Summary

Actuaries apply scientific principles and techniques from a range of other disciplines to problems involving risk, uncertainty and finance. In this chapter we set the context for the mathematics of later chapters, by describing some of the background to modern actuarial practice in life insurance, followed by a brief description of the major types of life insurance products that are sold in developed insurance markets. Because pension liabilities are similar in many ways to life insurance liabilities, we also describe some common pension benefits. We give examples of the actuarial questions arising from the risk management of these contracts. How to answer such questions, and solve the resulting problems, is the subject of the following chapters.

Background

The first actuaries were employed by life insurance companies in the early eighteenth century to provide a scientific basis for managing the companies' assets and liabilities. The liabilities depended on the number of deaths occurring amongst the insured lives each year. The modelling of mortality became a topic of both commercial and general scientific interest, and it attracted many significant scientists and mathematicians to actuarial problems, with the result that much of the early work in the field of probability was closely connected with the development of solutions to actuarial problems.