What Does an Actuary Do?
An actuary is a professional who applies mathematical and statistical methods to assess risk. Actuaries estimate the probability and financial impact of an event such as death, sickness, injury, disability, or loss of property. They then create projections and formulate policies to help minimize the cost of that risk.
Actuarial science uses a number of interrelating subjects, including probability and statistics, finance, and economics, to determine the probability of an event occurring, and assesses the financial impact of that event and its impact to the an insurance company. Naturally, the work of the actuary is essential to the life insurance industry. In traditional life insurance, actuarial science focuses on the analysis of mortality, and the production of life tables, also known as mortality tables, probability tables or actuarial tables.
Actuaries use mortality tables to develop projections of future insured events (such as death or illness) in order to price insurance policies and ensure adequate reserves for the insurance company. They do this by studying past instances of these events and developing mathematical models to project the likelihood of their occurrence in the future. For example, an actuary will study the increase in life expectancy experienced by most recent generations, and develop an expectation of whether that is likely to continue in the future.
The introduction of computers and the proliferation of data on individuals that has been enabled by the computer age have led to fundamental changes in actuary science. However, certain drivers have traditionally guided the construction of these life tables. For instance, life tables for men and women are generally constructed separately, because of substantial differences in their mortality rates. Other characteristics, such as whether a person smokes or is in a high risk occupation, are also used to determine different risk categories.
Actuaries also address financial issues, including creating a sound financial strategy to life insurance, annuities and endowment policies through premium contributions and compounded interest.