What is Actuary

An actuary is a professional who assesses and manages the risks of financial investments, insurance policies and other potentially risky ventures.

BREAKING DOWN Actuary

Actuaries assess the financial risk of a particular situation, primarily using probability, financial theory, and computer science. The convergence of these fields for the actuary 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 types of businesses. While primarily used for insurance policies and investments, actuarial science is applicable in any situation where risk and uncertainty are present. 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, 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.

Actuaries in Finance

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

History of Actuarial Science

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