What is Actuarial Science?

·        As, per Wikipedia - Actuarial science is the discipline that applies mathematical and statistical methods to assess risk in insurance, finance and other industries and professions. Actuaries are professionals trained in this discipline. In many countries, actuaries must demonstrate their competence by passing a series of rigorous professional examinations.

Actuarial science includes a number of interrelated subjects, including mathematics, probability theory, statistics, and finance, economics, and computer science. Historically, actuarial science used deterministic models in the construction of tables and premiums. The science has gone through revolutionary changes since the 1980s due to the proliferation of high speed computers and the union of stochastic actuarial models with modern financial theory.

·        What is an Actuarial Valuation?

As, per Investopedia - Actuarial valuation is a type of appraisal of a pension fund's assets versus liabilities, using investment, economic and demographic assumptions for the model to determine the funded status of a pension plan. The assumptions are 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 deviations from forecasts.

What is the purpose of Actuarial Valuation?

To basically calculate the 'present value' of payments that would be made to employees in future as part of an employee benefit plan.

Actuaries start by making assumptions about future salary increment rates, attrition and mortality rates.

   

How is the calculation done?

To calculate the amount a company must pay periodically to cover its pension expenses. The two main methods used are the cost approach and the benefit approach. The amount of funding that will be needed to meet those future benefits is then determined.

The Actuarial valuation model –

A typical model for actuarial valuations comprises of a multitude of variables. With regards to assets, factors like employer contribution rates, investment maturity rates for Level 1 & 2 type assets like stocks and bonds and non-liquid Level 3 type assets form the crux.

The computation of payment liabilities is anything but simple and straightforward. Here, assumptions based on employee contribution rates, discount rates, salary growth rates, mortality rates, inflation rates, services retirement ages for both the able-bodied and disabled, interest rates on member accounts and many more are considered in the actuarial valuations calculation.

Presuming that every long-term assumption is logical and equitable, a practical estimation of the funding or funded ratio can be obtained. The funding ratio measures the level of equality between assets and liabilities. A funding ratio with a value over 1 or 100% indicates a scenario where the pension assets are suitable and adequate to indemnify the liabilities.

It is also very important to study the basic background or do a basic overall check with the actuarial company you wish to deal with as it will be term plan and you will also be sharing some of the important credentials or documents with the company.

The actuarial companies in Pune provide segment wise systematic solutions such as- risk-management, actuarial services, statistical, etc. There are many companies providing similar solutions both in India and overseas it is important or a big decision to select the ones as per your work requirements or the one suiting your work assignment at a requested price or an affordable one.