Finance
Fact-checked

At SmartCapitalMind, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.

Learn more...

What is Actuarial Science?

Jessica Ellis
Jessica Ellis
Jessica Ellis
Jessica Ellis

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 using mathematics and statistics to try and predict the behavior of financial industries.
Actuarial science is a method of using mathematics and statistics to try and predict the behavior of financial industries.

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.

Actuarial analysis is typically used to calculate the price of insurance premiums.
Actuarial analysis is typically used to calculate the price of insurance premiums.

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.

Actuarial tables may show that people who engage in high-risk behaviors like smoking and drinking in excess often suffer from more health issues.
Actuarial tables may show that people who engage in high-risk behaviors like smoking and drinking in excess often suffer from more health issues.

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.

Jessica Ellis
Jessica Ellis

With a B.A. in theater from UCLA and a graduate degree in screenwriting from the American Film Institute, Jessica is passionate about drama and film. She has many other interests, and enjoys learning and writing about a wide range of topics in her role as a SmartCapitalMind writer.

Learn more...
Jessica Ellis
Jessica Ellis

With a B.A. in theater from UCLA and a graduate degree in screenwriting from the American Film Institute, Jessica is passionate about drama and film. She has many other interests, and enjoys learning and writing about a wide range of topics in her role as a SmartCapitalMind writer.

Learn more...

You might also Like

Discuss this Article

Post your comments
Login:
Forgot password?
Register:
    • Actuarial science is a method of using mathematics and statistics to try and predict the behavior of financial industries.
      By: sakkmesterke
      Actuarial science is a method of using mathematics and statistics to try and predict the behavior of financial industries.
    • Actuarial analysis is typically used to calculate the price of insurance premiums.
      By: edbockstock
      Actuarial analysis is typically used to calculate the price of insurance premiums.
    • Actuarial tables may show that people who engage in high-risk behaviors like smoking and drinking in excess often suffer from more health issues.
      By: mrcats
      Actuarial tables may show that people who engage in high-risk behaviors like smoking and drinking in excess often suffer from more health issues.
    • A health insurance actuarial scientist may help determine the premium and copay amounts for a policyholder based on their medical history.
      By: contrastwerkstatt
      A health insurance actuarial scientist may help determine the premium and copay amounts for a policyholder based on their medical history.