What Is an Actuary?

An actuary assesses and manages the risks of financial investments, insurance policies, and other potentially risky ventures. Actuaries assess particular situations financial risks, primarily using probability, economic theory, and computer science. The convergence of these fields for the actuary profession is called actuarial science.

Key Takeaways

  • An actuary assesses and manages the risks of financial investments and insurance policies, among other things.
  • According to the U.S. Bureau of Labor Statistics, actuary jobs are growing in popularity, and a median salary on the high end is over $100,000.
  • Actuaries often work for companies in an office setting; others work as free-floating actuary consultants to various businesses, although usually within one particular industry, like insurance.

How an Actuary Works

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 several full-time actuaries. Still, other actuaries, either self-employed or working as a part of an actuarial firm, act as consultants for many different types of businesses. While primarily used for insurance policies and investments, actuarial science is applicable in any situation where risk and uncertainty are present.

History of Actuarial Science

The concept of insurance has existed since the late 17th century, when 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. This advancement made it easier for insurance brokers to quantify the risk of taking on a new insurance policy.

Actuarial science is currently one of the fastest-growing and better-paying industries in the United States.

Actuaries in Insurance

Most actuaries work at insurance companies, where their risk-management capabilities are particularly applicable. Insurance companies want to take on policies that offer little risk. 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.

Actuaries in Finance

Additionally, actuaries are commonly employed to examine the risk of investments in the financial world. Actuaries combine their ability to measure probability with predictive tools specific to a market statistically.

In many ways, the fluctuations of a financial market are less predictable than an individual's lifespan. Successful actuaries in the financial world must acquire an in-depth knowledge of potential investments and industries. Competent actuarial practice can help mitigate the overall risk of a portfolio. Most major investment banks employ staff actuaries on retainer, and businesses making big one-time decisions often hire consulting actuaries.