What is Actuarial Rate
Actuarial rate is an estimation of the predictable value of future losses.
Mostly, historical data is used to forecast experienced future loss by a business & the risk factor involved.
Determining accurate actuarial rates by an actuary leads towards better protection of Insurance companies from possible risk aftereffects that might become serious in certain situations, with unbearable losses that might result in insolvency.
Generally, a “rate review” is based on determining the actuarial rates first & then checking whether any adjustment is required. A predictable loss experience gives an opportunity for the insurance companies to smartly calculate the amount of minimum premium required to overcome expected losses before any contingency happens.
Making correct, error-free assumptions about actuarial interest rate plays an important role particularly while designing pension plans for better defining suitable investment strategies to go for & right asset mix.
Although, the actuarial rate has no as such financial meaning or investment implication for the wide spread investment community & enjoys no appreciation . The rate s’ value is limited only up to its feature of being a comparatively limited decision-making variable to be used in defining the funding plan for a company.