There are several distinguishing attributes of actuarial science :
- Actuaries begin with the problem , and then work backwards to devise an optimal solution. The problem range from determination of adequate rates, to the development of accurate reserves or optimal classification plans.Â Often, the problem is vague, does not have a definite answer, and there are multiple methods of proceeding. So the actuary’s task is to develop appropriate procedures, to determine the data requirement, to examine the feasibility and cost of data procurement and analysis.
- Actuaries seek optimal solutions, not perfect solutions, as business problems rarely have perfect solutions, perfect classification systems, perfect experience rating plan, or perfect loss reserving method. Some systems might be perfect, but cost might be too high , whereas some systems may be within budget, but is not accurate.Â Some proceduresÂ are also well suited for particular environments or particular business situations. So the actuary goes through all the pros and cons and reach for an optimum solution.
- An actuary has to consider all the constraints, whether they seem reasonable or not.Â The actuary may have to devise a system within the given constraints imposed by the regulators, management, capital or statutory requirements. Yet he may also break the constraints and recommend new systems, dimensions, pricing or procedures to develop an optimal solution.
- The marketplace is the ultimate judge of the actuary’s performance. Pricing procedures are judged by their ability to attract profitable business, and reserving procedures are judged by their ability to forecast actual loss emergence.