Actuarial science has its own vocabulary, drawing on insurance, mathematics and finance. These are the definitions of the concepts used most often in practice and in the classroom.
- Actuary
- A professional who applies mathematics, probability, statistics and finance to measure, value and manage future risks, mainly in insurance, pensions and investments.
- Premium
- The price the policyholder pays for a policy. The risk premium covers the expected cost of claims; the level net premium equates the present value of benefits with the present value of future premiums.
- Mathematical reserve
- The liability an insurer must set up to meet its future obligations. It is the difference between the present value of future benefits and the present value of future premiums.
- Mortality table
- A statistical table showing the probability of death and survival at each age. It is the basis for valuing life insurance, pensions and life annuities.
- Actuarial present value (APV)
- The value today of a stream of future payments, adjusted both for interest (financial discounting) and for the probability that each payment occurs (discounting for survival or claims).
- Technical interest rate
- The rate used to discount future cash flows in an actuarial valuation. A lower rate means higher reserves and obligations.
- Life annuity
- A series of periodic payments made for as long as the person lives. It is the typical product in the payout phase of a pension.
- Loss ratio
- The ratio of claims paid (or incurred) to premiums. It is a key indicator of the technical profitability of an insurance portfolio.
- Reinsurance
- The mechanism by which an insurer transfers part of its risk to another company (the reinsurer) to protect its balance sheet against large claims or catastrophic events.
- Risk theory
- The branch that models the frequency and severity of claims with probability distributions; it is fundamental in property and casualty insurance.
- ERM (Enterprise Risk Management)
- An integrated approach to identifying, measuring and managing an organization's market, credit, liquidity, underwriting and operational risks together.
- Solvency II
- The European regulatory framework (a global benchmark) that requires insurers to hold capital commensurate with their risks. In Mexico it inspired the solvency regime of the CNSF (National Insurance and Surety Commission).
- NIF D-3 / IAS 19
- Accounting standards governing the valuation of employee benefits (pensions, seniority premium, severance). They require an actuarial calculation of the employee benefit liability.
- Projected unit credit method
- The standard technique (NIF D-3 / IAS 19) for allocating the cost of a benefit plan over the employee's working life.
- Afore
- Administradora de Fondos para el Retiro (Retirement Fund Administrator): the entity that manages workers' individual pension savings in Mexico under the supervision of CONSAR (National Retirement Savings Commission).
- VEE (Validation by Educational Experience)
- Credits in economics, accounting and corporate finance required by bodies such as the SOA, alongside the exams, to earn a credential.
- Fellowship credential
- The highest level of actuarial credential (FSA, FCAS, FIA, FCIA). It requires passing advanced exams and demonstrating professional experience.
- ISAP
- International Standards of Actuarial Practice: standards of actuarial practice issued by the IAA to harmonize the profession worldwide.
Want to go deeper? Visit Practice areas, Actuarial Science Around the World or the sources and bibliography.