Actuarial Assumption
 |
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. |
 |
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. |
Related Definitions
Articles Of Interest
-
The Investing Risk Of Underfunded Pension Plans
Determine the risk to a company's EPS and financial condition resulting from an underfunded pension plan. -
Demographic Trends And The Implications For Investment
See how people's movements, ages, deaths and buying patterns affect portfolios worldwide. -
How To Evaluate Pension Risk By Analyzing Annual Costs
Learn how to assess whether a company's pension plan is posing more risks than what the footnotes indicate. -
The Demise Of The Defined-Benefit Plan
Experts are making bleak predictions for your post-work years. Be prepared and plan for your future. -
Personal Pensions: Repackaging The Annuity
Discover an investment that can provide a stable income once you've left the work force. -
An Overview Of The Pension Benefit Guaranty Corporation (PBGC)
Find out how this "retirement lifeguard" can save drowning plans, and why it's unlikely to be a long-term solution to the pension problem. -
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. -
Regression Basics For Business Analysis
This tool is easy to use and can provide valuable information on financial analysis and forecasting. Find out how. -
Get An Academic Finance Career
Working nine months a year and earning a six-digit salary might seem like the high life, but these jobs are not easy to come by. -
Breaking Down The Geometric Mean
Understanding portfolio performance, whether for a self-managed, discretionary portfolio or a non-discretionary portfolio, is vital to determining whether the portfolio strategy is working or ...
Free Annual Reports