Actuarial refers to the mathematical and statistical discipline used to assess and price risk in insurance and financial products. Actuaries analyze historical data on mortality, morbidity, accidents, and other events to predict future losses and determine how much insurers must charge in premiums to remain solvent.
Actuaries are credentialed professionals (Fellow or Associate of the Society of Actuaries, or Casualty Actuarial Society) who apply probability theory, statistics, and financial mathematics to quantify uncertain future events. In insurance, their primary function is pricing: determining the [[insurance-premium]] needed to cover expected claims plus expenses and generate an adequate return on capital. Actuarial tables — most famously mortality tables — map the probability of death, disability, or illness by age, gender, and other risk factors. Life insurers use these tables to price term and permanent life policies; health insurers use morbidity tables for medical coverage. Property-casualty actuaries model natural disasters, auto accidents, liability claims, and other events. State insurance regulators require insurers to file actuarially justified rate schedules. The NAIC coordinates these standards nationally. The concept of actuarial fairness — charging each risk pool a premium proportional to its expected cost — is the theoretical foundation for why a 25-year-old pays less for life insurance than a 55-year-old.
Actuarial tables show that the probability of a health event, disability, or death increases with age. Insurers recalculate your expected cost at each renewal or re-underwriting, and premiums follow risk.
It is the amount an insurer must hold on its balance sheet, as determined by actuarial analysis, to cover future claims on in-force policies. State insurance regulators audit reserves to ensure solvency.