Actuary

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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 in the United States.

Contents

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Actuarial work

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Disciplines

There are four major actuarial disciplines, often referred to as life, health, pension and property & casualty. Life, health and pension 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 insurance 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.

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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.

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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.

In 2002, a Wall Street Journal survey on the best jobs in the United states listed actuary as the second best job, while in previous editions of the list, actuary had been the top rated job Template:Ref harvard.

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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. and U.K., most study takes place during employment.

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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). 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 attaining Fellowship requires an additional two exams as well as completion of a professional paper. 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 professionalism education and be recommended for membership by existing members. Continuing education is required after certification for all actuaries.

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Preliminary exams

The first four exams, known as “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.

Subject Matter SOA Exam CAS Exam Table Key
Probability P Exam 1 Exam Interchangeable
Financial Mathematics FM Exam 2 Exam Interchangeable
Modeling M Exam 3 Exam Not Interchangeable
Constructing Models C Exam 4 Exam Interchangeable

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.

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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.

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UK and Republic of Ireland

Qualification in the United Kingdom and the Republic of Ireland consists of a combination of exams and courses provided by the professional bodies, the Institute of Actuaries based in London, England, and the Faculty of Actuaries based in Edinburgh, Scotland, separate but coinciding bodies. No geographic limitations exist for these bodies i.e. students and actuaries in any part of the UK or the Republic of Ireland may be a member of either or both bodies. The exams can only be taken upon having officially joined the body, unlike many other countries where exams may be taken earlier; although a candidate may offer proof of having previously covered topics (usually while at University) in order to be exempt from taking certain subjects. In addition to exams and courses, it is required that the candidate has spent at least three years working as an actuary for him or her to qualify as a “Fellow of the (Institute/Faculty) of Actuaries”(FIA/FFA).

The exams are split into four sections:

  • Core Technical (CT)
  • Core Applied (CA)
  • Specialist Technical (ST)
  • Specialist Applied (SA)
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Core exams

The Core Technical section consists of the 8 exams and a “Business Awareness Module,” CT9. These are usually first sat by a candidate and include the underlying mathematics involved in actuarial work as well as an introduction to financial and economic issues. These are also the most common exams for which candidates may get exemptions. While these are the first exams, candidates coming from a less mathematical background often find these more difficult than the later ones due to the mathematical theory content. Topics covered include annuities, stochastic modelling, time series, and triangles.

The Core Applied section consists of two exams and a modeling course, CA2, that focus on the application of concepts learned, especially to insurance companies. This includes the communications model, CA3, which tests the candidate on their ability to communicate complex actuarial concepts to others. Upon successful completion of both the CT and CA subjects a candidate is said to be an “Associate of the (Institute/ Faculty) of Actuaries.”

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Specialist exams

The Specialist Technical section represents the first time the candidate has a choice of which exams to take. The candidate chooses two from the various actuarial specialist subjects e.g. Life, Pensions, or Investments and further technical knowledge on said subjects is attained.

The Specialist Applied section allows the candidate to choose one area for which they take the SA paper and attain full Fellowship; leading to many referring to this as the “Fellowship paper.” However, as the rules on the ordering of exams are relaxed, this exam may be taken before taking some earlier exams resulting in candidates qualifying on other papers.

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Exam support

As these qualifying exams are rigorous, support is often available to people progressing through the exams, often called “actuarial candidates.” Often, employers provide paid on-the-job study time and paid attendance at seminars designed for the exams. Also, many companies which employ actuaries have automatic pay raises or promotions when exams are passed. As a result, actuaries students have strong incentives for putting in adequate study time during off-work hours. A common rule of thumb for exam 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. This process resembles formal schooling, so that actuaries who are sitting for exams are still called “students” despite holding important positions with substantial responsibilities.

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Academic Actuarial Programs

The following universities in North America provide programs that give coursework covered in the early math exams as well as specialized insurance models applicable to actuaries and in finance, economics and regulatory business areas suitable for actuarial practice:

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Canada

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USA

NYU and University of Pennsylvania have material in their Business and Mathematics departments suitable for actuarial exams but these should not be confused with formal actuarial majors.

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Great Britain and the Republic of Ireland

Here, actuaries undergo a large part of their initial professional education in universities.

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Actuarial organizations

Actuaries usually belong to one or more professional bodies, often national in scope. A list may be found here: Category:Actuarial associations

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See also

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External links

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References

Template:Note label{{cite web 

| last = Lee
| first = Tony
| year = 2002
| url = http://www.careerjournal.com/jobhunting/change/20020507-lee.html
| title = 2002: Rating the Nation's Best and Worst Jobs 
| accessdate = 2006-04-04

}}

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Bibliography

eo:Aktuaro fr:Actuaire he:אקטואר hu:Aktuárius nl:Actuaris pl:Aktuariusz ru:Актуарий simple:Actuary sv:Aktuarie

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