Lewis & Ellis Inc.

What to know about actuarial valuations

Actuarial Profession
by Josh Hammerquist
Business people at a desk calculating risk
Business people at a desk calculating risk

An actuarial valuation report is an important method for those wanting to minimize risk. For the insurance industry, risk management is a huge component of staying successful in the competitive marketplace. Let's learn more about the advantages of a reliable actuarial valuation in creating plans for the future.

What is an actuarial valuation?

At its core, an actuarial valuation report is a method of forecasting what impact a decision will have, especially when it comes to estimating the cost of a specific risk. For example, an actuarial valuation will use statistical evaluation to determine the future expense of an insurance claim or a retirement system. The same can be done for things like the financial expense of pensions and employee benefits. The right valuation is valuable because it can help the business owner quantify the financial risk associated with a choice or event.

Actuarial valuations in 2023

Working with professionals to receive an actuarial valuation is not a new strategy, but the technology and data maximization are different than they used to be. With more information, customer behavior and data available, the more reliable actuarial valuations can be. Actuaries are the ideal partners for insurance companies because risk is such an important factor in the business.

The goal of an actuarial valuation is to be as precise and accurate as possible. When an actuary uses its strategic and data-focused approach to risk management, the complexities can be simplified for the company, whether they are interested in insurance projections or employee benefits.

Using the latest technology and the best professionals in the industry is vital to making the right decisions when a poor mistake could be extremely costly to the business. Commissioning actuarial valuations can help ensure that the choices that leadership makes align closely with their goals and that the right assumptions are made. A valuation could happen anywhere from three to five years from the last valuation date to stay current. An interim actuarial report can help the business respond in time during a fiscal year.

Actuarial valuation vs. financial modeling

If you have heard the terms actuarial valuation and financial modeling floating around, you may have been wondering what the difference is. The truth is that they are closely related, but they can't be used interchangeably. For those in the industry, it's important and valuable to understand the differences between an actuarial valuation and financial modeling. While both actuarial valuations and financial modeling are similar in that they are used to guess the future outcomes of decisions and funding, they are not the same.

Financial modeling

Financial modeling is different from an actuarial valuation because it is used to guess the future performance of physical assets. This could be anything from stocks and bonds or even real estate. Financial modeling is often used to boost decision-making confidence through analysis to ensure the right funding is in place to deal with the potential aftermath. This is a valuable prediction method for many businesses because it can forecast things like revenue, expenses, and cash flow.

Actuarial valuation

An actuarial valuation is much more focused on the outcome of an event by using actuarial science and statistics. Because of this, it is a valuable part of risk management and making the right assumptions. Instead of taking a look at the impact of the assets, the valuation will evaluate the financial cost of a specific risk. The danger could be a certain event, a set of events, or a decision.

As you can see, while there are many similarities between actuarial valuations and financial modeling, they have different uses.

Risk management

For insurance companies, risk assessment and management are two of the most vital components of remaining competitive. This kind of management can take form through assessing the actuarial value of policy and underwriting as well as reacting to external risk.

Businesses in the insurance marketplace can fail if the risk is miscalculated, which is why it's so important to have the right management process in place. Part of this strategy is actuarial valuations, which insurance companies use to forecast the outcomes of future events on the company. 

At Lewis & Ellis, our experts have the experience necessary to create an actuarial report that is not only reliable but timely. Here are some examples of actuarial valuation support services that we offer:

  • Actuarial valuation programs for the determination of company reserve liability.
  • Actuarial reserve factors can be used by the company's current administrative and reserve programs.
  • Actuarial Opinion Statements as required under Appointed Actuary regulations, including all Assets Adequacy requirements.

Take a look at our website to look into other financial and actuarial analysis services that are available at Lewis & Ellis.

Actuarial valuations can help manage risk because the insurance company can take a look at the forecasted outcome of an event or decision.

The value of external support

Because risk management and actuarial valuations are so important for insurance companies, it's valuable to have reliable external support. While some companies have some actuarial data to pull from, actuaries usually have access to big databases that can help create a more trustworthy projection. The more information that is available to use, the better the valuation will be. That is why most insurance companies work with actuaries to help them paint a reliable picture of what the future could look like.

Actuarial services and a valuation are a form of external support that calculates insurance risks. While working with Lewis & Ellis, businesses receive a valuation through innovative computing technology. In addition, we work to provide cost-effective solutions to difficult problems.

Ready to learn more about what an annual valuation and actuarial valuation could bring your company? Reach out to Lewis & Ellis today.



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