Actuary Definition and Meaning: What is Actuary?

Actuary definition

Noun 1. actuary - someone versed in the collection and interpretation of numerical data (especially someone who uses statistics to calculate insurance premiums)

statistician

statistics - a branch of applied mathematics concerned with the collection and interpretation of quantitative data and the use of probability theory to estimate population parameters

calculator, estimator, figurer, reckoner, computer - an expert at calculation (or at operating calculating machines)

surveyor - someone who conducts a statistical survey

actuary [ˈæktʃʊərɪ]

n pl -aries

(Business / Professions) a person qualified to calculate commercial risks and probabilities involving uncertain future events, esp in such contexts as life assurance

[C16 (meaning: registrar): from Latin āctuārius one who keeps accounts, from actum public business, and acta documents, deeds. See act, -ary]

actuarial  [ˌæktʃʊˈɛərɪəl] adj

definition

A specialist in the mathematics of risk, especially as it relates to insurance calculations such as premiums, reserves, dividends, and insurance and annuity rates. They work for insurance companies to evaluate applications based on risk.

Definition of 'Actuarial Analysis'

The examination of risk by a highly educated and certified professional statistician. Actuarial analysis uses statistical models to manage financial uncertainty by making educated predictions about future events. Insurance companies, banks, government agencies and corporations use actuarial analysis to design optimal insurance policies, retirement plans and pension plans and to analyze investment risks.

For example, actuarial analysis is an essential task performed by insurance companies to analyze data and estimate the probability of an insurance claim being filed for a given event. This work allows insurance companies to predict with a reasonable degree of accuracy the amount of claims they will pay out, which helps them determine what premiums they must charge to remain profitable.

noun, plural ac·tu·ar·ies.

1.

Insurance. a person who computes premium rates, dividends, risks, etc., according to probabilities based on statistical records.

2.

(formerly) a registrar or clerk.

n  , pl -aries a person qualified to calculate commercial risks and probabilities involving uncertain future events, esp in such contexts as life assurance.

Qualified statistician who uses experience tables (such as mortality tables and morbidity tables) to asses life expectancy of different age groups. Often employed as insurance underwriters, actuaries employ mathematical theories of probability in determination of insurance risks, and in administration of pension funds.

Actuary definition

An actuary is a person who works with complex mathematical models to try and predict the likely hood of future events. An actuary is particularly important for the insurance industry. An actuary looks at the average propensity for disastrous events to occur and uses these percentages to try and predict a fair price to set insurance premiums.

These predictions take into account observed trends like death rates, crime rates. They will try to break down statistics into different groups, enabling different premiums to be set for different groups of consumers. For example, non smokers may get lower health premiums. Young male drivers are statistically more likely to be involved in a car crash so car insurance will be more expensive.

What is an Actuary?

An actuary is a business professional specializing in the statistical assessment of financial risk. An actuary uses a variety of risk tables and statistical techniques and tools to perform and calculate risk assessments. Determining the potential for future claims is the main responsibility of an actuary. Typically, an actuary has a background in mathematics and accounting. An actuary is most often employed in the insurance industry to evaluate risks associated with the underwriting and/or administration of insurance policies. An insurance actuary performs calculations associated with premiums, pensions, reserves, dividends and annuity rates, among others. The term actuary is used primarily in the United States. In most other countries, an actuary would be referred to as a mathematician. To become a fully credentialed actuary, one must pass a plethora of examination sessions which can take several years to complete.

Difficulties of Being an Actuary

Sometimes events are very difficult to predict and past trends are not always a good guide to the future. For example, global warming and cooling could well increase the likely hood of even more severe and adverse weather conditions in the future.

Moral Hazard. It is argued that the probability of certain events can change if people get insurance. For example, if you insure your bike, you have less incentive to lock it up and prevent it getting stolen.

definition

An insurance company professional trained in mathematics and statistics who calculates premiums, dividends, pensions, reserves, employee benefits, and risks.

Noun

One who computes insurance and property costs, such as the cost of insurance premiums and risks.

Actuary
A statistician, usually employed by an insurance company, who calculates future risk by using statistical data from the past.

For example, a car insurance company may use an actuary to compile data on the likelihood of accidents at various ages of driver, taking into account past data.

This method enables insurance companies to set relevant premium levels in order to make a profit, although there can be unforeseen circumstances which can lead to varying levels of claims than in the past.


  The noun ACTUARY has 1 sense:

1. someone versed in the collection and interpretation of numerical data (especially someone who uses statistics to calculate insurance premiums)

  Familiarity information: ACTUARY used as a noun is very rare.

Meaning:

Someone versed in the collection and interpretation of numerical data (especially someone who uses statistics to calculate insurance premiums)

Classified under:

Nouns denoting people

Synonyms:

actuary; statistician

Hypernyms ("actuary" is a kind of...):

calculator; computer; estimator; figurer; reckoner (an expert at calculation (or at operating calculating machines))

Domain category:

statistics (a branch of applied mathematics concerned with the collection and interpretation of quantitative data and the use of probability theory to estimate population parameters)

Hyponyms (each of the following is a kind of "actuary"):

surveyor (someone who conducts a statistical survey)

The person who calculates the risks for an insurance company or financial institution is known as an actuary. His job determines the statistics and probabilities for accidents and life expectancy, and helps set the price of insurance coverage.

An actuary is a risk-management professional who works with mathematical probabilities and other accounting techniques. The current meaning of the word didn't come into use until 1772, although actuarial science had been in use long before that. (The first acknowledged U.S. actuary was Jacob Shoemaker in 1809.) Before that, the word actuary meant someone who was a registrar or clerk. It derives from the Latin word actuarius "account-keeper," which in turn came from āctus "public business."

Actuarial risk refers to the danger that the computations used by the actuaries to generate insurance probability estimates are based on inaccurate assumptions. This is also known as insurance risk. These probability estimates are used to price insurance policies that allow the insurer to make expected payouts while continuing regular business operations. In the worst case scenario, an actuary may underestimate the frequency of an event. If the underlying assumptions are wrong, the unaccounted events will cause an increase in the frequency of payouts which may cause the insurer to face serious financial consequences.

What does an actuary do?

Actuaries apply financial and statistical theories to solve real business problems. In effect, they use their skills in maths and statistics to create theoretical models of the world around them.

Every area of business is subject to risks so an actuarial career offers many options. A typical business problem might involve analysing future financial events, especially when the amount or timing of a payment is uncertain. But it could also involve understanding something like the weather: assessing when and where devastating storms may hit can help predict risks, and their associated costs, for investments or insurance. Due to an actuary's skill the opportunities open to them are endless, they can even be employed in the marketing and development of financial products.

The skills you need

Understanding how businesses operate, and how legislation may affect them, is vital. But what really sets actuaries apart is their natural mathematical, economic and statistical awareness, and their ability to apply this to real situations in the financial world. The ability to communicate these difficult topics to non-specialists is also very important. 

Find out more about the skills that you need at each stage of qualification.

Main industry sectors

Actuaries' skills are in great demand throughout the financial sector, particularly in investment, insurance and pensions. Actuaries are also increasingly employed in risk management for large companies. However, actuarial consultancies are probably the biggest employers of actuaries in the UK. There are many areas where actuaries work, including;

  • Consultancies - offering advice on issues such as acquisitions, mergers and financing capital projects, and also on occupational pension schemes.  

  • Investment - involved in research and on the pricing and management of investments, particularly in mitigating the risk of investments, and often using their understanding of insurance or pension liabilities to manage the corresponding assets.

  • Insurance - providing a service to companies which need a huge range of numerical information investigated, analysed and explained; for example to create and price polices, or to ensure they have the money to cover claims.

  • Pensions - designing and advising on company pension schemes, especially placing a value on accumulated pension commitments.

Where do actuaries work?

Of the 10,498 Fellows of the Profession, 72% are in the UK, 8% in the rest of Europe and 20% in the rest of the world. 35% of those Fellows work in Insurance, 37% work in consultancy, 7% work in finance and investment and 4% work in the public sector and education, as well as other newer areas such as industry.

Insurance and Consultancy - what is the difference?

Working in an insurance company environment means that there is usually only one client; your employer. A variety of work is available but tends to come more slowly – often you’ll be asked to work in one area for a period of about one year before moving on to the next challenge, taking the experience you have gained with you.

The day to day work within consultancy firms tends to be more varied, as in any year you are likely to work for a number of different clients solving different types of problems. This can become particularly challenging if you have a number of projects running in parallel and you need to ensure that you meet and manage each of your clients’ expectations and deadlines. This can give you an excellent opportunity to work with other people and see the running of an organisation other than your own. You may also find yourself working on just part of a project rather than seeing it all the way through from start to finish.

Consultancy

Actuarial consultancies are the biggest employers of actuaries in the UK. Consultancies will offer a range of services to their clients, such as pensions, enterprise risk management, merger and acquisition advice, corporate recovery and financing capital projects. The Government Actuary’s Department (GAD) provides advice to the Government via Royal Commissions, as well as giving advice to other government departments and a wide range of public sector bodies, including local authorities and the NHS.

Insurance industry

Life insurance

Life insurance companies provide life insurance, pensions and other financial services. Actuaries are involved at all stages in the product development and in the pricing, risk assessment and marketing of the products. With recent legislation leading to more private healthcare provision, insurance companies are extending their range of products to include medical insurance, critical illness and disability insurance.

General insurance

General insurance is a fast-growing area for actuaries, both within insurance companies and consultancies as well as reinsurance and broking operations. General insurance includes personal insurance, such as home and motor insurance, as well as insurance for large commercial risks. Terrorist attacks, Caribbean windstorms and industrial diseases like asbestosis are all examples of insurance liabilities where actuaries have been integrally involved in estimating ultimate costs into an uncertain future.

Finance and investment

Investment management

Actuaries have been involved in the field of investment management for decades. Indeed, it is probably true to say that more people see the word ‘actuaries’ through the daily stock exchange indices than through any other source. Actuaries are involved in buying and selling assets, investment analysis and portfolio management. Many employers recognise the skills that the training provides and have allowed actuaries to develop these skills as well as others, such as the skills of financial economists.

Corporate finance

Although generally regarded as the province of the investment banker, actuaries can add value in this area. An actuary’s basic skills in forecasting and assessing risks are ideal for estimating whether a capital project (e.g. for a new hospital or a transport infrastructure project) is financially viable. Employers might include government departments, management consultancies, or property companies.

Banking

Actuaries are becoming increasingly involved in banking. For example, some of the leading insurance companies now have their own established banking operations, with actuaries filling some of the senior executive positions for finance and risk. The leading retail banks are also increasingly employing actuaries, as they recognise that the longer term approaches advocated by actuaries can add value to their businesses. As the insurance and banking markets continue to converge, we can expect to see the demand for actuaries within banking fields continue to grow.

Opportunities abroad

The UK qualification is highly valued throughout the world. Of the qualified members of the UK profession, 60% are UK based, with the remainder overseas. The Actuarial Profession works with other international actuarial bodies to arrange reciprocal recognition of the professional qualifications between the different bodies.

Actuary definition, meaning and facts

What is an Actuary: An actuary is a highly trained statistician with expertise in evaluating various types of risks. Roughly 60% of actuaries are employed by insurance companies, and play a key role in setting the terms and conditions of insurance policies, including premium rates. An actuary also has career opportunities in pension fund management, forecasting future payouts and determining current contributions and investment policies in light of them. Additionally, actuaries (either in-house or consultants) help companies in all industries design and implement policies and procedures to mitigate risks in various aspects of their operations.

Education: An actuary is expected to have at least a bachelor's degree. There is prescribed coursework in statistics or actuarial science (a branch of applied statistics), plus business, finance and economics. A high degree of computer literacy is increasingly important, especially with regards to software packages commonly used for database and statistical analysis. An MBA can be a useful credential, depending on the firm.

Certification: The Society of Actuaries (SOA) certifies actuaries in life insurance, retirement plans and investments. The Casualty Actuarial Society (CAS) certifies actuaries in property, casualty and liability insurance. Reaching the highest level of certification is a lengthy process, requiring coursework and the passing of nine separate exams normally over the course of six to nine years. Three of the first four exams are common to both the SOA and the CAS tracks, allowing the prospective actuary some time to decide on his or her specialty.

Duties and Responsibilities: The job of actuary involves detailed analysis of data to quantify risks. It also requires expertise with advanced modeling techniques to forecast future probabilities of various outcomes, such as losses or claims and their expected magnitudes. While technical expertise and quantitative skills are a must, advancement is dependent, to a great degree, on the ability to communicate effectively with managers who lack this background. Do not confuse an actuary with an insurance underwriter, who evaluates applications for insurance, and makes decisions on whether to accept or reject them. An actuary works at a more macro level, setting the high-level parameters that guide insurance underwriters.

Typical Schedule: The typical actuary works close to a standard 40 hour week, normally from a fixed office location. A consulting actuary tends to have significant travel, and thus may work considerably longer hours.

What's to Like: An actuary is a highly respected professional who is an important influencer of company policy, if not a final decision maker. It is a well-compensated field that has a vital, visible impact.

What's Not to Like: For those with ambitions to rise in general management, the opportunities may be limited in some companies, which might view an actuary as a narrow specialist. Also, depending on the company and the position, the work of an actuary may become somewhat repetitive and lacking in variety.

Salary Range: Per the Bureau of Labor Statistics, median annual compensation was about $83,000 as of May 2006, with the top 10% earning over $146,000.

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