Actuarial firms are professional businesses whose staff members mainly use mathematics and statistics to calculate insurance risk and finance risk, among other things. These firms mainly provide services to insurance companies, investment banks, risk management companies and pension funds. The firms use statistical data that help them estimate the likelihood of any given event happening. The events being estimated are usually risks such as mortality risk in life insurance, credit risk in banking, investment risk, business risk and other types of risks. With the information they get from their estimations, they can help all sorts of businesses measure and manage risk and thus make appropriate decisions.
The services provided by actuarial firms are highly sought after by individuals and organizations in the finance industry. Finance revolves around managing and investing money in many ways that involve different levels of risks. For this reason, various finance professionals make use of actuarial businesses to help them assess all kinds of risks associated with specific fields of investment. This is because the actuarial businesses' services are very useful in investment risk analysis.
The main discipline practiced by those who work in actuarial firms is called actuarial science, and the qualified individual who practices this discipline is called an actuary. In addition to actuarial studies, actuaries also generally have solid education in an another or a few more disciplines, such as economics, accounting, mathematics, statistics, computer science and management. For this reason, actuarial firms will have employees whose skills can be used to give advice to a wide range of industries. Sometimes, however, actuarial firms might have expertise in a given area and work with companies in a particular field, such as life insurance.
Insurance companies are normally the main users of actuarial services to help them price the premium rates on their insurance policies. The premium rates refer to the amount of money paid on a regular basis by an insurance policyholder. Usually, if the event being covered by the insurance policy has a high probability of happening, then the premium rates will be high as well. If the chance of the event occurring is very likely, then the insurance company might choose to not issue an insurance policy. This can be determined by actuarial firms to help minimize risk, but in some cases, risk cannot be completely eliminated.
Typically, actuarial firms use statistical data of past events, and they will use this as a basis to calculate the probability that a given event will occur in the future. The firms use different data for different aims. For example, for life insurance purposes, a firm will use what is called a life table. This table will show the life expectancy of different individuals based on age, health conditions, gender and other particulars. Using this information, along with the medical record of the client, the firm can more or less estimate the lifespan of an individual who is seeking a life insurance policy.