DEFINITION of 'Actuarial Assumption'

An actuarial assumption is an estimate of an uncertain variable input into a financial model, normally for the purposes of calculating premiums or benefits. For example, a common actuarial assumption relates to predicting a person's lifespan, given their age, gender, health conditions and other factors. Actuaries use large tables of statistical data which correlate the uncertain variable to a variety of key predictive variables. Given the values for the predictive variables a sound actuarial assumption can be made for the uncertain variable.

BREAKING DOWN 'Actuarial Assumption'

Actuarial assumptions are important because they allow for the equitable transfer of risk in many situations. For instance, when underwriting life insurance policies, it is important to understand the probability that the insured might pass away during the policy period. Given an accurate actuarial assumption for this probability, it is easy to calculate a fair premium for such a policy. Without the ability to accurately figure these probabilities, very few people would be willing to provide insurance. If they were, it would have to be more expensive to allow room for unexpected losses.

RELATED TERMS
  1. Actuary

    A professional dealing with the assessment and management of ...
  2. Actuarial Age

    An individual's life expectancy based on calculations and statistical ...
  3. Actuarial Service

    Method by which corporations determine, assess and plan for the ...
  4. Actuarial Equivalent

    Actuarial equivalent is generally used for applying some measurement ...
  5. Canadian Institute Of Actuaries ...

    The Canadian Institute of Actuaries, or CIA, is an organization ...
  6. Government Actuary

    An employee of the U.K. government who works for the Government's ...
Related Articles
  1. Personal Finance

    Insure Your Future with a Career as an Actuary

    If you've got excellent math skills, they can add up to a lucrative career as an actuary.
  2. Personal Finance

    The Top 5 Skills Every Actuary Needs

    The actuary profession is growing fast. Here's a look at the majors and top skills one needs to become a successful actuary.
  3. Financial Advisor

    Career Advice: Financial Analyst Vs. Actuary

    Read an in-depth comparison between financial analysts and actuaries, what it's like to work as each and how to determine which is best for you.
  4. Personal Finance

    Career Advice: Accounting Vs. Actuary

    Read about what life is like as an actuary or as an accountant, how the two careers are different and how to decide which is best for you.
  5. Investing

    What's a Sensitivity Analysis?

    Sensitivity analysis is used in financial modeling to determine how one variable (the target variable) may be affected by changes in another variable (the input variable).
  6. Personal Finance

    Top Paying Math-Related Careers

    These jobs require specialized math skills that intimidate most laymen. But, for those with the wit and work ethic to attain this knowledge, there are many high-paying employment options.
  7. Insurance

    What is Adverse Selection in the Insurance Industry?

    Adverse selection impacts the markets for health insurance and automobile insurance, but interfering with actuarial work has consequences.
  8. Insights

    Understanding Regression

    Regression is a statistical analysis that attempts to predict the effect of one or more variables on another variable.
  9. Financial Advisor

    How Long Will You Live? This Tool Will Tell You

    Longevity-calculating tools help advisors guide clients through their financial livelihood during their retirement years. Here's a look at some of them.
  10. Retirement

    The 3 Best Retirement Calculators For 2016

    Find out the top three online retirement calculators to use in 2016 for determining how much you need to save to provide for sustainable income.
RELATED FAQS
  1. What's the average salary of an actuary?

    Get insight into the intriguing career of risk analysis and forecasting. How much do actuaries make, and how is this field ... Read Answer >>
  2. How is my insurance premium calculated?

    An insurance premium is the money charged by insurance companies for coverage. Insurance premiums for services differ from ... Read Answer >>
  3. What variables are most important when making a prediction through sensitivity analysis?

    Explore sensitivity analysis and how this method considers different variables to determine a course of action based on statistical ... Read Answer >>
  4. What are the main factors that impact share prices in the insurance sector?

    Learn about some of the main factors that impact share prices in the insurance sector. Insurance companies make money by ... Read Answer >>
  5. What caused the European / Eurozone debt crisis?

    Understand how insurance companies price insurance premiums, and learn the importance of data and statistics in the insurance ... Read Answer >>
Hot Definitions
  1. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  2. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  3. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  4. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  5. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  6. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
Trading Center