Glossary

Similar to an insurance policy limit, the penal sum represents the maximum amount a surety company will pay under a bond.

A pension is an arrangement in which employees are provided with an income during retirement, usually in the form of monthly payments once they are no longer working.

The Pension Benefit Guaranty Corporation (PBGC) is an independent agency of the federal government that was established in 1974 as part of the Employee Retirement Income Security Act (ERISA).

The Pension Protection Act of 2006 is a federal law affecting major aspects of the Pension Benefit Guaranty Corporation (PBGC) and defined contribution (i.e., 401(k)) plans.

A per-loss deductible specifies the amount of first-dollar loss paid by the insured for each loss.

Percentage participation refers to a provision in a health insurance contract stipulating that the insurer and insured will share covered losses in agreed proportions.

A perfect hedge is an investment vehicle designed to mitigate the financial risk inherent in a portfolio of investments and/or in the normal course of business.

A performance bond guarantees that the contractor will perform the work in accordance with the construction contract and related documents, thus protecting the owner from financial loss up to the bond limit (called the penal sum) in the event the contractor fails to fulfill its contractual obligations.

A performance ratio is a test of an insurer's or reinsurer's financial strength—for example, Standard & Poor's solvency ratios, which track net premium to adjusted shareholder funds, and liquidity ratio, which looks at technical reserves to liquid assets.

A peril is a cause of loss—for example, fire, windstorm, collision.