This article, we will give an overview of actuarial science.
What is actuarial science?
Actuarial science is the management of financial risks related to pension fund, insurance product design and other financial corporate planning. It involves the use of probabilities, statistics risk theory and financial principles to quantify and rate future risks with respect to insurance, annuity and retirement funds.
What actuaries do?
Actuaries are involved in the traditional life insurance, health insurance, pension fund industry, social welfare programs, reinsurance, property and casualty insurance as well as in alternative risk transfer mechanism. In fact, actuarial calculations and models are the back-bone of the insurance industry and financial securities.
Actuaries collect and analyse data like historical and current performance of risks per geographical area, demographical models and rates of mortality by age, to formulate mathematical and statistical models for discounting the value of funds to be set aside and invested.
Determine the value of periodical premium
They use probabilities on sickness, death accident, and claims history to determine the value of periodical or single premium to be paid for expected insurance benefits. In other words, they formulate mathematical models which are used to determine the rating structure of insurance risks, claims reserving, reinsurance pricing, pension fund and annuities.
In life insurance, actuarial science involve analysis of mortality, production of life or actuary tables and the application of compound interest to produce life insurance, annuities, term life insurance and endowment policies.
In reinsurance, actuaries design and price reinsurance schemes like reinsurance treaties and establish reserves for reported and unreported claims. Nowadays, as many companies realise the benefits of alternative risk transfer (ART) mechanism other than the traditional conventional insurance, actuarial mathematics plays a major role in determining the funding structure of ART options.
Involved in strategic planing
Actuaries are involved in strategic planning of business, demography, health insurance, long-term and short-term insurance, environmental risks, asset and fund management as well as financial security system. Actuarial services are important because of the increased demand of insurance cover, increased risk exposure due to technological advancement, annuities and pension fund as well as the need to reserve funds for future insurance claims and catastrophes.
Who can be an actuary?
For anyone to excel in actuarial science study, they should be good in mathematics, physical science, statistics, computer programming and financial economics. They should also be interested in researching, solving complicated problems as well as interested in strategic games like chess. Science students can easily qualify for the actuarial profession.