Glossary

Optimum level of risk retention is a risk financing term referring to the level of retention at which the organization achieves a comfortable balance between relative cost and cost stability.

An option is an agreement giving the buyer the right to buy or receive (a "call option"), sell or deliver (a "put option"), enter into, extend or terminate, or effect a cash settlement based on the actual or expected price, spread, level, performance, or value of one or more underlying interests.

Optionally renewable refers to a provision in a health policy, for example, that gives the insurer the right to renew the contract or not at its option on the policy's anniversary date; midterm cancellation is not permissible.

Option backdating occurs when a stock option exercise date is set prior to the date on which the option was granted and at a lower exercise price than the current market price of the company's stock.

Option instruments are derivatives such as a put, call, swap, or floor designed to manage basis risk by allowing the hedger to determine when to liquidate the contract.

Option spring-loading is a practice designed to issue option grants at certain strategic times, as a means of increasing the value of such grants.

Ordinance or law coverage is for loss caused by enforcement of ordinances or laws regulating construction and repair of damaged buildings.

Ordinary construction is characterized by noncombustible exterior bearing walls (i.e., brick, concrete, or masonry) and combustible floors, roofs, and interior walls.

Ordinary life refers to a type of whole life insurance contract arranged so that the premiums are payable as long as the insured lives.

Ordinary payroll limitation or exclusion endorsement is a business income coverage endorsement limiting to a specified number of days (such as 90 days), or eliminating altogether, coverage for payroll expense of employees other than executives, department managers, employees under contract, and other "important" employees.