Actuarial Valuation

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  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 FAQS
  1. How are contingent liabilities reflected on a balance sheet

    Contingent liabilities need to pass two thresholds before they can be reported in the financial statements. First, it must ... Read Full Answer >>
  2. What's the difference between the coverage ratio and the levered free cash flow to ...

    Coverage ratios focus on a company’s ability to manage its debt, while the levered free cash flow to enterprise value ratio ... Read Full Answer >>
  3. How do businesses determine if an asset may be impaired?

    In the United States, assets are considered impaired when net carrying value (book value) exceeds expected future cash flows. ... Read Full Answer >>
  4. What is the difference between a simple random sample and a stratified random sample?

    Simple random samples and stratified random samples differ in how the sample is drawn from the overall population of data. ... Read Full Answer >>
  5. What are the advantages and disadvantages of using systematic sampling?

    As a statistical sampling method, systematic sampling is simpler and more straightforward than random sampling. It can also ... Read Full Answer >>
  6. How can I set up an accrual accounting system for a small business?

    First, determine whether accrual accounting makes the most sense practically and financially. If the small business is also ... Read Full Answer >>
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. Economics

    Explaining the EBITDA Margin

    EBITDA margin can provide an investor with a cleaner view of a company's core profitability.
  8. Economics

    The U.S. Economy May Be Stronger Than You Think

    While the economic performance in the U.S. broadly disappointed in the first quarter, temporary factors presented one-off events that depressed output.
  9. Fundamental Analysis

    What is Quantitative Analysis?

    Quantitative analysis refers to the use of mathematical computations to analyze markets and investments.
  10. Economics

    Explaining Residual Value

    Residual value is a measurement of how much a fixed asset is worth at the end of its lease, or at the end of its useful life.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center