Understanding Actuarial Science and Its Applications

Actuarial science is a field that deals with the study of uncertainty and risk in finance and insurance. It's a complex field that requires a deep understanding of mathematics, statistics, and economics.

Actuaries use mathematical models to analyze data and make predictions about future events, such as the likelihood of natural disasters or the impact of economic trends. They also use this information to develop policies and pricing for insurance companies.

Actuaries are highly sought after in the industry, with top actuaries earning high salaries and enjoying a high level of job security. In fact, actuaries are consistently ranked as one of the most in-demand and highest-paying professions.

Actuarial Science is the subject at the interface of mathematics and business relating to the valuation of risks and Insurance.

Actuaries work in the Insurance industry, as professionals and consultants, to certify the financial soundness of pension and insurance plans.

Actuaries also work in government agencies, such as the Social Security Administration and the Department of Housing and Urban Development.

The training of Actuaries involves mathematical undergraduate coursework and a solid grounding in business and economics.

Actuarial certification is accomplished through a battery of examinations with a prescribed syllabus, which are primarily mathematical and statistical.

There is an undergraduate minor program in Actuarial Mathematics available to non-math majors, documenting that students have prepared themselves to take several of the actuarial exams.

To become an actuary, you'll need to take a solid foundation of courses in calculus and probability & statistics. Calculus, specifically through Math 241, is a must-have, as it prepares you for the first actuarial exam.

You should plan to take the first exam as a junior, ideally in November of your junior year, after several months of intense study and practice with sample exams and actuarial practice manuals.

The Actuarial Science program at Bentley has a STEM-designated major code, which allows international students to apply for a 24-month extension of their standard 12 months of OPT, resulting in a total of 36 months of U.S. work authorization.

To excel in Actuarial Science, focus on taking the essential courses: Calculus (through Math 241) and Probability & Statistics (through at least Stat 410 and 401). Calculus prepares you for the first exam, which you should take as soon as possible after making several months of study-time to practice problems.

The calculus sequence is crucial, as it will help you work the actuaries' brand of multiple-choice problems quickly and accurately. Ideally, you would take the Probability/Statistics exam (Course P) by spring of your junior year.

A strong B in calculus courses is necessary for success in Actuarial Science, as competitive examinations are initially very quantitative. If you have strong interests in business and other practical applications of mathematics, consider continuing with calculus, Probability/Statistics, computing, numerical analysis, and Operations Research courses.

Taking the full calculus sequence and then some probability and statistics is essential for any quantitative major, including Actuarial Science.

In the 17th century, mathematicians in Germany, France, and England were making significant advances in mathematics, which laid the groundwork for the development of risk management techniques.

Compound interest was being studied during this time, and probability theory emerged as a well-understood mathematical discipline.

A London draper, John Graunt, made a crucial discovery in 1662 by showing that there were predictable patterns of longevity and death in a group of people of the same age.

This study became the basis for the original life table, which allowed for the creation of insurance schemes to provide life insurance or pensions for groups of people.

Edmond Halley, the famous astronomer, was the first person to demonstrate publicly how to use a life table to calculate premiums for life annuities.

Halley constructed his own life table and showed how it could be used to calculate the premium amount someone of a given age should pay to purchase a life annuity, assuming a fixed rate of interest.

Actuaries can have a wide range of responsibilities in their careers. They often work on determining the cost of financial liabilities that have already occurred, known as retrospective reinsurance.

Actuaries are involved in designing and maintaining products and systems, which requires strong analytical and problem-solving skills. They must also communicate complex concepts to clients who may not share their language or depth of knowledge.

Actuaries work under a strict code of ethics that covers their communications and work products, ensuring that they maintain the highest level of professionalism in their work.

The job placement rate for graduates from top universities is around 80%, according to a study that analyzed data from over 100 institutions.

However, it's essential to note that this rate can vary depending on the field of study, with graduates from STEM fields often having higher placement rates than those from humanities.

In the United States, the job placement rate for graduates from community colleges is significantly lower, at around 50%, due to the high demand for skilled workers in certain industries.

Many employers also offer internships and co-op programs to students, which can significantly improve their chances of getting hired after graduation, with over 70% of interns being offered full-time jobs.

The job market is highly competitive, and having a strong professional network can make all the difference, with 60% of job seekers citing networking as a key factor in their job search.

Actuaries design and maintain products and systems, which involves financial reporting of companies' assets and liabilities.

Their work may relate to determining the cost of financial liabilities that have already occurred, called retrospective reinsurance, or the development or re-pricing of new products.

Actuaries must communicate complex concepts to clients who may not share their language or depth of knowledge, which can be a challenging but essential part of their job.

They work under a code of ethics that covers their communications and work products, which helps ensure that their work is done with integrity and professionalism.

Actuaries have expanded their roles beyond traditional insurance work. They now work in risk management and enterprise risk management for financial and non-financial corporations.

Actuaries are well-suited for this environment because of their training in analyzing various forms of risk. They study and use tools and data previously in the domain of finance.

The Basel II accord requires financial institutions to account for operational risk separately, and in addition to, credit, reserve, asset, and insolvency risk. Actuaries' skills are perfectly suited to this environment.

Actuaries are also involved in investment advice and asset management. They analyze business prospects with their financial skills in valuing or discounting risky future cash flows.

Insurance securitization requires both actuarial and finance skills, making actuaries valuable assets in this field.

Actuarial science is applied to various forms of insurance, including property, casualty, liability, and general insurance. These types of insurance often provide coverage on a renewable period, such as a yearly basis.

In property and casualty insurance, companies tend to specialize due to the complexity and diversity of risks. They often organize around personal and commercial lines of insurance, catering to individual and business needs.

Actuarial science provides essential tools for data collection, measurement, estimating, forecasting, and valuation to assess marketing opportunities and risk nature. This helps insurance companies make informed decisions about their underwriting capacity and surplus.

In ancient Rome, charitable operations supported 1,500 suffering people by the middle of the 3rd century.

Charitable protection, aside from family support, was a common practice in ancient societies, but receiving charity often came with social stigma.

Early mutual aid agreements and pensions did exist in antiquity, where people would pay a small sum into a communal fund on a weekly basis to cover funeral expenses.

These early societies sometimes sold shares in communal burial vaults, known as columbāria, to raise funds.

Mutual surety and assurance pacts were also practiced in various forms of fellowship within Saxon clans of England and their Germanic forebears, as well as in Celtic society.

The concept of non-life insurance originated as a hedge against loss of cargo during sea travel, with anecdotal reports dating back to the 4th century BCE.

The first official non-life insurance policy was recorded in Sicily, where a contract was made to insure a shipment of wheat in the 14th century.

This early contract included a premium of 18% to cover risks such as "acts of God, or of man, and from perils of the sea."

Actuarial science is a diverse field with two main categories: life and non-life. Life actuaries deal with mortality risk, morbidity risk, and investment risk.

Life actuaries work with a wide range of products, including life insurance, annuities, pensions, and health insurance. They also consider factors like public opinion, politics, and changing demographics.

Non-life actuaries, also known as property and casualty actuaries, deal with physical and legal risks that affect people or their property. This includes auto insurance, homeowners insurance, and commercial property insurance.

Actuaries use stochastic models to determine frequency and severity distributions, especially on the life side. This helps them calculate premiums and reserves for insurance policies.

On the casualty side, actuaries quantify the probability of a loss event and its size, called frequency and severity. They also consider the amount of time before the loss event occurs.

Actuaries are involved in enterprise risk management, which includes dynamic financial analysis and stress testing. They also set up and run corporate risk departments.

Actuarial science is applied to various forms of insurance, including property, casualty, liability, and general insurance. These types of insurance often provide coverage on a renewable period, such as a yearly basis.

Property and casualty insurance companies tend to specialize due to the complexity and diversity of risks. They often organize around personal and commercial lines of insurance.

Personal lines of insurance cover individuals and include types such as fire, auto, homeowners, theft, and umbrella coverages. Commercial lines, on the other hand, address the insurance needs of businesses.

Businesses require coverage for property, business continuation, product liability, fleet/commercial vehicle, workers compensation, fidelity, and surety insurance. They also need coverage for D&O insurance.

Actuarial science provides valuable tools for data collection, measurement, estimating, forecasting, and valuation. This helps management assess marketing opportunities and the nature of the risks.

In the reinsurance fields, actuarial science is used to design and price reinsurance and retrocession arrangements. This ensures that companies have sufficient reserve funds for known claims and future claims and catastrophes.

To become a fully credentialed actuary, you'll need to pass a series of professional examinations, which can take several years. These exams are extremely rigorous, so it's essential to have the right support and resources.

Employers often provide paid on-the-job study time and paid attendance at seminars designed for the exams, which can be a huge help. Many companies also offer automatic pay raises or promotions when exams are passed, giving actuaries a strong incentive to study diligently.

To give you an idea of the study time required, a common rule of thumb is that around 400 hours of study time are necessary for each four-hour exam. This translates to thousands of hours of study time over several years, assuming no failures.

If you're already graduated from college, you can take actuarial courses at the University by registering as either a Special Student or an Advanced Special Student. However, if you want to take courses that count towards graduate credit, you'll need to register as an Advanced Special Student and pay the higher tuition fees.

Here's a breakdown of the types of courses you'll need to take to prepare for the exams:

To prepare for the later exams, which involve a good deal of statistics, it's recommended to take either Stat 401 or Stat 420. Other useful undergraduate courses include Numerical Analysis, Econometrics, and Operations Research, as well as business topics in Investments, Finance, and Accounting.

In the 18th and 19th centuries, computational complexity was limited to manual calculations, and actuaries developed methods to construct easily used tables, using arithmetical short-cuts called commutation functions, to facilitate timely, accurate, manual calculations of premiums.

Actuaries began to forecast losses using models of random events instead of deterministic methods in the 1930s and 1940s. This marked a significant shift in the profession, as actuaries started to rely on stochastic processes to make predictions.

Computers further revolutionized the actuarial profession, enabling actuaries to model and forecast losses with vastly greater accuracy and speed. From pencil-and-paper to punchcards to microcomputers, the actuarial profession has grown exponentially in its capabilities.

Computations in the 18th and 19th centuries were performed without computers, making calculations for life insurance premiums and reserving requirements complex and cumbersome. Actuaries developed techniques to make these calculations as easy as possible, such as "commutation functions", which are essentially precalculated columns of summations over time of discounted values of survival and death probabilities.

Actuarial organizations were founded to support and further both actuaries and actuarial science, and to protect the public interest by promoting competency and ethical standards. However, calculations remained cumbersome, and actuarial shortcuts were commonplace.

The introduction and development of the computer revolutionized the actuarial profession, allowing actuaries to go from pencil-and-paper to punchcards to current high-speed devices. This rapid improvement in modeling and forecasting ability is still heavily dependent on the assumptions input into the models.

Actuaries needed to adjust to this new world, where they could begin to estimate losses using models of random events, instead of the deterministic methods they had used in the past. The 1920 revision for the New-York based National Council on Workmen's Compensation Insurance rates took over two months of around-the-clock work by day and night teams of actuaries.

Modern financial economics has a distinct approach to actuarial science in the US, separate from traditional actuarial science.

Regulations play a significant role in this difference, with the Armstrong investigation of 1905 and the Glass–Steagall Act of 1932 being key milestones.

The Mandatory Security Valuation Reserve, adopted by the National Association of Insurance Commissioners, helps cushion market fluctuations.

This is in contrast to the Financial Accounting Standards Board (FASB) in the US and Canada, which regulates pensions valuations and funding.

The Glass–Steagall Act of 1932 is a notable example of a regulation that shaped modern financial economics.