An actuarial valuation is one of the many types of valuation used by the valuer. Other types of valuation are real estate property valuation, online business valuation, and trademark or intellectual property valuation. The actuarial valuation calculates the fair value of an individual’s pension fund’s assets versus liabilities. This actuarial valuation of pension assets and liability is done using specific metrics.
Some of them are demographic and economic assumptions, investments for the model to find the pension plan of the funded status. The assumptions used are based on experienced judgment and a critical mixture of statistical studies. Occasionally, there are deviations from forecasts as these assumptions are always derived from unusual short-term conditions, long-term data, and trends that are not anticipated.
Many variables go into an actuarial valuation model. The actuary on the asset side must assume the growth rate investment for both the bond and stock portfolio, known as the level 1 and level 2 type assets. The actuary must also consider other assets, called the illiquid level 3 type. Also, the actuary must assume the employer’s contribution rates. The payment liabilities calculation is more complex and a bit misleading.
Actuarial valuations have many uses. It is used for assessing the funded status of a specified and detailed benefit pension fund. Actuarial values are based on assumptions, and statistical inference put into a model.
The models of actuarial depend on long-term projections. These long-term projections are inflation, interest rates, and demographic changes. There are many benefits of actuarial valuation, such as being a tool that sponsors use to make decisions. It can also be used to find the value of a specific period’s liabilities and assets.