Actuarial science has a rich and complex history, with roots that stretch back thousands of years. The origins of risk management and probability theory involve notable figures such as a French gambler, a London coffeehouse regular, a famous astronomer, and ancient Roman courts.

Ancient Roots of Insurance Principles

Nearly 4,000 years ago, the Code of Hammurabi in ancient Babylon included early attempts to quantify risk and compensation for losses. This ancient legal code discussed a form of bottomry, or loan repayment contingent on a successful voyage.

Early methods of insurance-like protection also arose in ancient Greece and Rome, where members of mutual aid societies contributed fees in exchange for support during illness, disability, or death. Non-life insurance likely started as a hedge against loss of cargo during sea travel, as Greek orator Demosthenes reported in the fourth century B.C.

Financial accounting also has ancient origins. Early forms of recordkeeping in Mesopotamia involved clay tablets that detailed transactions involving animals and commodities. Similar accounting practices developed in other ancient civilisations, including Egypt.

Development of Probability Theory in Medieval Times

Before the mid-17th century, the study of probability theory was not popular. Reasons included a lack of economic motivation and a religious belief that God determined the outcome of all random events.

However, in 1654, French writer and philosopher Antoine Gombaud, also known as Chevalier de Mere, turned to his friend, mathematician Blaise Pascal, to solve a gambling-related problem. That led to a significant correspondence between Pascal and mathematician Pierre de Fermat, laying the foundation for probability theory.

In the 18th century, English statistician and philosopher Thomas Bayes made further contributions to probability theory. Bayes’ work was published posthumously, with amendments from his friend Richard Price.

The Beginnings of Insurance

The first marine insurance contracts resembling modern insurance appeared in Genoa and Florence, Italy, in the mid-14th century. These contracts often disguised loans to avoid charges of usury. The earliest known life insurance policy was taken out on the life of a London citizen in 1583.

By the 17th century, it became common to insure ships and cargoes at the Royal Exchange in London, with business often conducted in coffeehouses. Edward Lloyd’s coffeehouse, located by the River Thames, eventually became the foundation for Lloyd’s of London insurance market.

The Creation of Actuarial Science

John Graunt, a pioneer in demographic analysis, faced financial difficulties in London and developed the basis for analysing longevity and death within a population group. Edmond Halley, more famously known for Halley’s Comet, built on Graunt’s work and created the first life table. This table calculated the premium someone of a given age should pay to purchase an insurance product.

Halley published his analysis of mortality tables in 1693, marking a significant step towards the formal definition of Actuarial science.

Origin of the Title “Actuary”

Various developments in England from the late 17th to early 18th centuries led to the need for a title for individuals performing Actuarial tasks. British Actuary James Dodson’s work on premium rates led to the formation of the Equitable Life Assurance Society in 1762. Edward Rowe Mores, who led the Society, designated the chief official responsible for applying scientific methods as an Actuary.

The term “Actuary” comes from the Latin word “actuarius,” which had meanings ranging from shorthand writer to someone who wrote out accounts.

Foundations of the Actuarial Profession

Public recognition of Actuaries grew with the Act of 1819, the creation of the post of Actuary to the National Debt Office in 1821, and the first Actuarial appointment in government service. Technical improvements in the 19th century included the development of multiple decrement tables and theories on immunisation.

Today’s Actuary

Modern Actuaries are involved in various fields, including:

• software companies
• artificial intelligence
• data science
• climate change
• sustainability

They perform numerous tasks, such as:

• managing financial risks
• designing products
• calculating premiums
• determining capital and reserving requirements

Actuaries also work in banking, wealth management, and government roles, ensuring societal well-being and security.

The history of Actuarial science is marked by significant developments and contributions from various cultures and individuals. Today’s Actuaries continue to build on this legacy, adapting to new challenges and expanding their scope of work.