The law of large numbers helps actuaries to:

The law of large numbers helps actuaries to:

• A. Predict individual outcomes with high accuracy.
• B. Predict losses for a large group of similar risks.
• C. Eliminate risk entirely.
• D. Determine premiums purely by guesswork.

Answer: (B)

The law of large numbers says that as the number of similar risks increases, the average of the actual losses will get closer to the expected loss. For actuaries, this means they can predict total losses for a large group with much greater accuracy than for a single policyholder. That foundation lets them set premiums, plan reserves, and price products based on the expected frequency and severity of losses across a big pool. This doesn't let them predict individual outcomes with high precision—one person's claim can still be surprising. It also doesn’t eliminate risk entirely; larger pools reduce, but do not remove, uncertainty. And premiums aren’t guessed; they’re built from expected losses plus expenses, margins, and other factors, not guesswork.

The law of large numbers says that as the number of similar risks increases, the average of the actual losses will get closer to the expected loss. For actuaries, this means they can predict total losses for a large group with much greater accuracy than for a single policyholder. That foundation lets them set premiums, plan reserves, and price products based on the expected frequency and severity of losses across a big pool.

This doesn't let them predict individual outcomes with high precision—one person's claim can still be surprising. It also doesn’t eliminate risk entirely; larger pools reduce, but do not remove, uncertainty. And premiums aren’t guessed; they’re built from expected losses plus expenses, margins, and other factors, not guesswork.