This is a service provided by actuaries who work in insurance and financial firms. Actuarial service is used to determine, plan and assess the financial impact that risk may have on the firm.
Actuarial Service Details
Actuarial services are sought after by firms that deal with high-risk investments and portfolios. The professionals who provide actuarial services are known as actuaries. Actuaries use statistics and mathematical methods to analyze and calculate risk levels. They group these risk levels into actuarial models. They then use these models to determine the risk that a certain venture attracts.
Insurance companies need actuarial services to estimate the total amount of liability an insurance cover will cost. The insurance firm uses this figure to calculate the premiums that one should pay for any kind of insurance coverage that they take out. The higher the risk, the more expensive the insurance premiums are.
Financial firms, notably investment banks, use actuarial services to analyze how risky an investment is. While the actuarial models in this sector are reliable, fluctuations in financial markets are far less predictable and carry more risk. Financial actuaries require intensive knowledge of the financial world to accurately provide a reliable risk assessment of any investment portfolio.
Example of Actuarial Service
Firms that need actuarial services include insurance firms and investment companies such as investment banks. Typically, an actuary working for an insurance firm will work on any number of projects depending on their intensity. The actuary will spend between three to four hours daily carrying out analyses of risks associated with the portfolio they are handling.
For instance, if the actuarial service is for a life insurance cover, certain factors come into play. These include the age of the applicant, duration of the cover, pre-existing health conditions, and any other major factors that could have an impact on the applicant's mortality. Using this statistical information, the actuary can estimate the candidate's life span, setting premiums the applicant would have to pay.
An investment banking actuary will consider prevailing financial conditions such as price fluctuations in the market and so on. With the use of computer technology, statistical and mathematical data, actuaries can thoroughly analyze and anticipate the risks associated with an investment.
Significance of Actuarial Service
Actuarial services are useful in situations where risk management is key to an organization's success. The significance of actuarial services to an insurance company may be a bit different from what an investment bank will enjoy. The bottom line, however, remains the same—risk assessment for quality services.
An insurance company invites actuaries, especially when they need to prepare a life insurance product for clients. Certain elements that come into play will determine how expensive or affordable insurance premiums will be. Actuarial services help to encourage individuals to live a more healthy, risk-free life making their insurance premiums lower.
Investments companies such as banks that usually take high-risk investments, also require actuarial services to avoid losses. An actuary will assess how risky an investment is using various scientific and mathematical methods. Without actuarial services, most investment companies would be wading into the murky waters of investment blind.