Category: 

What Is Actuarial Science?

Actuarial science is a method of using mathematics and statistics to try and predict the behavior of financial industries.
Article Details
  • Written By: Jessica Ellis
  • Edited By: Bronwyn Harris
  • Last Modified Date: 10 November 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
General George Patton failed math and had to repeat his first year at the US Military Academy.  more...

November 21 ,  1969 :  The first Advanced Research Projects Agency Network (ARPNET) link was permanently established for the first time.  more...

Actuarial science is a method of using mathematics and statistics to try and predict the behavior of financial industries. The discipline requires a great deal of knowledge that covers a wide varieties of mathematical practices, and is often considered one of the most difficult fields to specialize in. Actuarial science is most often used to try and gauge the actions and reactions of the insurance industry and the stock market.

One of the most important functions of actuarial science is assessing risk in a given industry. A qualified actuary is often hired to figure out the potential risks and profit margins of opening up a new industry, expanding a corporation, or creating new insurance policies. These estimates are drawn by using mathematics and statistical analysis, and require an intensive knowledge of finance, economic structures, probability, and computer science. Qualifying as an actuary is understandably incredibly difficult.

Actuarial science is a method of statistical analysis used heavily by all facets of the insurance industry. In health insurance, for instance, actuaries can create tables that break down mortality rates, population growth, levels of certain diseases, likelihood of disability or permanent injury by occupation, and other determinants that give insurance companies an idea of how high premiums need to be to turn a profit. These tables can also highlight segments of the population who are at particularly high risk for injuries or illnesses that result insurance claims, so that the company can adjust rates or provide coverage accordingly.

Ad

In creating both private and government pension plans, actuarial science is used to determine various critical factors in the implementation and disbursement of pension. Understanding mortality rates, maximum users on the plan, and cost of living data, actuarial science helps determine who is eligible for pension, at what age it begins, and how distribution works. This may sound cold-blooded, as if actuaries try to find out when a person will die in order to save money, but it actually is a safeguard against pension plans going bankrupt or into insolvency, leaving hundreds or thousands of elderly people without deserved funds.

Though concepts like pension and insurance have existed since ancient times, only with the concurrent development of mathematical and economic theory in the 17th century did actuarial science become a common sector of the business world. Mortality tables were first created in the 1600s, and quickly were put to use in creating the first life insurance policies, such as those offered by the venerable and still-active Society for Equitable Assurances on Lives and Survivorships, know known as Equitable Life. This insurance group is credited with coining the term actuary, which it used to describe its chief officer.

Ad

More from Wisegeek

You might also Like

Discuss this Article

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email