Actuarial Glossary :: "The Mother of All Actuarial Glossaries"

V

Valuation Premium (F)

In the context of a valuation of the liabilities of a life insurance company, the valuation premium is the future premium that is valued. Either the office premium for a gross premium valuation or the net premium on the valuation basis for a net premium valuation.

 

Valuation Rate of Interest (H)

The expected rate of return on new money invested in the future, and the rate at which future liabilities and assets are discounted back to the valuation date.

 

Valuation Strain (F)

The situation where:

 

• the previous reserve
• plus interest
• plus premiums
• minus benefit payments
• minus expenses

is insufficient to meet the reserve needed now.

 

Valuation (A/D)

A calculation of the total assets and liabilities of an insurer or pension scheme.

 

Valuation (F)

This is the process by which a life insurance company will place a value on its assets or its liabilities. The valuation process often compares assets and liabilities.

The "liabilities" part of the process of valuation can be performed in three ways:

 

1. cashflow gross premium: by calculating an amount now such that any future office net negative cashflows will be eliminated
2. formula gross premium: by assessing the value of what you need to pay out in benefits and expenses less the value of future office premiums. There are other elements to the calculation, but benefits, expenses and premiums are enough for the moment.
3. formula net premium: by assessing the value of what you need to pay out in benefits less the value of future net premiums.

The "assets" part of the process of valuation can be performed in three ways:

 

1. market value: often used
2. asset proceeds: cashflow model, a discounted value of assets, either summarised or with the individual asset proceeds investigated explicitly
3. book value: (rarely much practical use)

 

Valuation (G)

The process of establishing the necessary amount of reserves (ie valuing the liabilities) and/or valuing the assets.

 

Variable Annuity (N)

An annuity contract in which the amount of each periodic income payment fluctuates. The fluctuations may be related to security market values, a cost of living index, or some other variable factor.

 

Variance (A/D)

The second central moment of a statistical distribution or a set of observations. The variance quantifies the amount of spread in the values.

 

Vested Benefits (H)

 

• For active members, benefits to which they would be unconditionally entitled on leaving service.
• For pensioners, the full amount of the pension currently in payment.
• For deferred pensioners, the amount payable from normal pension age (their preserved benefits).

Vested benefits should include any guaranteed increases. They should also include contingent pensions, eg for a spouse or dependent children.

 

Vesting (A)

A benefit vests when entitlement to the benefit becomes legally enforceable or is guaranteed.

 

Volatility (E)

The sensitivity of the market price of an investment. A highly volatile investment is one which has a very unstable price. For fixed interest bonds, volatility is specifically defined as the rate of change in price of the bond for a change in the gross redemption yield.