The preface to the first edition of this text explained our mission as follows:
This textbook is organized around the principle that much of actuarial science consists of the construction and analysis of mathematical models that describe the process by which funds flow into and out of an insurance system. An analysis of the entire system is beyond the scope of a single text, so we have concentrated our efforts on the loss process, that is, the outflow of cash due to the payment of benefits.
We have not assumed that the reader has any substantial knowledge of insurance systems. Insurance terms are defined when they are first used. In fact, most of the material could be disassociated from the insurance process altogether, and this book could be just another applied statistics text. What we have done is kept the examples focused on insurance, presented the material in the language and context of insurance, and tried to avoid getting into statistical methods that are not relevant with respect to the problems being addressed.
We will not repeat the evolution of the text over the first four editions but will instead focus on the key changes in this edition. They are:
As in the previous editions, we assume that users will often be doing calculations using a spreadsheet program such as Microsoft Excel®.1 At various places in the text we indicate how Excel® commands may help. This is not an endorsement by the authors but, rather, a recognition of the pervasiveness of this tool.
As in the first four editions, many of the exercises are taken from examinations of the Society of Actuaries. They have been reworded to fit the terminology and notation of this book and the five answer choices from the original questions are not provided. Such exercises are indicated with an asterisk (*). Of course, these questions may not be representative of those asked on examinations given in the future.
Although many of the exercises either are directly from past professional examinations or are similar to such questions, there are many other exercises meant to provide additional insight into the given subject matter. Consequently, it is recommended that readers interested in particular topics consult the exercises in the relevant sections in order to obtain a deeper understanding of the material.
Many people have helped us through the production of the five editions of this text—family, friends, colleagues, students, readers, and the staff at John Wiley & Sons. Their contributions are greatly appreciated.
S. A. Klugman, H. H. Panjer, and G. E. Willmot
Schaumburg, Illinois; Comox, British Columbia; and Waterloo, Ontario
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