# Insurance and finance

Insurance was one of the first areas to apply statistical methods. Insurance companies make a living of uncertainty, and they need people who can analyse these matters. There is also a specific title for statisticians who specialise within insurance, called actuary. This title can only be achieved by studying at the universities in Bergen and Oslo.

Actuaries have long traditions for working with insurance, and the demand for this profession is increasing. This is due to the fact that many insurance products are now linked to the financial market. This point will also be further addressed below. A Master’s degree in statistics is necessary in order to qualify for the title of actuary. The subject of the master’s thesis must be within the field of insurance, and certain obligatory courses in insurance mathematics are also required. More information is available in the study guide.

The main insurance branches are life insurance and general insurance. Life insurance includes pension insurance, life insurance (i.e. the surviving family members receive money if one should pass away), and disability pension. All insurances are for individuals or groups.

General insurance comprises material things, such as, house, car, industrial plants and ships. In addition it includes certain personal insurances involving accidents, as, for instance, traffic accidents or accidents occurring at work.

Actuaries are often involved in problems such as:

• Helping to determine prices (premiums) of new and old products. One example is car insurance, where you need to consider type of car, mileage, area, your own share, etc. In order to determine the right price, you need good methods.
• In an insurance company, the premiums are collected first, and it is essential that there are enough means to pay out potential claims.  An actuary is responsible for calculating adequate reserves according to current public regulations.
• Reinsurance. Insurance companies place parts of their portfolios in international reinsurance companies. Actuaries are often involved in the process of assessing and negotiating such contracts.

Statistical problems may occur in these or similar situations and it might be necessary to estimate unknown values based on a collection of data. Some examples could be:

• Estimation of mortality patterns in life insurance for subgroups of the population. This often requires more sophisticated methods because historical data tends to be insufficient.
• Estimation of damage distribution including damage intensity in general insurance. Again, insufficient data tends to complicate matters.
• Analyses of so called catastrophe coverage, which includes damages caused by storms, floods, or damages from offshore work accidents in the North Sea. These kinds of problems often call for different methods than more common damages do.

Lately, the finance markets have become increasingly important in insurance. Many products are related to finance, and more are likely to come. Finance theory is thus very useful for actuaries. Some examples of products which combine finance and insurance are:

• Unit linked products, where the return on, for instance, pension insurance depends on the development of a share index.
• Minimum guarantees in life insurance. This is not a new product. Guarantees of minimum returns for life insurances have always existed. However, the development within finance theory makes it easier to calculate the value of such guarantees.
• ART (Alternative Risk Transfer). One example is reinsurance contracts which consider both the insurance result and the return of the company’s invested capital in the finance market.
• Partial coverage of catastrophe damages (CAT) by means of the bond market. One possibility is to decrease the return on bonds if comprehensive damage occurs.

In addition to the financially based arguments, there is a need for statistical methods to estimate parameters included in the models in order to evaluate such contracts. Again, insufficient data may complicate matters.

Researchers at the Department of Mathematics work with several of these problems and we have many international contacts. We offer a wide variety of topics for master’s theses, and a successfully completed master’s degree will be awarded with the actuary title. If your area of interest is finance rather than insurance, we offer topics within this area as well. Working with products that combine components from insurance and finance makes you attractive for both areas of employment.