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Foundations of Casualty Actuarial Science

Prediction is hard, but simulation is harder. Simulation
must reflect reality, and scenarios must internally link
consistently. Simulated interest rate paths must accord
with the expected distribution of these paths. Interest
rates, inflation rates, and other variables in each scenario
must be reasonably related to each other. The simulation
results provide better information. They show the
sensitivity of the return to the various factors affecting
the company.

11) What developments are expected in actuarial
science in near future?

Ans. Actuarial Science is evolving at a fast pace. The
multiplicity of variables and the need for thousands of
simulations to produce credible results, once made
dynamic analysis an actuarial dream. However, with the
advent of technology, the computers run the simulations.

Previously, the actuaries worked with traditional rating
formulas, but that is no longer enough to set prices. Two
developments have changed the focus of actuarial
pricing. First, bureau ratemaking have changed has

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