Actuarial Risk Law and Legal Definition

Actuarial risk refers to the danger that the computations used by the actuaries to generate insurance probability estimates are based on inaccurate assumptions. This is also known as insurance risk. These probability estimates are used to price insurance policies that allow the insurer to make expected payouts while continuing regular business operations. In the worst case scenario, an actuary may underestimate the frequency of an event. If the underlying assumptions are wrong, the unaccounted events will cause an increase in the frequency of payouts which may cause the insurer to face serious financial consequences.