The basis for actuarial science -- figuring out how much resource was needed to cope with a given outcome -- dates back to ancient times. The funeral societies of Rome, wherein each member chipped in regularly to pay for the funerary services of members when their time was up, was the first forerunner of life insurance. And naturally, someone had to figure out how much each member would have to pay to cover the upcoming funerals of the aged among them. These calculations were rough, but given the small number of people in such societies -- a few dozen to several hundred -- it was relatively easy to estimate upcoming deaths and the associated costs.
From the fall of Rome, however, it took mathematics and business theory more than 1,000 years to catch up to the point wherein they could be advanced further. Edmund Halley was best known for discovering of the comet that now bears his name. However, he also helped found modern actuarial science. In 1693, Halley made a study of the population in the German town of Breslau. Through careful recording of births, deaths and the aging population, Halley compiled a "mortality table." That bit of mathematics, using probability theories developed just a few decades before, allowed Halley to accurately predict the likelihood of a given person dying in any given year.
That, in essence, is the very foundation of the life insurance industry. By the ability to predict life expectancy, Halley was able to determine how much to charge a given person in premiums to cover burial costs. A generation later, English mathematician James Dodson created an entire framework for the creation of a mutual life insurance company, but died in 1757 -- five years before the Society for Equitable Assurances for Lives and Survivorship was founded in London. The term "actuary" was coined in London in 1762 by the Equitable, which first used scientifically calculated premium rates. The term, which referred to the Equitable's chief executive, had previously only been used in church courts in reference to those who recorded the "acts" of the court. (Equitable Life continues to this day -- though a pension crisis in 2000 nearly caused the company to collapse.)
Life insurance companies thrived in London, and by the dawn of the 19th century, they had taken root in England's former colonies. According to the Society of Actuaries, the first actuary active in the nascent U.S. was Jacob Shoemaker of Philadelphia, who in 1809 helped found the Pennsylvania Company for Insurances on Lives and Granting Annuities. Other companies followed, and the first mutual life insurance companies formed in the 1840s through the creation of Mutual Life of New York and the New England Mutual of Boston. It was also around the time when the first independent consulting actuary in the U.S., John F. Entz, began a career that spanned 32 years and paved the way for the introduction of actuarial science into individual companies through management of insurance policies and pensions.
The forerunner of modern actuarial societies -- and thus modern actuary science -- was created on April 26, 1889, at the end of a two-day meeting at New York City's Astor House. The new Actuarial Society of America was the latest in a long line of failed attempts at organizing the nation's actuaries, but this time egos were put in check and mutual respect thrived. Indeed, the actuarial industry showed early signs of diversity with the ASA's inclusion of its first female associate, Emma Warren Cushman of Boston, in 1895. The society's examination system, which has grown into a full series of industry-accepted educational and qualification tools, was first implemented in 1896, with the first Fellow of the Actuarial Society of America accepted in 1900.
The 20th century brought rapid changes to the insurance industry and the broader financial sector that helped advance actuarial science and actuaries in the eyes of the business world. Property and casualty insurance grew, and in 1914, the Casualty Actuarial Society (CAS) was founded. Life insurance companies offered the first health insurance policies in the 1920s, which required entirely new areas of risk analysis from actuaries. The same can be said for the introduction of group insurance, as well as the beginnings of actuarial involvement in pension plans. World War I and an influenza outbreak in 1918 challenged the evolving profession, and greater trials came during the Great Depression of the 1930s and the introduction of Social Security. The latter, however, created new opportunities for actuaries to work for the federal government, which had, in essence, created a pension system for the entire country. Government actuary work has grown since, and today actuaries work throughout local, state and federal governments.
In 1949, the growing need for standardized education and certification prompted the Actuarial Society of America to merge with the American Institute of Actuaries to form the Society of Actuaries (SOA), which continues to thrive and, along with the CAS, creates and maintains the standards for actuaries nationwide.
The introduction of early computers in the 1950s was a blessing for actuaries, and as assessors of risks and benefits, they were naturally quick to recognize the potential -- the SOA hosted an International Congress of Actuaries in 1957 specifically to discuss electronic data processing. The SOA and CAS also began working together to update their examinations to take computing advances into account, which, of course, has continued to the present day.
As the tools improved, so did the challenges. In addition to insurance (life, casualty, property, health and newer variations), actuaries were increasingly used to predict the needs of pension plans. New and, some say, controversial accounting systems adopted by the insurance industry in the 1970s left many actuaries with far more important roles in ensuring those companies had proper reserves. And, of course, inflation and economic turmoil through the 1970s left the entire business world, let alone actuaries, gasping for air.
The 1980s brought some stability, but high interest rates brought about new problems and opportunities for actuaries and those they served. One problem was that the cost of borrowing money was very high for the companies actuaries served -- a huge risk, especially taking into account unforeseen events -- but on the flip side, those high rates made rate-bearing investments, which had far less risk than the stock market, pay returns that were almost unheard of. Actuaries also had to create new insurance, annuity and investment products in this environment, all of which seemed almost generic when interest rates guaranteed substantial returns.
Sharply increasing life spans, starting in the 1970s and continuing through today, have challenged actuaries in the insurance and pension businesses. Insurers and, especially, pension funds managed to ride the dot-com wave of the 1990s, building up their reserves through timely investment in the stock market. Thanks to the hard work and foresight of their actuaries, most were diversified enough to avoid the subsequent crash, though a few certainly struggled as Alan Greenspan's "irrational exuberance" warnings went unheeded.
In the new century, actuaries have seen numerous new opportunities. As stocks crashed, hedge funds became less about hedging and more about seeking profits wherever possible -- and actuaries have been increasingly used to analyze the risk-reward potential of a massive number of new investment ploys. Enron's collapse certainly signaled the importance of actuaries throughout the financial sector as more complex transactions take place. (Of course, in that case, the actuaries were mostly kept in the dark -- there's only so much anyone can do if they don't know what's going on!) The corporate accounting scandals have also prompted many reforms, most notably the Sarbanes-Oxley corporate governance law, and actuaries have been at the forefront of determining the risk mitigation and management requirements for thousands of companies.
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