Course Progress
Part of 10 Chapters
Foundations of Actuarial Science
Introduction: The Role of an Actuary
What is common between an insurance policy for a car and a multi-billion dollar pension fund? They both rely on the ability to quantify “Loss.” An actuary is a professional who uses mathematics to ensure that promises made today can be kept in the future.
1. The Power of Large Groups
The core of insurance is Risk Pooling. By combining the risks of thousands of individuals, the collective uncertainty decreases, and the average loss becomes predictable.
2. The Law of Large Numbers (LLN)
This is the holy grail of insurance. It states that as the number of trials increases, the actual result will tend to get closer to the expected value. This is why a large insurance company is more stable than a small one.
3. Why it Matters
Actuarial science provides the framework for:
- Setting fair premiums.
- Ensuring companies have enough reserves to pay claims.
- Managing long-term social safety nets.
💡 Professor’s Tip
Actuarial science is not just about “Counting Deaths.” It’s about understanding the Value of Protection. It combines the cold logic of numbers with the warmth of social responsibility.