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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.
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Investopedia explains '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.
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Search results for 'Actuarial Assumption'
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http://www.investopedia.com/university/financialstatements/financialstatements9.asp
... You can see how interest cost depends on the discount rate assumption. ... Experience
loss is more commonly labeled actuarial loss/gain, and it too can be positive ...
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http://www.investopedia.com/articles/retirement/10/demise-defined-benefit-plan.asp
... If actuarial guidelines required the inclusion of potential future service, the
estimated ... 7. Retirement payout assumption, It is difficult to know what type of ...
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http://www.investopedia.com/university/retirementplans/qualifiedplan/qualifiedplan1.asp
... the assistance of an actuary as contributions are based on actuarial assumptions
and ... The assumption is that older employees have less time before they retire ...
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http://www.investopedia.com/articles/retirement/11/5-steps-to-retirement-plan.asp
... Such an assumption is often proved to be unrealistic, especially if the mortgage
has ... $50,000 per year on basic life expenses while alive; actuarial life tables ...
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