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📐 '''Valuation method''' refers to the specific analytical technique or framework applied to determine the financial worth of an insurance-related asset, liability, or enterprise. In an industry built on promises to pay future [[Definition:Insurance claim | claims]], the choice of valuation method directly shapes how [[Definition:Reserve | reserves]] are established, how [[Definition:Premium | premiums]] are set, and how [[Definition:Insurance carrier | carriers]] report their financial health to [[Definition:Insurance regulator | regulators]], investors, and [[Definition:Rating agency | rating agencies]].

🔄 Several distinct valuation methods coexist within insurance, each suited to different purposes. The [[Definition:Replacement cost | replacement cost]] method and [[Definition:Actual cash value (ACV) | actual cash value]] method govern how [[Definition:Insured property | insured property]] is appraised during [[Definition:Claims settlement | claims settlement]]. For [[Definition:Loss reserve | loss reserving]], actuaries choose among techniques such as the [[Definition:Chain-ladder method | chain-ladder method]], [[Definition:Bornhuetter-Ferguson method | Bornhuetter-Ferguson method]], and [[Definition:Expected loss ratio method | expected loss ratio method]], each weighting historical data and expert judgment differently. At the corporate level, [[Definition:Discounted cash flow (DCF) | discounted cash flow]], [[Definition:Embedded value | embedded value]], and [[Definition:Market-comparable | market-comparable]] approaches are deployed to value [[Definition:Insurance company | insurance companies]] during [[Definition:Merger and acquisition (M&A) | M&A]] transactions, [[Definition:Initial public offering (IPO) | IPOs]], or [[Definition:Capital raising | capital raises]]. The adoption of [[Definition:IFRS 17 | IFRS 17]] has introduced new requirements around the [[Definition:Building block approach | building block approach]] and the [[Definition:Variable fee approach | variable fee approach]], standardizing how insurers measure contract-level liabilities globally.

💡 Selecting an appropriate valuation method is not a neutral, purely technical exercise — it carries real economic consequences. A method that smooths volatility may reassure stakeholders in the short term but obscure emerging loss trends. One that responds rapidly to new data may create apparent instability in earnings even when the underlying business is sound. [[Definition:Insurance regulator | Regulators]] often prescribe or restrict which methods are acceptable for [[Definition:Statutory accounting | statutory reporting]], while [[Definition:Generally accepted accounting principles (GAAP) | GAAP]] and [[Definition:International Financial Reporting Standards (IFRS) | IFRS]] standards govern external financial statements. Understanding the assumptions, strengths, and blind spots of each valuation method is essential for [[Definition:Underwriter | underwriters]], [[Definition:Actuary | actuaries]], and executives who must defend their numbers to boards, regulators, and the market.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Chain-ladder method]]
* [[Definition:Bornhuetter-Ferguson method]]
* [[Definition:Embedded value]]
* [[Definition:Discounted cash flow (DCF)]]
* [[Definition:IFRS 17]]
* [[Definition:Loss reserve]]
{{Div col end}}

Definition:Valuation method - Revision history

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