An actuary is a business professional who deals with the measurement and management of risk and uncertainty. The name of the corresponding field is actuarial science; these risks can affect both sides of the balance sheet and require asset management, liability management, valuation skills. Actuaries provide assessments of financial security systems, with a focus on their complexity, their mathematics, their mechanisms. While the concept of insurance dates to antiquity, the concepts needed to scientifically measure and mitigate risks have their origins in the 17th century studies of probability and annuities. Actuaries of the 21st century require analytical skills, business knowledge, an understanding of human behavior and information systems to design and manage programs that control risk; the actual steps needed to become an actuary are country-specific. The profession has been ranked as one of the most desirable. In various studies, being an actuary was ranked number one or two multiple times since 2010.
Actuaries use skills in mathematics calculus-based probability and mathematical statistics, but economics, computer science and business. For this reason, actuaries are essential to the insurance and reinsurance industries, either as staff employees or as consultants. Actuaries assemble and analyze data to estimate the probability and cost of the occurrence of an event such as death, injury, disability, or loss of property. Actuaries address financial questions, including those involving the level of pension contributions required to produce a certain retirement income and the way in which a company should invest resources to maximize its return on investments in light of potential risk. Using their broad knowledge, actuaries help design and price insurance policies, pension plans, other financial strategies in a manner that will help ensure that the plans are maintained on a sound financial basis. Most traditional actuarial disciplines fall into two main categories: life and non-life. Life actuaries, which include health and pension actuaries deal with mortality risk, morbidity risk, investment risk.
Products prominent in their work include life insurance, pensions and long term disability insurance, health insurance, health savings accounts, long-term care insurance. In addition to these risks, social insurance programs are influenced by public opinion, budget constraints, changing demographics, other factors such as medical technology and cost of living considerations. Non-life actuaries known as property and casualty or general insurance actuaries, deal with both physical and legal risks that affect people or their property. Products prominent in their work include auto insurance, homeowners insurance, commercial property insurance, workers' compensation, malpractice insurance, product liability insurance, marine insurance, terrorism insurance, other types of liability insurance. Actuaries are called upon for their expertise in enterprise risk management; this can involve dynamic financial analysis, stress testing, the formulation of corporate risk policy, the setting up and running of corporate risk departments.
Actuaries are involved in other areas of the financial services industry, such as analysing securities offerings or market research. On both the life and casualty sides, the classical function of actuaries is to calculate premiums and reserves for insurance policies covering various risks. On the casualty side, this analysis involves quantifying the probability of a loss event, called the frequency, the size of that loss event, called the severity; the amount of time that occurs before the loss event is important, as the insurer will not have to pay anything until after the event has occurred. On the life side, the analysis involves quantifying how much a potential sum of money or a financial liability will be worth at different points in the future. Since neither of these kinds of analysis are purely deterministic processes, stochastic models are used to determine frequency and severity distributions and the parameters of these distributions. Forecasting interest yields and currency movements plays a role in determining future costs on the life side.
Actuaries do not always attempt to predict aggregate future events. Their work may relate to determining the cost of financial liabilities that have occurred, called retrospective reinsurance, or the development or re-pricing of new products. Actuaries design and maintain products and systems, they are involved in financial reporting of companies' liabilities. They must communicate complex concepts to clients who may not share their language or depth of knowledge. Actuaries work under a code of ethics that covers their communications and work products (ASB 20
Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money in exchange for a premium, upon the death of an insured person. Depending on the contract, other events such as terminal illness or critical illness can trigger payment; the policy holder pays a premium, either or as one lump sum. Other expenses, such as funeral expenses, can be included in the benefits. Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are written into the contract to limit the liability of the insurer. Modern life insurance bears some similarity to the asset management industry and life insurers have diversified their products into retirement products such as annuities. Life-based contracts tend to fall into two major categories: Protection policies – designed to provide a benefit a lump sum payment, in the event of a specified occurrence.
A common form—more common in years past—of a protection policy design is term insurance. Investment policies – the main objective of these policies is to facilitate the growth of capital by regular or single premiums. Common forms are whole life, universal life, variable life policies. An early form of life insurance dates to Ancient Rome; the first company to offer life insurance in modern times was the Amicable Society for a Perpetual Assurance Office, founded in London in 1706 by William Talbot and Sir Thomas Allen. Each member made an annual payment per share on one to three shares with consideration to age of the members being twelve to fifty-five. At the end of the year a portion of the "amicable contribution" was divided among the wives and children of deceased members, in proportion to the number of shares the heirs owned; the Amicable Society started with 2000 members. The first life table was written by Edmund Halley in 1693, but it was only in the 1750s that the necessary mathematical and statistical tools were in place for the development of modern life insurance.
James Dodson, a mathematician and actuary, tried to establish a new company aimed at offsetting the risks of long term life assurance policies, after being refused admission to the Amicable Life Assurance Society because of his advanced age. He was unsuccessful in his attempts at procuring a charter from the government, his disciple, Edward Rowe Mores, was able to establish the Society for Equitable Assurances on Lives and Survivorship in 1762. It was the world's first mutual insurer and it pioneered age based premiums based on mortality rate laying "the framework for scientific insurance practice and development" and "the basis of modern life assurance upon which all life assurance schemes were subsequently based". Mores gave the name actuary to the chief official—the earliest known reference to the position as a business concern; the first modern actuary was William Morgan, who served from 1775 to 1830. In 1776 the Society carried out the first actuarial valuation of liabilities and subsequently distributed the first reversionary bonus and interim bonus among its members.
It used regular valuations to balance competing interests. The Society sought to treat its members equitably and the Directors tried to ensure that policyholders received a fair return on their investments. Premiums were regulated according to age, anybody could be admitted regardless of their state of health and other circumstances; the sale of life insurance in the U. S. began in the 1760s. The Presbyterian Synods in Philadelphia and New York City created the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759. Between 1787 and 1837 more than two dozen life insurance companies were started, but fewer than half a dozen survived. In the 1870s, military officers banded together to found both the Army and the Navy Mutual Aid Association, inspired by the plight of widows and orphans left stranded in the West after the Battle of the Little Big Horn, of the families of U. S. sailors. The person responsible for making payments for a policy is the policy owner, while the insured is the person whose death will trigger payment of the death benefit.
The owner and insured may not be the same person. For example, if Joe buys a policy on his own life, he is both the insured, but if Jane, his wife, buys a policy on Joe's life, she is the owner and he is the insured. The policy owner is the guarantor and he will be the person to pay for the policy; the insured is a participant in the contract, but not a party to it. The beneficiary receives policy proceeds upon the insured person's death; the owner designates the beneficiary. The owner can change the beneficiary. If a policy has an irrevocable beneficiary, any beneficiary changes, policy assignments, or cash value borrowing would require the agreement of the original beneficiary. In cases where the policy owner is not the insured, insurance companies have sought to limit policy purchases to those with an insurable interest in the CQV. For life insurance policies, close family members and business partners will be found to have an insurable interest; the insurable interest requirement demon