Best estimate in life insurance

Abstract

The term ‘best estimate’ has become increasingly important in actuarial practice. Specifications regarding the content and requirements for deriving a best estimate can be found in particular in the areas of Solvency II, IFRS and Market Consistent Embedded Value (MCEV), where a ‘best estimate’ of various variables – e.g. provisions, guarantees and options, future profit participation – is explicitly required. 

Against this background, it makes sense to formulate general criteria for defining ‘best estimate’ and to develop specific mathematical methods and procedures for producing a ‘best estimate’ of values.

This document primarily focuses on gross values (i.e. before passive reinsurance) of liabilities and cash flow figures. It does not deal with determining a best estimate of capital investments. Nor does it address specific aspects of internal corporate management issues, such as pricing.

This overview is intended only as a preliminary guide and does not replace consideration of the provisions of the technical principle.