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Terms R-Z
REINSURANCE A form of insurance that insurance companies buy for their own protection.
RETROCESSION AGREEMENT Contract to acquire third-party insurance protection for reinsurance policies written. Retrocession is a risk mitigation technique.
RETURN ON AVERAGE SHAREOWNERS’ EQUITY Earnings before accounting changes divided by average total equity (on an annual basis, calculated using a five-point average).
RETURN ON AVERAGE TOTAL CAPITAL INVESTED EXCLUDING EFFECT OF ACCOUNTING CHANGES For GE, earnings before accounting changes plus the sum of after-tax interest and other financial charges and minority interest, divided by the sum of total shareowners’ equity, borrowings, mandatorily redeemable preferred stock and minority interest (on an annual basis, calculated using a five-point average).
SECURITIZATION A process whereby loans or other receivables are packaged, underwritten and sold to investors. In a typical transaction, assets are sold to a special purpose entity (SPE), which purchases the assets with cash raised through issuance of beneficial interests (usually debt instruments) to third party investors. Whether or not credit risk associated with the securitized assets is retained by the seller depends on the structure of the securitization. See “Monetization” and “Variable Interest Entity.”
SEPARATE ACCOUNT Investments controlled by policyholders and associated with identical amounts reported as insurance liabilities.
TURNOVER Broadly based on the number of times that working capital is replaced during a year. Accounts receivable turnover is total sales divided by the five-point average balance of customer receivables from sales of goods and services (trade receivables). Inventory turnover is total sales divided by a five-point average balance of inventories. See “Working Capital.”
UNEARNED PREMIUMS Portion of the premium received, net of any amount ceded, that relates to future coverage periods.
UNPAID CLAIMS AND CLAIMS ADJUSTMENT EXPENSES Claims reserves for events that have occurred, including both reported and incurred-but-not-reported (IBNR) reserves, and the expenses of settling such claims.
VARIABLE INTEREST ENTITY Entity defined by Financial Accounting Standards Board Interpretation No. 46 (as amended), and that must be consolidated by its primary beneficiary. A variable interest entity has one or both of the following characteristics: (1) its equity at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, or (2) as a group, the equity investors lack one or more of the following characteristics: (a) direct/indirect ability to make decisions, (b) obligation to absorb expected losses, or (c) right to receive expected residual returns.
WORKING CAPITAL Sum of receivables from the sales of goods and services, plus inventories, less trade accounts payables and progress collections.
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