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. Actuary

    A professional statistician working for an insurance company. ...
  6. Pension Benefit Guaranty Corporation ...

    A non-profit corporation that functions under the jurisdiction ...
Related Articles
  1. Is Your Defined-Benefit Pension Plan ...
    Retirement

    Is Your Defined-Benefit Pension Plan ...

  2. The Investing Risk Of Underfunded Pension ...
    Retirement

    The Investing Risk Of Underfunded Pension ...

  3. The Defined-Benefit Plan's Many Problems
    Retirement

    The Defined-Benefit Plan's Many Problems

  4. Spotting Creative Accounting On The ...
    Fundamental Analysis

    Spotting Creative Accounting On The ...

comments powered by Disqus
Hot Definitions
  1. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  2. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  3. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  4. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  5. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  6. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
Trading Center