Actuarial Valuation


DEFINITION of 'Actuarial Valuation'

An actuarial valuation is a type of appraisal which requires making economic and demographic assumptions in order to estimate future liabilities. The assumptions are typically based on a mix of statistical studies and experienced judgment. Since assumptions are often derived from long-term data, unusual short-term conditions or unanticipated trends can occasionally cause problems.

BREAKING DOWN 'Actuarial Valuation'

A common example where an actuarial valuation is in the valuation of a pension fund. It is usually easy to value a pension fund's assets because they primarily hold liquid securities such as stocks and bonds. However, it can be very difficult to value the liabilities of a pension fund. First, assumptions must be made to determine the total value of pension payouts that must be made in the future. Second, assumptions must also be made as to the expected growth of the fund's assets which will allow it to meet those obligations. If either set of assumptions proves to be significantly off, then there might be too little (or too much) funds in the future to pay pension benefits.

  1. National Association Of Certified ...

    A group of business professionals that provide valuation and ...
  2. Actuarial Assumption

    An actuarial assumption is an estimate of an uncertain variable ...
  3. Actuarial Science

    A discipline that assesses financial risks in the insurance and ...
  4. Actuarial Consultant

    A professional who advises clients on which methods, processes, ...
  5. Pension Benefit Guaranty Corporation ...

    A non-profit corporation that functions under the jurisdiction ...
  6. Actuary

    A professional statistician working for an insurance company. ...
Related Articles
  1. Retirement

    Is Your Defined-Benefit Pension Plan Safe?

    Your plan may not last in a rocky market. Find out whether your savings will be affected.
  2. Retirement

    The Investing Risk Of Underfunded Pension Plans

    Determine the risk to a company's EPS and financial condition resulting from an underfunded pension plan.
  3. Retirement

    The Defined-Benefit Plan's Many Problems

    The shift in retirement plan schemes - from defined benefit plans to defined contribution plans - raises some important issues.
  4. Fundamental Analysis

    Spotting Creative Accounting On The Balance Sheet

    Companies have ways of manipulating their balance sheets that investors should be aware of.
  5. Budgeting

    The Demise Of The Defined-Benefit Plan

    Experts are making bleak predictions for your post-work years. Be prepared and plan for your future.
  6. Investing

    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.
  7. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  8. Investing

    What a Family Tradition Taught Me About Investing

    We share some lessons from friends and family on saving money and planning for retirement.
  9. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  10. Stock Analysis

    The Biggest Risks of Investing in Pfizer Stock

    Learn the biggest potential risks that may affect the price of Pfizer's stock, complete with a fundamental analysis and review of other external factors.
  1. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  2. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  3. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  4. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>
  5. How can working capital affect a company's finances?

    Working capital, or total current assets minus total current liabilities, can affect a company's longer-term investment effectiveness ... Read Full Answer >>
  6. What can working capital be used for?

    Working capital is used to cover all of a company's short-term expenses, including inventory, payments on short-term debt ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center