History of Actuarial Profession

A profession serves a public purpose. Consequently, an outline of the history of the actuarial profession must follow the public purposes served by actuaries in applying their basic science. The formation in London in 1762 of the Society for Equitable Assurances on Lives and Survivorships as a mutual company, initiated a process that created a public purpose for actuaries. A mutual insurance company is owned by its policyholders and is operated for their benefit. The policyholders share in the profits of their company through dividends on their policies. Ogborn [1] has written a comprehensive history of the Equitable. Because of the long-term nature of most life insurance policies, the estimation of the period profit of a mutual life insurance company involves more than counting the cash in the vault. The estimation requires a valuation of contingent liabilities involving future benefit payments less future premium payments, which may not be realized as cash payments for many years. The resulting estimate of the value of future liabilities must be subtracted from an estimate of the value of assets. The existence of market values may assist the asset valuation, but the asset valuation also involves assigning a number to the value of future uncertain payments. The difference between the estimated asset and liability values is an estimate of surplus. Increase in estimated surplus can be viewed as an initial estimate of periodic profit and as a starting point in the determinations of policy dividends. The future cash flows arising from the assets owned and the insurance liabilities owed are, however, random. To provide a suitably high probability that the promises embedded in the insurance contracts can be fulfilled, the initial estimate of the profit that might be paid as dividends may be reduced to what is called divisible surplus. This is to create the required assurance of the ultimate fulfillment of the contracts.