Actuary

DEFINITION of 'Actuary'

An actuary is a professional dealing with the assessment and management of risk for financial investments, insurance policies, and any other ventures involving a measure of uncertainty. 

BREAKING DOWN 'Actuary'

Actuaries are professionals who assess the financial risk of a particular situation, primarily using probability, financial theory and computer science. The corresponding field for the profession is called actuarial science. Public and private institutions rely heavily on actuarial science to determine the relative risk of various decisions; as such, actuaries are trained and tested extensively before they are allowed to practice. Investment banks and insurance companies employ a number of full-time actuaries, but other actuaries, either self-employed or working as a part of an actuarial firm, act as consultants for a number of different businesses. While primarily used for insurance policies and investments, actuarial science is applicable in any situation where risk and uncertainty are present, and actuarial science is currently one of the fastest-growing and better-paying industries in the United States.

Most actuaries work at insurance companies, where their risk-management specialties are particularly applicable. Insurance companies want to take on policies that offer little risk, and the most traditional actuarial practices revolve around analyzing various factors related to life expectancy, constructing mortality tables that provide a measure of predictability and making recommendations to brokers in individual cases.  While actuarial science is most commonly applied to mortality analysis for life insurance, many of the same procedures are also used for property, liability and other kinds of insurance. The impact of actuary recommendations on life insurance premiums can encourage behaviors that would result in lower premiums, like quitting smoking.

Additionally, actuaries are commonly employed to examine the risk of an investment in the financial world. Actuaries combine their procedures for statistically measuring probability with predictive tools specific to the market. The fluctuations of a market are in many ways less predictable than an individual's lifespan, requiring intensive actuary knowledge of the investment or industry. Like insurance policies, futures investments carry substantial uncertainty and risk, and good actuarial practices can help mitigate the overall risk of a portfolio.  Most major investment banks employ a number of actuaries on retainer, but businesses making one-time decisions of consequence often hire consulting actuaries for assistance. 

The concept of insurance has existed since the late seventeenth century when the practice of risk assessment became increasingly scientific. By the end of the century, early actuarial scientists had released the first mortality tables, which divided the population into groups based on lifestyle choices and personal circumstances and made it easier for insurance brokers to quantify the risk of taking on a new insurance policy.

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