Applies mathematical and statistical tools to assess the likelihood of a future event happening at or within a given time.
Actuarial Science Details
When an insurance company wants to predict how many people in New York City will suffer an accident at work next year, it will ask an actuary to look at the percentage of people involved in work-related accidents during previous years. The actuary will do this by applying the tools of actuarial science. The actuary will produce a final result that has considered many factors: the type of occupation, the victim's age, the time of year, and many others. The insurance company will then use this information to set a premium for its accident insurance policies which depend on the applicant's status.
Actuarial science represents an attempt to master uncertainty about the future. To do so, it uses rigorous mathematical and statistical models, which will minimize its exposure to future losses. Actuarial science demands a sophisticated mastery of various related disciplines, including computer science, economics, finance, mathematics, probability theory, and statistics.
The collection of data and compilation of actuarial tables used to be a time-consuming task. Still, the introduction of new statistical modeling methods in the 1930s and 1940s followed by the introduction of ever more sophisticated computers has revolutionized actuarial science. The accuracy of predictions has improved markedly, but the results actuaries obtain still depend on the assumptions they have made and used in their models.
Actuarial Science Example
Sally has decided that she wants to take a first-degree course in actuarial science. She has made her decision because she knows a high and rising demand for qualified people in this field and that salaries are high. She is not sure yet which type of business she wants to work in, but there are always vacancies in the financial sector, insurance agencies, investment, and risk management. Many universities now offer degree courses in actuarial science.
Sally will learn more about algebra, calculus, probability theory, and statistics during her degree course. When she finishes her studies, she will need to pass licensing exams which she can take after her first degree. Many businesses will employ actuarial scientists who hold only a first degree and finish their training in-house.
History of Actuarial Science
We can probably trace actuarial science as a separate discipline back to 1662 when John Grant, a draper in London, demonstrated that it was possible to make assumptions about longevity and death in a group of people of a similar age. His insight became the basis for life tables used to set insurance premiums based on the policyholder's age. The calculation of risk became reasonably accurate.
James Dodson's work on long-term insurance resulted in the founding, again in London, of the 'Society for Equitable Assurances on Lives and Survivorship' in 1762. This company still exists today under the more manageable name of 'Equitable Life.'
Until the mathematical and technical innovations of the twentieth century, actuarial calculations had to be made manually and were complex and time-consuming.