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Actuaries are business professionals who deal with the financial impact of risk. Actuaries use skills in mathematics, economics, finance, probability, and statistics to handle uncertain future events, especially those of concern to insurance and reinsurance companies, employee benefits such as medical insurance and pension plans, and social welfare programs such as social security and Medicare.

Actuarial Work

Disciplines

There are two major actuarial disciplines, often referred to as life & health and property & casualty. Life actuaries deal with risks that pertain to the ongoing health, well-being, and natural mortality of people such as life insurance, annuities, pensions, disability, and medical insurance. Casualty actuaries, also known as non-life or general actuaries in many countries, deal with more catastrophic, unnatural, risks that can occur to people and property. These risks include those such as auto, homeowners, commercial property insurance, workers' compensation, title insurance, medical malpractice insurance, products liability insurance, directors and officers liability insurance, environmental insurance, and other types of liability insurance.

Traditional Responsibilities

On both the life and casualty sides, the classical functions of actuaries are to compute premiums and reserves for insurance policies covering various risks. Premiums are the amount of money the insurer needs to collect from the policyholder in order to cover the expected losses, expenses, and a provision for profit. Reserves are provisions for future liabilities and indicate how much money should be set aside now to reasonably provide for future payouts. If you inspect the balance sheet of an insurance company, you will find that the liability side consists mainly of reserves.

On the casualty side, often this analysis involves quantifying the probability of a loss event, called the frequency, and the size of that loss event, called the severity. Further, the amount of time that occurs before the loss event is also important, as the insurer will not have to pay anything until after the event has occurred. On the life side, the analysis often involves quantifying how much a potential sum of money or a financial liability will be worth at different points in the future. Since neither of these kinds of analysis are purely deterministic processes, stochastic models are often used to determine frequency and severity distributions and the parameters of these distributions. Also, forecasting interest yields and currency movements play a role in determining future costs, especially on the life side.

Furthermore, actuaries do not always attempt to predict aggregate future events. Often, their work may relate to determining the cost of a financial liabilities that have already occurred, called retrospective reinsurance, or the development or re-pricing of new products.

As actuaries have always been considered preeminent experts on financial risk, there has been a recent widening of the scope of the actuarial field to include investment advice and asset management.

Typical Employment

Actuaries are employed in insurance or reinsurance companies, consulting firms (i.e., firms that sell actuarial advice and analysis to other companies), and government departments, such as the Government Actuary's Department in the UK or the Social Security Administration in the US.

Actuaries design and maintain products and systems. They are involved in financial reporting of companies' assets and liabilities. They must communicate complex concepts to clients who may not share their language or depth of knowledge. Actuaries work under a strict code of ethics that covers their communications and work products, but their clients may not adhere to those same standards when interpreting the data or using it within different kinds of businesses.

The credentialing and examination procedure for becoming a fully qualified actuary can be quite discouraging for people who would otherwise be interested in the career, and the profession remains very small throughout the world. However, as a result actuaries are in high demand and are very highly paid for the services rendered. In the UK for instance where there are fewer than 8,000 fully qualified actuaries, consulting actuaries can be charged out to clients from around £80 (c. $140) per hour for a university graduate with no actuarial experience to £700 (c. $1,240) per hour for a top qualified actuary.

The most recent Wall Street Journal survey on the best jobs in the United states listed being an actuary as the second best job (in two previous editions of the list, being an actuary had come first)[1].

Credentialing and Exams

Becoming a fully certified actuary requires passing a rigorous series of exams taking several years. In some countries, such as France, most study takes place in a university setting. In others, such as the U.S., most study takes place during employment.

United States

In the U.S., for life and health actuaries exams are given by the Society of Actuaries, also known as the SOA (www.soa.org). Whereas for property and casualty actuaries the exams are administered by the Casualty Actuarial Society, also known as the CAS (www.casact.org). These align with the two major actuarial disciplines discussed above. The Society of Actuaries' membership requirements include passing six examinations for Associateship and two additional exams for Fellowship. The Casualty Actuary Society requires the successful completion of seven examinations for Associateship and two additional exams for Fellowship. In addition to rigorous exam requirements, actuarial candidates must also complete other educational and professional development requirements.

Preliminary Exams

The first four exams ("Preliminary Exams") consist largely of core mathematics related to actuarial science including probability, statistics, interest theory, life contingencies, and risk models. Exams 1, 2, & 4, recently renamed P, FM, and C, are common to both the SOA and the CAS. However, while the third examination of the SOA, also known as Exam M, is accepted by the CAS, the reverse does not hold.

These exams are also approved by the Canadian Institute of Actuaries. This joint sponsorship allows students to work on the initial requirements before they choose a specific discipline to pursue.

Upper-Level Exams

The upper-level exams differ between the two societies, however, both societies' upper-level exams focus on more qualitative information than the preliminary exams. Another difference is that upper-level exams also have an essay/short answer component, whereas preliminary exams are solely multiple choice. Upper-level exams sponsored by the CAS have been exhibiting a tendency to remove multiple-choice questions entirely. Upper-level exam topics for the CAS include: ratemaking, insurance accounting, loss reserving, and reinsurance. Fellowship exams for the CAS include such topics as advanced investments/finance, advanced ratemaking, and risk rating plans. Upper-level exam topics for the SOA include plan design, risk classification, ratemaking, valuation, and finance & investments. Fellowship exams for the SOA cover applied modeling and an area of specialization chosen by the candidate.

Exam Support

As these qualifying exams are rigorous, support is often available to people progressing through the exams, or "actuarial candidates." Often, this includes paid on-the-job study time and paid attendance at seminars designed to prepare students for the exams. Also, many companies which employ actuaries have automatic pay raises or promotions when exams are passed. As a result, actuarial students have strong incentives for putting in adequate study time during off-work hours. A common rule of thumb for actuarial students is to put in roughly 400 hours of study time per full exam taken. If 6–9 exams need to be taken to reach a desired level of credentialing, anywhere from 2,400 to 3,600 hours of study time should be anticipated over several years, assuming no failures. In practice, as the historical passing percentages remain below 50% for these exams, the "travel time" to credentialing is extended and thus more study time needed.

Actuarial Organizations

Actuaries usually belong to one or more professional bodies, which include:

• The Actuarieel Genootschap in The Netherlands
• The Actuarial Society Of India in India
• The Actuarial Society Of South Africa in South Africa
• The American Academy of Actuaries in the US
• The Canadian Institute of Actuaries in Canada
• The Casualty Actuarial Society in the US
• The Danish Actuarial Society in Denmark
• The Deutsche Aktuarvereinigung e.V. in Germany
• The Faculty of Actuaries in Scotland
• The Groupe Consultatif of the European Union
• The Hungarian Actuarial Society in Hungary
• The Institute of Actuaries in England and Wales
• The Institute of Actuaries of Australia in Australia
• The Instituto Brasileiro de Atuária in Brazil
• The International Actuarial Association
• The International Association of Consulting Actuaries
• The Israel Association of Actuaries
• The New Zealand Society of Actuaries in New Zealand
• The Royal Association of Belgian Actuaries in Belgium
• The Society of Actuaries in the US
• The Society of Actuaries in Ireland in Ireland

See also

• Actuarial present value
• Actuarial science
• Actuarial notation
• Catastrophe modeling

External links

• Turkish Actuaries (TURKEY) website
• Be An Actuary (USA) website
• Actuarial Science Community For Indians
• U.S. Department of Labor Bureau of Labor Statistics — Actuaries
• Actuarial News Resource (USA) website
• Independent Actuarial News Resource (USA) website
• French Institute of Actuaries
• New Zealand Society of Actuaries
• Swiss Actuarial Association
• Worldwide Actuarial Discussion Forum & Community (Actuarial Outpost)
• Israel Association of Actuaries

References

• Actuary Salary Survey
• Actuary Wage and Occupation Analysis
• Actuarial Science Guide

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