. FIRREA also grants regulatory agencies the power to disapprove a "troubled" savings institution's appointment of any director or senior executive officer and to remove or suspend any director or officer found guilty of certain specified acts. FIRREA also holds directors and officers of savings institutions personally liable for monetary damages in civil actions brought by regulatory agencies in cases of gross negligence.

A financial institution bond is used to insure banks and other financial institutions against employee dishonesty, burglary, robbery, forgery, and similar crime exposures. Previously called a "bankers blanket bond," coverage may be provided on standard forms from Insurance Services Office, Inc. (ISO), or the Surety and Fidelity Association of America (SFAA) or on a form drafted by individual insurers.

The financial interest clause amends an insurance policy to cover only the multinational organization's financial interest in its worldwide subsidiaries so that the parent company is the only legal entity covered by the global policy. The intent of the clause is to avoid issues that arise related to losses suffered by a subsidiary of the parent company that does not have local admitted coverage required by the jurisdiction in which the subsidiary is located. These provisions have not been tested widely in claim scenarios and may trigger undesirable or unforeseen adverse tax consequences. In addition, for programs that are written on a "shared or layered" basis to achieve required limits, coverage may not be concurrent throughout the limit tower because some insurers will not follow this endorsement.

Financial interest coverage is insurance protection purchased by a multinational company against the risk of damage to the parent company's financial interest in its uninsured local subsidiaries. Where the local subsidiary cannot be directly insured by the parent compnay's global insurer under the master policy for licensing, regulatory, or other reasons, the parent is nevertheless insured for its financial interest in that subsidiary. So, if the subsidiary suffers a loss, the parent company is covered for its financial interest in that loss suffered by the subsidiary.

Financial modeling involves the generation of pro forma financial statements over a multiyear period, created under various loss and financial scenarios.

Financial quota share is a form of reinsurance that enables a cedent to increase its statutory surplus by the amount of the ceding commission in the reinsured unearned premium reserve. Surplus relief arises because statutory accounting requires insurers and reinsurers to immediately charge all acquisition costs to the accounting period in which the business is written, even when the premium is unearned at the end of the period. It is referred to as prepaid acquisition costs in the unearned premium reserve or the equity in the unearned premium reserve.

Financial reinsurance refers to a reinsurance contract where investment income is usually included in the pricing and where there is an aggregate limit on the risk transferred. Often, the contract is for 3 or 5 years, and the price is the expected present value of future losses at an aggregate limit, though these contracts are being written with additional risk elements.

Financial responsibility is the legal requirement for an owner of an automobile to evidence ability to pay losses, either through purchase of insurance or by providing other proof of financial strength. It is used to ensue drivers carry adequate auto liability insurance.