Valuation of Insurance Contracts

Valuation of insurance contracts involves estimating the current value of future payments the insurer expects to make, discounted to today’s dollars. It accounts for factors like expected claims, premiums, investment income, and uncertainties. Essentially, it helps determine how much an insurance policy is worth or should be priced, ensuring the insurer can cover future liabilities while remaining financially sound. This process combines financial models and assumptions about future events, risks, and market conditions to accurately reflect the contract’s value at present.