Actuarial work typically involves determining the financial amounts employers and insurance companies need today to provide payments – such as pension plans or insurance claims – in the future, the timing of which is uncertain. A major component of this work is the determination of an assumption for future rates of return.
The rate of interest that can be earned on a fund or a reserve can have a significant effect on future growth and is a key factor in determining the rate at which future financial obligations are discounted. Because of this and its associated risks and volatility, some actuaries work in the investment practice area and protect public interest by:
- recommending appropriate investments insurance companies and pension plans should make in order to fulfil their obligations to policyholders;
- ensuring employers and insurance companies accumulate substantial asset pools to support their underlying obligations to plan members and policyholders;
- helping the government identify the risks and costs associated with social benefits; and
- managing risk through an appropriate choice of assets for given obligations.
Actuaries working in the investment practice area are ultimately responsible for solving a variety of problems and helping companies make wise investment decisions.