Combined ratio less the net investment income ratio (net investment income to net premiums earned). The operating ratio measures a company’s overall operational profitability from underwriting and investment activities. This ratio doesn’t reflect other operating income/expenses, capital gains or income taxes. An operating ratio of more than 100 indicates a company is unable to generate profits from its underwriting and investment activities.
Insurance Encyclopedia
Operation expenses
Operating expenses are incurred to run the business and include employment expenses, legal & professional fees, system & communication costs, depreciation & amortisation and interest & finance costs.
Operational risk/operational risk insurance
The risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events’ (Basel Committee on Banking Supervision 2001). The definition includes the legal risk but excludes strategic and reputational risk. It encompasses: ‘people’ risks (ineffective management); internal and external fraud; failure to comply with laws and regulations; damage to physical assets; business disruption through IT failure; transaction processing failures; and outsourcing weaknesses. The move towards operational risk management is FSAdriven. Firms will have to comply with the policy on systems and control from 2004. Financial businesses are able to insure against the risk by purchasing a ‘basket’ insurance, with fewer exclusions, over and above the more traditional insurances. The basket includes cover under: professional indemnity; directors’ and officers’ liability; broad form me and computer crime; unauthorised trading; employment practices liability; pension trust liability; organisational liability; broad form external fraud.
Operations
The activities of the insured and his employees in the conduct of a business.
Operative clause
defines the class and nature of business covered by a specific reinsurance treaty.
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The clause in an Insurance Policy that sets out the circumstances in which the Insurers are prepared to make claim payments.
Operative clause/insuring clause
clause Policy clause that (subject to conditions) sets out the insurer’s responsibilities in terms of losses or events in respect of which he will have to provide an indemnity or payout under a benefit policy.
Opportunity Cost
The cost of an action in terms of the alternatives foregone in carrying out that action.
Opra (Occupational Pensions Regulatory Authority)
Opra supervises a range of legal requirements affecting occupational pensions including stakeholder pensions. It also supervises employers who make employer or employee payments into personal pensions. Opra can take action where carelessness or negligence could put a scheme at risk. It collects the levy that funds Opra, OPAS, and the Pensions Ombudsman while also running the Pensions Registry. The sale and marketing of personal pensions and stakeholder pensions is supervised by the FSA. In 2005 Opra will be replaced by the Pensions Regulator. See PENSION PROTECTION FUND.
Option
Derivative financial instrument under which the payment of a sum of money gives a right, not an obligation, to buy or sell something at an agreed price on or before a specified date.
Option (Life Insurance)
The ways in which a policyholder can choose to receive dividends, death benefits, or nonforfeiture values.