What does actuarial risk pertain to?

Actuarial risk pertains specifically to the variation between actuarial assumptions and actual outcomes. In actuarial science, professionals make predictions based on statistical methods and historical data regarding uncertain future events, primarily in the context of insurance and financial products. The assumptions may include mortality rates, morbidity rates, or investment returns, among others.

When those assumptions do not align with actual occurrences, this discrepancy creates actuarial risk. For instance, if an insurance company predicts that a certain number of policyholders will make claims based on their calculations but the actual number of claims is significantly higher or lower, this leads to financial consequences that reflect the variability of the assumptions used. This variation is crucial because it impacts pricing, reserve calculation, and overall financial stability of the organization, which is why it is the primary focus of actuarial risk.

In contrast, the other options relate to different financial concepts: one focuses on monetary losses generally, another addresses market-related risks, and the last pertains to the accuracy of financial projections over the short term. None of these options capture the essence of actuarial risk as precisely as the variation of actuarial assumptions from actual outcomes.