Perpetual Care Adequacy
Our Vision
HB Actuarial Services has the expertise you need to address all of your actuarial needs. We take the difficult actuarial tasks off your hands. We take the effort to understand your problem, determine how our expertise can help, and then implement the solution. We do not consider any assignment complete until you and all other interested parties understand the conclusions of our assignment. That’s why our company motto is “Complex Calculations Made Easy to Understand”.
What is a Perpetual Care Adequacy Study?
The most important business question you ask about your perpetual care fund is, “Do we have enough?” When you ask that question, you want to know more than most executives. You want to know if your cemetery has enough to take care of itself forever.
The best way to answer that question is to forecast perpetual care fund balances for many years in the future. A detailed perpetual care fund balance sheet forecast can tell you if you have enough, how likely you are to run out, and when (if ever) you are likely to run out of funds. A significant benefit of a very long-term perpetual care analysis is that you’ll know where you are heading now, so you can make some changes if you don’t like what you see 100 years down the road.
Over the past 10 years or so HB Actuarial Services Inc. has interacted with numerous cemetery managers and had the chance to learn of the plans and goals they have for their businesses. The vast majority of cemetery managers have the expectation that their perpetual care funds will cover their expenses for the foreseeable future (10+ years). Some wrongly believe that if expenses are covered for the foreseeable future, then their perpetual care funds are adequate.
The problem with this view is that solvency for the foreseeable future does not guarantee long-term (100+ years) solvency. In addition, the actions required now to guarantee long-term solvency are usually quite minor. However, if we ignore long-term solvency, the required future changes to a perpetual care fund will become increasingly painful. And, of course we’ve all seen what happens if the long-term solvency of a perpetual care fund goes unaddressed for too long. Eventually the cemetery either falls into disrepair or becomes a ward of state or local governments, a religious order or historic society. In any event, cemetery perpetual care becomes dependent on the financial means and goodwill of others, rather than from the contributions made by land owners and decedents in the cemetery.
Most perpetual care funds have never had an adequacy study performed before. This is primarily because the analytic tools and processes required for such a study did not exist until eight to 10 years ago. Even since that time, many managers have had a difficult time jumping through all of the hoops required to perform an initial analysis. Finding the appropriate expertise and devoting enough management time to this issue are among the top roadblocks to performing an initial study. Another roadblock is often reluctant staff or management who believe that an adequacy study is unnecessary – “We’ve gone this far without one, so we probably don’t need one.”
Hayden Burrus, Principal of HB Actuarial Services, is the most recognized expert in the field of perpetual care adequacy. He has navigated these hurdles before. An independent analysis from HB Actuarial Services will give management support that it is engaging in responsible long-term perpetual care management practices. For most cemeteries, the time to perform a perpetual care adequacy analysis is now.
All of our perpetual care adequacy analyses consider the remaining inventory and model how the perpetual care balance will change once the inventory is depleted. Additionally, each analysis forecasts the probability of the perpetual care balance reaching certain values (such as zero). Every analysis is a custom-built model, so it considers the investment allocation of the perpetual care fund, and the possibility of great returns or poor returns in any given year. With a long-term analysis, the probability of a 1-in-100-year catastrophe occurring at some time during the study timeframe becomes a near certainty, so those events must be built into the model as well. We forecast results far out into the future under a wide variety of scenarios to gain an understanding of how likely it is that each result occurs. HB Actuarial Services is the only company that customizes its one-of-a-kind Monte Carlo simulation model to understand how your perpetual care fund will perform under every feasible scenario well into the future. Nobody else builds a model as robust as we do. Click on the links to learn more.
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