Actuarial Science: Definition, History, and Careers

Actuarial science combines statistical methods, financial mathematics, humanities, and business studies to understand and mitigate risk. Actuaries are professionals who study the likelihood of certain future events so that businesses in the finance and insurance industries can better plan for desired outcomes and mitigate the risk of undesirable outcomes. Actuarial science uses probability analysis and mathematical statistics to prepare for uncertain future events, from how many children a health insurance recipient will have to the likelihood that a life insurance policy will pay out.

The practice of actuarial science dates back to mid-seventeenth-century Europe. Here are some of the key milestones in the development of actuarial science and its establishment in the United States.

• Development of the mortality table: In 1693, Edmond Halley developed the mortality table, or life table, an early document in actuarial probability that showed the likelihood of death at different ages in a particular region. Insurance companies referred to the life table well into the twentieth century.
• Establishment of the first mutual insurance company: In 1762, Edward Rowe Mores established the Society for Equitable Assurances on Lives and Survivorship in London, an insurance firm based on James Dodson’s premium system that accounted for probabilities of death. Mores became the first person to use the title “actuary.”
• Publication of Observations of Reversionary Payments: In 1771, Richard Price published Observations on Reversionary Payments, which immediately became a classic textbook of actuarial models. One of the first definitive publications to outline actuarial science, Observations provided models for granting annuities to widows and pensioners.
• Opening of the first North American actuarial firm: Jacob Shoemaker of Philadelphia became the first practicing actuarial firm in North America in the early nineteenth century.
• Formation of the Society of Actuaries: In 1889, the Actuarial Society of America became the first professional society of actuaries in the United States. It later merged with the American Institute of Actuaries to become the Society of Actuaries.
• Founding of the Casualty Actuarial Society: 1914 saw the formation of the Casualty Actuarial Society (CAS) specifically to meet the needs of property and casualty risks. It remains the world’s only organization dedicated to that field.
• Merger of actuarial organizations: In 1949, two existing actuarial organizations merged to create the Society of Actuaries, which remains the leading US organization in the field. The SOA offers resources for education, research, and professional development.

There are three main applications of actuarial science: health insurance policies, life insurance policies, and pension plans.

1. 1. Health insurance: Actuaries help shape health care plans by analyzing the likelihood of morbidity, disability, and mortality within a particular population as a form of risk management.
2. 2. Life insurance: Life insurance policies use actuarial science to analyze mortality rates to determine premiums and compound interest. For work-related life insurance, actuarial science involves calculating the related risks of the job to determine insurance premiums.
3. 3. Pension plans: Pension plans rely on actuarial science to determine interest rates and annuity rates for pensioners. Actuaries base their calculations on the amount already invested in the pension plan, along with predictions about how much money pensioners will need during retirement.

Actuaries work with finance and insurance companies, examining probability models to predict events, prepare for uncertainty, and assign funds to potential claims or payouts. Actuaries must possess excellent problem-solving skills, communication skills, computer skills, and analytical skills. Here are some of the professional tasks that an actuarial consultant should expect to perform.

• Determine new risk factors. Actuaries look for blind spots in their clients’ policies, identifying risk factors missing from an insurance product or pension plan.
• Prepare financial reporting. An actuary can help clients prepare their financial reporting for state and federal regulatory purposes, detailing their clients’ revenue and policy premiums.
• Recruit and teach. Actuaries often also work as teachers of actuarial science or speak at conferences and seminars on developments in actuarial science.
• Review insurance premiums. An actuary assesses insurance premiums for their clients, determining which risk factors in different areas have shown higher instances of financial loss for the insurance providers and proposing changes to the premiums accordingly.

There are many career opportunities for actuaries in financial services companies, insurance companies, and government agencies. According to the US Bureau of Labor Statistics, the median salary for an actuary is over $100,00. Here are a few steps to consider taking if you’re interested in an actuarial career.

1. 1. Continue your education. Members of the actuarial profession typically have a bachelor’s degree from an actuarial science program or department of mathematics degree program with an actuarial science major. Expect to take classes in linear algebra, actuarial mathematics, macroeconomics, and microeconomics to obtain your Bachelor of Science. Actuarial science students often complete elective computer science, data science, and corporate finance coursework as well. Maintaining a high GPA may make it easier to secure a job later.
2. 2. Complete professional exams. To become a certified actuary, you’ll need to complete at least two of the certified actuarial exams with the Society of Actuaries (SOA). SOA offers exams in probability (Exam P), financial mathematics (Exam FM), and modern actuarial statistics (Exam MAS-I). There are ten exams in total to choose from, each requiring three to six months of preparation.
3. 3. Undertake an actuarial internship. While completing your study as an actuarial student, consider training with a reputable consulting actuary to understand the work environment. If actuarial internships are in short supply, consider an internship with a consulting firm in a related field, such as financial risk management, insurance, investments, or data analysis.
4. 4. Apply for your first entry-level position. Once you’ve completed your education, passed your actuarial exams, and have at least one internship under your belt, you’re ready to apply for a full-time actuary job.

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