# What is an Actuary?

## Actuary

An actuary is a professional who specializes in the evaluation and management of financial risk using mathematical and statistical techniques. Although actuaries are not exclusive to accounting, they often work in close collaboration with accountants, especially in industries such as insurance, pensions, and financial services. Actuaries possess expertise in financial modeling, probability, and risk management.

Their primary responsibilities include:

• Analyzing historical data and using it to forecast future events or trends.
• Assessing risks associated with various financial products, such as insurance policies, pension plans, and investments.
• Developing and evaluating financial models to predict the likelihood of certain events, such as accidents, illnesses, or financial losses.
• Calculating premiums, reserves, and liabilities for insurance companies.
• Advising organizations on financial risk management strategies and making recommendations on risk mitigation.

While actuaries are not specifically focused on accounting, their work is integral to the financial health and stability of companies in industries that involve significant financial risks. They help ensure that companies have adequate financial reserves and employ appropriate risk management strategies to minimize potential losses.

## Example of an Actuary

Let’s consider an example of an actuary working in the insurance industry.

XYZ Insurance is a company that offers life insurance policies to its customers. The company wants to ensure that they are pricing their policies correctly, taking into account the risks associated with the insured’s age, health, and other factors. To do this, they need the expertise of an actuary.

An actuary at XYZ Insurance will perform the following tasks:

1. Collect and analyze historical data on policyholders, such as age, gender, health status, and other factors that may affect their life expectancy.
2. Develop a statistical model to estimate the probability of a policyholder passing away during the policy term based on the collected data.
3. Calculate the appropriate premium for each policyholder, considering the estimated probability of death, the desired profit margin for the company, and other relevant factors.
4. Determine the necessary financial reserves the company needs to maintain to ensure that it can pay out the claims when the policyholders pass away.
5. Monitor the performance of the insurance policies over time, making adjustments to the pricing model and reserve levels as needed to account for changes in the population or other unforeseen circumstances.

In this example, the actuary’s expertise in risk management and statistical modeling helps XYZ Insurance to price its life insurance policies correctly, minimize financial risks, and ensure the company’s financial stability.