An actuary is a combination of business executive, mathematician, financier, sociologist, and investment manager. Actuaries are problem solvers who use actuarial science to define, analyze, and solve the financial, economic, and other business applications of future events. The actuary’s responsibilities date back to the early 1800’s, when most actuarial work centered on developing mortality tables and life insurance policies. Today most actuaries are best known for their work in the insurance and pension fields, where they design financially secure benefit programs to protect people. But that is changing, and actuaries are finding themselves involved in many other areas.
Trained to analyze uncertainty, risk, and probabilities, actuaries create and manage programs which will reduce the adverse financial impact of the expected and unexpected things that happen to people and businesses.
Actuarial Bodies
Instiute Of Actuaries of Australia
Canadian Institute of Actuaries
Why actuarial science
Capital and asset holding – Insurance companies need to hold enough asset and capital to make sure they stay healthy now and into the future. But how much should they hold? Holding too little asset will be financially dangerous and the public will lose confidence on them, but holding too much asset will be inefficient due to waste in money that could be better invested elsewhere. What is enough requires professional judgement of the actuary.
Price an insurance product – all insurance products on the market need to be priced by Actuary. But how to price? Price lower attracts more market share but face the risk of losing money. Price higher increases profit margin but risk losing market share? So what price is “right”?
Invest in what kind of asset – everyone knows that invest in cash earns no interest; invest in short-term assets earn less interest than invest in long-term assets. So how much should be invested in cash? How much in short-term assets? And how much in long-term assets? Short-term assets provide liquidity so it can be easily liquidated when cash is needed but it earns less return. Holding long-term assets earns a higher interest but increase the risk of insolvency when the company needs liquidity.
How to design an insurance product – Every insurer wants to differentiate itself by introducing different product that will attract customer and make money. However, adding more features in the product makes it more complicated and expensive, creating a simple product cannot differentiate at all.
How to build a mathematical and statistical model – Actuary use models everyday to do the job. A more complicated model reflects the real situation better. A simpler model tends to lose accuracy. But a more complicated model takes longer time to run and analyze compared to a simple model. So there is a trade-off between time efficient and result accuracy that Actuary has to face.
