Markets are dynamic and suffer gains and losses continuously. In the competitive market, an organization has to be careful with what steps it takes so that they changes in the market result in minimized loss and maximized profit. You literally need to look into future to prevent hefty losses that can result from the highs and lows in the market.
This is not an easy task and one may have to look for individuals that specialize at predicting the future market scenario by analyzing the one of today. Actuaries are such people, and every organization must associate with them.
Read on to figure out what an actuary is and why do we need them.
• What are actuaries?
Actuaries, also known as financial architects and social mathematicians; work to figure out the cost of future market risks. They are able to do so with the help of their unique combination of analytical and business skills that helps them to solve a variety of social and financial problems. Consulting an actuary helps you make sense of your financial future because they apply mathematical models to problems of insurance and finance.
Need for individuals practicing actuary:
1. They predict the future losses a scenario can make. For instance, a hurricane hits your city and you need actuaries to develop insurances and policies to compensate such losses in the future.
2. You need a balance between accumulating capital and building provisions to pay off the expected benefit payments accruing to employees in their productive lifetime. Actuaries give you that financial edge that lets you get and retain the best talent.
3. They help you evaluate employee benefits and retirement plans,
4. Develop funding and investment strategies, and,
5. Design employee benefit schemes.
Actuaries valuate your employee policies and company expectations to yield the best results.
• What are actuarial gains or losses?
Actuarial valuations will lead you to a couple questions: what is actuarial gain/loss? What are factors influencing it?
Actuarial gain or loss is the increase or decrease to a company’s estimate of the present value of obligation because of either change in assumption or experience adjustment/variance.
1. What does change in assumptions cause?
Actuarial variations are based on various categories:
This is not an easy task and one may have to look for individuals that specialize at predicting the future market scenario by analyzing the one of today. Actuaries are such people, and every organization must associate with them.
Read on to figure out what an actuary is and why do we need them.
• What are actuaries?
Actuaries, also known as financial architects and social mathematicians; work to figure out the cost of future market risks. They are able to do so with the help of their unique combination of analytical and business skills that helps them to solve a variety of social and financial problems. Consulting an actuary helps you make sense of your financial future because they apply mathematical models to problems of insurance and finance.
Need for individuals practicing actuary:
1. They predict the future losses a scenario can make. For instance, a hurricane hits your city and you need actuaries to develop insurances and policies to compensate such losses in the future.
2. You need a balance between accumulating capital and building provisions to pay off the expected benefit payments accruing to employees in their productive lifetime. Actuaries give you that financial edge that lets you get and retain the best talent.
3. They help you evaluate employee benefits and retirement plans,
4. Develop funding and investment strategies, and,
5. Design employee benefit schemes.
Actuaries valuate your employee policies and company expectations to yield the best results.
• What are actuarial gains or losses?
Actuarial valuations will lead you to a couple questions: what is actuarial gain/loss? What are factors influencing it?
Actuarial gain or loss is the increase or decrease to a company’s estimate of the present value of obligation because of either change in assumption or experience adjustment/variance.
1. What does change in assumptions cause?
Actuarial variations are based on various categories:
- Financial assumptions: Including discount rate and salary growth rate. This depends on the present economic scenario as well as the plans of the organization for the future.
- Demographic assumptions: Includes attrition rate and mortality rate. Usually depends upon organization’s HR policy, past experiences and expectations from the future.
The changes in assumptions cause a change in actuarial prediction, which might be a gain or loss (depending upon the change).
2. How does experience adjustments/variance affect the actuarial variations?
In this case, the actual and the assumed scenarios are compared.
For instance, if the assumed salary escalation was 8% but the actual was 12% this would’ve been an actuarial loss and vice versa.
Since an organization functions on the actuarial assumptions, our goal is to minimize the actuarial losses. But how is this done?
Except discount rates, all other factors are determined by management, in consultation and concurrence with actuaries and auditors respectively. Hence, one needs consulting actuaries or associate with practicing actuaries to strengthen the process of consultation and concurrence.
Consulting actuaries can help you tackle future market difficulties with greater ease. Most organizations hire actuaries from other companies and some practicing actuaries can be hired as employees to work for your organization specifically.
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