Reviewed by Oct 05, 2020| Updated on
Actuarial science is a discipline that makes use of mathematical and statistical methods to determine financial risks in the insurance and finance fields. Actuarial science uses probability and statistical mathematics to define, analyse, and solve the financial implications of uncertain future events. Traditional actuarial science generally revolves around mortality analysis and life table growth, and the application of compound interest.
Actuarial science, in the late 17th century, became a formal mathematical discipline, with the growing demand for long-term insurance coverage, such as death, life insurance, and annuities. Actuarial science covers various interrelated subjects, including mathematics, probability theory, statistics, accounting, economics, and computer science.
Historically, actuarial science has employed deterministic models in tables and premiums construction. Owing to the introduction of high-speed computers, and the union of stochastic actuarial models with conventional financial theory, science has undergone radical changes in the last 30 years.
The two critical aspects of actuarial science are life-insurance and pension schemes. In the study of financial organisations, however, actuarial science is often applied to evaluate their liabilities and enhance financial decision-making. Actuaries use this specialised science to determine the implications of potential events in political, economic, and other business.
In conventional life insurance, actuarial science focuses on calculating longevity, creating life tables, and applying compound interest to build life insurance plans, annuities, and endowments.
The actuarial science focuses on evaluating levels of injury, morbidity, death, pregnancy, and other contingencies of health care, including employer-provided policies and social responsibility. Within the pension sector, actuarial science measures the cost of alternative approaches concerning pension plans design, financing, accounting, management, and maintenance, or redesign.