On Becoming an Actuary of the Third Kind

The growing importance of investment performance in insurance operations, the increasing volatility in financial markets and the emergence of investment-linked insurance contracts are creating the need for actuaries to develop new skills and a greater awareness of investment performance. Hans Buhlmann recently classified actuaries that work with the investment side of insurance as actuaries of the third kind. This paper describes the similarities and differences between actuarial science and financial economics, indicates the current issues in financial economics, and summarizes the major applications of financial economics to insurance.