Actuarial Finance

1 Actuaries and their environment

Actuaries are professionals using scientific and business methods to quantify and manage risks. They mostly work for insurance companies, pension plans and other social security systems. Actuarial professionals may hold different positions in an organization and perform several functions, such as pricing, reserving, capital determination, risk and asset management. For example, actuaries:

• determine the cost of protections found in insurance policies and pension plans;
• analyze how the financial commitments arising from insurance policies and pension plans will affect the solvency of the organization;
• calculate the appropriate amount of money to set aside to ensure the solvency of the insurance company or the pension plan;
• find and manage investments that will help meet the company’s short-term and long-term financial commitments.

Therefore, actuaries:

• deal with assets and liabilities of insurance companies and pension plans;
• play an active role in insurance and financial markets;
• need to manage several types of risks whether they occur over the short or the long term, and whether they are systematic or diversifiable.

The main objective of this chapter is to put into context the role of the actuary in an insurance company or a pension plan. The specific objectives are to:

• differentiate between (actuarial) liabilities and (financial) assets;
• differentiate between financial and insurance markets;
• describe the various insurance policies and ...