All about actuarial studies or science, and being an actuary

The future is full of uncertainty. Some of the events that can happen are undesirable. "Risk" is the possibility that an undesirable event will occur. Actuaries are experts in:
evaluating the likelihood of future events,
designing creative ways to reduce the likelihood of undesirable events,
decreasing the impact of undesirable events that do occur.
The impact of undesirable events can be both emotional and financial. Reducing the likelihood of these events helps relieve emotional pain. But some events, such as death, cannot be totally avoided. So, reducing their financial impact is very important. Actuaries are the leading professionals in finding ways to manage risk. It takes a combination of strong analytical skills, business knowledge and understanding of human behavior to design and manage programs that control risk.
Actuaries love what they do. Their work is intellectually challenging and they are very well-paid. Actuaries are key players in the management team of the companies that employ them. In a fast-changing world, with new risks and the need for ever-more creative ways to tackle them, there is the constant opportunity for personal and professional growth in an actuarial career, and the pleasure of life-long learning. Most actuaries work in a pleasant environment, alongside other professionals, and enjoy the respect of their peers.
This is why the actuarial profession has consistently been rated as one of the top five jobs in the United States according to Jobs Rated Almanac. To learn more about this, click here.
Actuaries are the analytical backbone of our society's financial security programs. They are the brains behind the financial safeguards we have implemented in our personal lives, so we can go about our daily lives without worrying too much about what the future may hold for us. These are the safeguards that protect us from life's catastrophes. The insight into risk that actuaries have also helps to ensure that our savings are working hard for us, so that everything we love and cherish can grow and flourish. The work of actuaries benefits all of us.
What is risk and how do actuaries manage risk?
Explaining what an actuary does would not be complete without also explaining about risk itself.
Every person and organization faces risk, and it comes in many forms. As experts in measuring and managing risk, actuaries fill a significant need in our society. Their contribution to society's psychological, physical and economic well-being is immense. If the risk management programs actuaries develop don't exist, our economic growth would be greatly impacted. Here are a few examples:
1. Would as many people be willing to own a home if fire insurance did not exist?
2. Would a company build a factory that could be destroyed in an earthquake if it were not protected by insurance?
3. Would people spend money today and still be confident about their future if there were no retirement programs or social security?
4. Would the cars people drive be safe if the parts were not rigorously tested to last for many years using mathematical techniques actuaries routinely use?
5. Would parents enjoy risky and adventurous recreational activities such as rock climbing or skiing if their children faced financial disaster in the event of an accident?
6. Would the banks (and the money deposited in them) be safe if their assets and liabilities were not carefully managed to control financial risk?
7. Would the returns on our investments be high if financial institutions such as mutual funds, banks, and insurance companies did not use sophisticated techniques to improve returns without increasing risk too much?
There are many ways to manage risk. While there are some well-established techniques, more are being developed. It is an active area of research, both by faculty in universities and by practicing actuaries, who are constantly inventing new ways to maximize financial results for the participants in our economy, without exposing them to excessive risk. Some popular techniques include:
Offsetting one risk with another. Under certain circumstances, two harmful events might possess the characteristic that when the likelihood of one goes up, the likelihood of the other goes down. Thus, if we know that when coffee prices go up, soda prices go down, we might want to invest in both coffee and soda stocks, to manage our risk.
Risk is a matter of perspective. What might be harmful to one party, might be good for another. For example, when the value of the dollar goes down against the French Franc, that might be bad for an American business, but favorable for a French business. By trading off the consequences of an undesirable event with another party who is affected favorably, both parties are made better off.
Focus on catastrophic risks. Mathematical theory shows that the greatest relief from risk (and consequently, the greatest increase in peace of mind) comes from eliminating the consequences of events that are very unlikely, but result in very big losses. Thus, families should think about what might happen if the breadwinner dies, their house burns down, or they lose all of their savings. They should then implement solutions that reduce the likelihood of these events, as well as manage their financial impact. This might involve purchasing a life insurance policy or investing the savings in many different stocks, to reduce the exposure to any one company's fortunes. Generally, a few simple measures taken to address catastrophic risks have a great impact on our well-being.
Diversify, diversify, diversify. It is better to take on many small risks than face one big risk. Many small risks generally average out, to give an outcome that is not too extreme in one direction or another. Results become more predictable. Thus, diversification is an important tool in managing risk.
Where do actuaries manage risk?
At this time, the majority of actuaries work in careers that are associated with the insurance industry, though growing numbers work in other fields. They are heavily involved in insurance because that is society's most powerful answer for managing risk. We reduce our risk of financial loss by transferring it to an insurance company that accepts the risk for a price (which is the insurance premium). Actuaries play a key role to design insurance plans, determine the premium, monitor the profitability of insurance companies and recommend corrective action when appropriate. Actuaries working in insurance companies also ensure that insurance companies have set aside enough funds to pay claims and provide advice on how to invest the insurance companies' assets.
Actuaries work in all sectors of the economy, though they are more heavily represented in the financial services sector, including insurance companies, commercial banks, investment banks and retirement funds. They are employed by corporations as well as the state and federal government. Many work for consulting firms. Some are self-employed, enjoying financially rewarding careers that also come with the great flexibility of being one's own boss.


What does an actuary do?

Life is beset with risks. Risks that are difficult to estimate but may have great financial consequences. Indeed, nobody knows beforehand when a fire or a storm will break out. Nor can the behaviour of fellow road users be predicted. Actuaries determine the chance of such risks occurring, and establish their financial consequences.
Other fields of actuary activity are pensions and social provisions. For instance, it is for actuaries to consider how to overcome a pension gap or how to introduce a flexible retirement age. Other relevant matters for actuaries to contemplate are the sustainability of Old-Age Pensions in the face of the progressively aging population, and the financial consequences of linking wages and benefits. Actuaries are also the persons from which solutions for financial problems ensuing from DNA-manipulation by medical science are expected.
In whatever area the actuary is occupied, his principal technique is always to look systematically into the future, make predictions, and translate them into financial consequences. So, in essence, an actuary is a creative problem solver who occupies himself with the future on the basis of the past.


What does an actuary do?

Answer
Actuaries solve problems in the business world by analyzing and managing risk. To become an actuary, you have to pass a series of exams administered by the Society of Actuaries and/or the Casualty Actuarial Society. While actuaries must be well versed in mathematics, they are also knowledgeable about computer science, economics, pertinent social issues, and the law. Actuaries evaluate financial risks using their business and analytical skills. Actuaries primarily work for insurance companies, consulting firms, and government organizations. However they also work for universities, banks and investment firms, large corporations, accounting firms, hospital and physician organizations, rating bureaus, labor unions, and other organizations.
Most companies provide assistance with actuarial exams by offering paid study time and paying for classes, books, and exam fees. Exam takers usually need to study two to three times as much on their own. The exams are among the most grueling of any profession, but they carry significant rewards. Most companies reward raises upon completion of an exam.
While not obviously visible, an actuarial career is consistently voted as one of the top professions in America by Jobs Rated Almanac based on job environment, income, outlook, physical demands, security, and stress. You can learn more about an actuarial career at www.BeAnActuary.com.


ADVICE TO BEGINNING ACTUARIAL STUDENTS
College students and recent graduates sometimes ask me for advice about an actuarial career. Here are some of my thoughts:
THERE ARE MANY ACTUARIAL SOCIETIES
There are many actuarial societies whose mission is educational. In the US and Canada, we have the Casualty Actuarial Society (CAS) and the Society of Actuaries (SOA). Their scopes sometimes overlap, but in 15 words or less, the CAS does property and liability, and the SOA does life, health, and pension. Both do finance. Until you are ready to specialize, you should look into both societies.
Many countries have their own country-specific actuarial society. Some of them give their own exams, and some of them accept the CAS and SOA exams. If you are not in the US and Canada, please consult your country's specific requirements.
COURSES FOR COLLEGE STUDENTS
The first actuarial exam is on Probability. This is calculus-based probability (for example, if your college probability and statistics courses never mentioned the exponential distribution or moment generating functions, then your courses were "probably" not calculus-based). Some of the problems will use vocabulary from risk and insurance; this can be self-studied, but you really need to get the item from the reading list that addresses this (namely: "Risk and Insurance," Society of Actuaries Study Note P-21-05).
Note that in contrast to prior years, we no longer test calculus directly. Instead, we test probability in such a way that you need some mastery of calculus to understand the probability and the insurance concepts.
The second actuarial exam is on Financial Mathematics. You really need to use the suggested reading list because it is unlikely you have studied precisely this in your college classes. This exam had covered theory of compound interest with a calculus prerequisite. Begining with Spring 2007, the exam will also cover introduction to financial instruments including derivatives and the concept of no-arbitrage. .
Beginning in 2005, the three subjects of Economics, Corporate Finance, and Applied Statistical Methods will fall under a new category called Validation by Educational Experience (VEE). These subjects may be satisfied in several ways including earning a B- or better in an approved college course. The details for this are best discussed in the SOA and CAS web sites. Note that the approval of the course is by the actuarial societies, so your college needs to work on the approval process if it has not already done so.
Besides math, you should take a writing course, preferably a business writing course if one exists. A lot of actuarial work involves communicating the results of actuarial calculations, in writing, to people who are not actuaries. Obviously if there is a course called introduction to insurance, or something similar, take that. Some other useful courses would be calculus-based statistics, economics, finance, accounting, and business law.
THE FIRST EXAM
You can get the reading list for the first few exams here. You can get sample problems for the first few exams here. (Some of the above require Adobe Acrobat to view, but you can download that at these sites as well.)
If you are looking for plenty of problems, try Mad River Books; 1-800-282-2839.
The first two exams and the fourth exam are offered jointly by the CAS and the SOA. Interestingly, each society has its own third exam.
After the first four (and also with number three), you will need to pick a specialty. Each society offers its own set of exams, and they are not the same.
HOW MUCH MATH DO I REALLY NEED TO BE AN ACTUARY?
Not an easy question to answer. The reading list for the first exam describes the topics tested on the first exam and will suggest whether these topics either look familiar to you or not. If not, you will have to learn them on your own. Any math major (or someone with another major who has taken a lot of college math) has already seen many of these topics, although he or she probably needs to review them for the exams. The subsequent exams take some of these math topics and extend them to insurance applications. No math major has already seen these topics, but the issue is how well a person can use their basic math (calculus and calculus-based statistics) and understand how they are used in new applications. I use very little advanced math on the job in my daily work, and often my work is just arithmetic. But on the other hand there are business problems that other insurance professionals have no idea how to attack, and an actuary has a wealth of mathematical tools at his or her disposal. Statistics, economics, finance, business,science and engineering majors who have taken a lot of math and who like math are also good candidates to become actuaries.
WHY IT'S SO IMPORTANT TO PASS ACTUARIAL EXAMS EARLY AND QUICKLY
The first few actuarial exams are pure math and are similar to the subjects you study in college. You should try to pass the first few exams while you're still in school for several reasons. First, so that you have some idea how difficult they are. Second, because the material should be fresher to you than it will be a few years later. Third, because most employers expect that you have passed one or more exams when you apply for that first job, especially since you will be competing against other people who have passed some.
You should also try to continue passing exams as quickly as you can while you're working. The obvious reason for this is because this will help you advance in your career, give you exam raises, give you more flexibility for job assignments or job changes, etc. There is also a less obvious reason for this which I have not often heard actuaries say, although I doubt if experienced actuaries would disagree: The more responsible your job is and the greater your family responsibilities are, the harder it will be to make time to study for actuarial exams. In other words, it is one level of difficulty to pass an exam when you are 24, single, and doing routine actuarial work, but it is an entirely different level of difficulty when you are 45, married with three kids, and the chief actuary reporting to the company president. (Having been in both positions, I can say this from personal experience.)
WHAT IS THE WORK LIKE? IS IT BORING?
The work varies by employer and specialty, but very generally speaking you will be working with lots of data, looking for patterns and trends, performing various actuarial calculations, and ultimately recommending either the price to charge for some sort of insurance deal or else how much to set aside to pay for claims. That of course is a gross over-simplification, but it is impossible to describe the kinds of work done by an entire profession in one sentence.
I am not a lawyer, doctor or accountant, but if I were I would guess that in my first year in those professions I would not be arguing in front of the Supreme Court, doing open heart surgery, or doing Bill Gates's tax return. Analogously, in the first year of actuarial work you will be doing some pretty routine calculations as you learn the insurance, actuarial and company environment. Experienced actuaries do higher level, large dollar amount projects, and generally do not describe their work as boring.
WHAT ELSE CAN YOU DO TO PREPARE FOR AN ACTUARIAL CAREER?
If you are still in college, you should encourage your math department to find out who the local employers of actuaries are, and then invite them to send an actuary to speak to your school about what actuaries do. You may need help from the college career placement office if your math department does not know where to find these employers. Not every actuary enjoys public speaking, but many do.
It would not hurt once in a while to read some insurance periodicals to see what is currently important to insurance professionals. The National Underwriter, Business Insurance, and Bests' Review are three such periodicals. Note that each of these has a separate life edition and property/casualty edition, and the online versions are abbreviated. Unless your college offers an actuarial or insurance major, these periodicals may not be in your college library. Ask your college librarian where to find them.
The following is a piece of advice that I stumbled on: Volunteer to join the financial committee of a non-profit organization that you already belong to, such as your religious organization. This will get you involved in reviewing the financial statements (balance sheet, profit and loss statement, others) of that organization, and will prepare you for the time when you will be involved in the financial statements of your insurance employer. Further, try to find out who buys the insurance for your non-profit organization, and find out what kinds and how much insurance they buy.
WHERE ARE THE JOBS?
Although actuaries can be found in nearly every state and province, most actuaries work in or near the very biggest cities. Go to your college placement office or to the library and find a list of insurance companies and their home offices. Not all actuaries work for insurance companies (other employers are consulting firms, government, organizations that buy insurance or serve the insurance industry, etc.), and not all insurance company actuaries work in the home office, but this is a good way to start your search.
HOW MUCH CAN I MAKE?
Here is one way to answer that question. Check out the salary survey at D. W. Simpson & Co., an actuarial recruiter company.
HOW DO LIFE AND PROPERTY/CASUALTY ACTUARIAL WORK COMPARE?
Most actuaries, myself included, only have experience in one of these, and in my opinion are poorly equpped to do a fair job in comparing life versus property/casualty. Stuart Klugman, PhD, FSA, and professor of actuarial science at Drake University, concedes he has worked in neither the life nor the property/casualty field, but he offers the following opinions:
1. If by "actuarial techniques and knowledge" it is meant formulas with special symbols (e.g. A(m)x:n) then the life folks win. If a more general view is taken, that an actuarial technique is the application of modeling tools to risk financing problems, then it is a tie with the Property/casualty world leading with regard to the amount of creativity needed and the lack of cookbook solutions to many problems.
2. My guess is that life companies use more actuaries in non-actuarial capacities than do Property/Casualty companies and in part that contributes to the higher numbers. If your ultimate goal is to be VP of information systems, of marketing, or of some other non-actuarial department, the prospects are better in a life company.
3. There are boring jobs on both sides (Property/Casualty - doing state-by-state personal auto filings by filling in the blanks from last year's method. Life - completing form 5500B for defined benefit pension plans).
4. Probably most critical to decision making today is what skills/tasks will be important 10 years from now when today's entry-level actuarial will be doing really serious work. Here is my forecast: Life -- The most successful actuaries will be "financial engineers" who are conversant on both sides of the balance sheet. Financing the risk is more important than underwriting the risk. Property/Casualty -- Statistical modeling will still be key. The randomness inherent in the loss process for PC coverages is much harder to deal with than age at death.
5. One area of convergence of the two sides to our profession is the emerging field of enterprise risk management. (Excerpted from Wikipedia - It is the methods and processes used to manage those risks, possible events or circumstances that can have negative influence on the enterprise in question. It can also include credit risk and market risk.) Much of the progress in introducing actuaries to this subject has been through joint efforts of the CAS and SOA. When looking at the entire company, many of the line of business distinctions become less important.
(Thanks, Stuart, for granting permission to me to post this.)
A NOTE TO PROFESSORS AND OTHER COLLEGE ADVISORS
If you are advising people about actuarial careers and the appropriate courses to take, then you should be advising them to take at least one course on insurance. If a student decides he or she hates insurance, they are not going to enjoy being an actuary. If your institution does not currently offer a course in insurance, can you find one at a nearby college? Or online? When I interview someone for an actuarial job, is it too much to expect that the applicant knows SOMETHING about insurance?
Also, professors and college advisors should get the appropriate Economics, Corporate Finance, and Applied Statistical Methods approved under the Validation by Educational Experience (VEE) concept discussed above.
OTHER WEB PAGES OFFERING ACTUARIAL ADVICE
Casualty Actuarial Society
Society of Actuaries
Actuarial discussion forum at the Actuarial Outpost bulletin board, sometimes called the Rebel board
Be an actuary: Career advice from both actuarial societies.
An inside look at the profession from that famous B. Anne Actuary
Lots of advice at the Actuarial Grads Network page
Not exactly designed for actuarial students, but I was impressed by the study suggestions of this Professor's web page.
Here is a good place to go for Actuarial News
If you or a friend are considering becoming a high school or middle school math teacher, in the US you will need to take one of the Praxis II math exams.


What does an actuary actually do?
By: Mary Chen (Sunday Mail, 18 April 2004)
THE actuarial profession is still not that well-known among the general public.
An actuary (plural: actuaries) is one who calculates insurance risks, rates and
dividends.
The term "actuarist" is not correct, although it has been often mistakenly used.
Says Teh Loo Hai, President of the Actuarial Society of Malaysia: "The reason many
people do not know about us is because there are fewer than 40 qualified actuaries
in the country, and only around 35,000 in this profession worldwide." The way an
actuary looks at the future is not through a crystal ball, but by using his mathematical
and analytical skills to crunch numbers, assess data and statistics to design financial
formulae that minimise the risk of uncertainties and variations of the future.
"Take life insurance: We really don't know when people will die or claim on their
policies; that is the uncertainty.
Yet we must, among others, analyse statistics on life expectancy, death, illness and
accident for the population before devising the appropriate premiums and
contribution rates that minimise the financial risk to the company," says Teh.
"We need to also ensure adequate financial reserves to meet possible claims.
You might say we try to put the appropriate price tag on future financial risk for the
company." Depending on his place of employment, an actuary may be required to
design insurance policies, pension schemes and other financial contracts, or to assist
with risk management and investment policy planning, or even the employee benefits
schemes for his company.
After almost 17 years as an actuary, Teh feels he is still constantly learning and
gaining new insights about his profession.
"It is not a boring desk-bound job.
The number-crunching is not a routine job because the variations are always there.
Events such as September 11, the Bali bombing and the SARS outbreak were not
expected, but changed the economic landscape and require us to constantly update
our techniques of assessment and calculation," says Teh.
"It is an intellectual challenge to analyse current trends to predict future probabilities
and its impact on the financial risk of the company."
Rewards for those who presevere
How to qualify for this profession
You need a basic university degree, preferably majoring in mathematics, actuarial
science, statistics, economics, business or finance.
However, having a degree in Actuarial Science does not make one an actuary.
You must also register with one of the relevant professional bodies and sit for the
required series of professional exams before you can practice as an actuary.
These include the Society of Actuaries of the USA (www.soa.org ), Britain's Institute
of Actuaries (www.actuaries.org.uk ) and Australia's Institute of Actuaries
(www.actuaries.asn.au ).
Some universities may offer exemptions from certain papers, but most fresh
graduates usually spend another few years working and studying simultaneously to
complete the remaining exams.
There are some people who start sitting for these papers while in college, so perhaps
the earlier you start, the earlier you qualify.
Where to take exams/get training
Examinations are organised by the respective professional bodies, and the venues
are usually the respective embassies/high commissions.
Self- study is required; materials are obtained directly from the professional bodies.
Employers who offer support for professional actuarial studies are probably still
limited to insurance companies and actuarial consulting firms.
Vital skills/personality traits
Strong mathematical skills, for one.
Also must have keen analytical, project management and problem-solving skills.
Then you also need good business sense and the ability to be logical and far-sighted.
Good language and communication skills (both oral and written), as well as computer
skills, will be most useful.
Be disciplined, determined and persevering, especially with regards to self-studying
for the professional exams!
Job pros and cons
Incentive is usually given by employers when an examination is passed.
Most companies will also provide study support in the form of reimbursement for
study materials, as well as paid study leave.
On the negative side, working and self-studying simultaneously is a huge challenge
that requires much self-discipline and strong commitment.
Career prospects
Traditionally, actuaries will work in insurance companies, financial and actuarial
consulting firms.
There is, however, potential to specialise in the investment industry, pension, general
and health insurance, risk management and consultancy services.
One may even become a lecturer in related subjects.
Remuneration expected
The basic salary for a fresh graduate in this industry is between RM24,000 and
RM30,000 a year, while a qualified actuary starts with RM100,000 per annum.
Professional bodies to join, if any
Besides the three bodies mentioned earlier, there is also the Actuarial Society of
Malaysia (www.actuaries.org.my ).
Any personal advice?
In Malaysia, there is a great need for qualified actuaries.
On the other hand, there is a glut of graduates at the bottom rung of the actuarial
industry.
The climb to the top is tough because getting the qualification is hard, and you may
not pass the selection process, but for those who persevere and make the grade, the
financial rewards can be great.
Career: Actuary
Name: Teh Loo Hai
Qualifications: Bachelor of Economics, Macquarie University
Fellow of Institute of Actuaries of Australia
Current positions: Executive vice-president and head of customer management,
Great Eastern Life Assurance (M) Bhd
President, Actuarial Society of Malaysia