Actuarial assumptions

Learning objectives

• Distinguish demographic and financial assumptions and give examples of each.L1
• Assess whether the assumptions used in a case are mutually compatible.L2

Normative references

• IAS 19 §76Actuarial assumptions are an entity's best estimates of the variables that will determine the ultimate cost of providing benefits; they comprise demographic assumptions (mortality, rates of employee turnover, disability and early retirement, the proportion of members with dependants, the choice of payment options, claim rates under medical plans) and financial assumptions (discount rate, future benefit and salary levels, future medical costs, taxes payable by the plan).
• IAS 19 §77Actuarial assumptions are unbiased if they are neither imprudent nor excessively conservative; para. 75 requires unbiased and mutually compatible assumptions.
• IAS 19 §80Financial assumptions are based on market expectations, at the end of the reporting period, for the period over which the obligations are to be settled.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• The mortality of plan members is a financial actuarial assumption, just like the discount rate.L1
• Which assumptions are financial actuarial assumptions for the measurement of a defined benefit plan? More than one answer is possible.L2
• To measure the obligation of a defined benefit plan of Rigel SA, the actuary presents four approaches for setting the actuarial assumptions (case facts). Which one is consistent with IAS 19?L2