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The minimum municipal obligation is based on the latest actuarial valuation report prepared under the requirements of Chapter 2 of the act (53 P. S. § § 895.201—895.208). When an actuarial valuation report has been prepared but not transmitted to the municipality, the municipality may utilize data extracted from that actuarial valuation report.
The Commissioner's Reserve Valuation Method was itself established by the Standard Valuation Law (SVL), which was created by the NAIC and adopted by the several states shortly after World War II. The first mortality table prescribed by the SVL was the 1941 CSO (Commissioner's Standard Ordinary) table, [ 3 ] at a maximum interest rate of 3½%.
Actuarial science became a formal mathematical discipline in the late 17th century with the increased demand for long-term insurance coverage such as burial, life insurance, and annuities. These long term coverages required that money be set aside to pay future benefits, such as annuity and death benefits many years into the future.
Valuation is the calculation of economic value or worth. Valuation of an annuity is calculated as the actuarial present value of the annuity, which is dependent on the probability of the annuitant living to each future payment period, as well as the interest rate and timing of future payments.
In the insurance context an actuarial reserve is the present value of the future cash flows of an insurance policy and the total liability of the insurer is the sum of the actuarial reserves for every individual policy. Regulated insurers are required to keep offsetting assets to pay off this future liability.
The key with a net premium valuation is that the premiums being valued are theoretical measures - they make no reference to the actual premiums being charged by the insurer. This technique is a well-established actuarial valuation method, that became popular because of its simplicity, consistency, and ease of calculation.
These risks can affect both sides of the balance sheet and require asset management, liability management, and valuation skills. [2] Actuaries provide assessments of financial security systems, with a focus on their complexity, their mathematics, and their mechanisms. [3] The name of the corresponding academic discipline is actuarial science.
Valuation is a subjective exercise, and in fact, the process of valuation itself can also affect the value of the asset in question. Valuations may be needed for various reasons such as investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, taxable events to determine the proper tax liability.