What is meant by 'actuarial present value' in insurance?

'Actuarial present value' refers specifically to the present value of future cash flows associated with a policy, which includes expected benefits, premiums, and other relevant factors. This concept is crucial in insurance as it helps actuaries assess the financial viability and pricing of insurance products.

To compute the actuarial present value, future cash flows are estimated and then discounted back to their present value using a specific interest rate. This allows insurers to determine how much future payment obligations are worth in today's terms, effectively assessing the risk and expected profits associated with insurance policies.

In the context of insurance, understanding this value helps in pricing policies appropriately, setting reserves, and ensuring that the company can meet its future obligations to policyholders.