What is an Actuary?
An actuary essentially acts as the backbone of financial security for insurance and reinsurance companies, multinational corporations, and financial planners. The primary job of an actuary is to analyze risk and the costs associated with risks and uncertainty. An actuary’s primary tools include advanced mathematics, statistics, and financial theories. They frequently use software such as Excel to build financial models and perform risk analysis.
The job responsibility of an actuary is to protect organizations from uncertain events and losses by understanding potentially negative events and estimating the probability of their occurrence. Their role is to assess compiled data by applying complex statistical tools and to quantify financial risk. Their work helps insurance companies determine adequate premium prices. They also serve as financial consultants whose analysis helps companies avoid excessive financial risk by establishing and maintaining adequate levels of cash flow and cash reserves.
The vast majority of actuaries work in the finance and insurance sectors. In the insurance industry, they play a key role in policymaking. With advanced knowledge of how to calculate probabilities, they help determine insurance premiums to be charged for different policies.
Actuaries typically specialize in one type of insurance, such as health, life, pension and retirement benefits, or property and casualty. Some work in the public sector, where they conduct demographic research and analysis, and assist in the formation of welfare programs.
How to Become an Actuary?
Being a successful actuary requires aptitude in mathematics, statistics, and finance. Many aspiring actuaries major in actuarial science in college. Other individuals who pursue the profession of being an actuary have degrees in mathematics, economics, or other majors related to finance or statistics.
Two things differentiate the profession of actuary from many other professions:
1 – The enormous amount of testing required to earn professional credentials as an actuary.
2 – The fact that individuals can obtain entry-level positions as an actuary prior to completing all the necessary exams and earning professional certification. This is because the time required to reach the highest levels of certification may be as much as 10 years or more.
The Actuary Exams
There is a long series of exams, that takes several years to complete, that is required for certification as a professional actuary. The examination requirements and professional designations differ from country to country but are all similar in the depth and rigor of study required.
Here is an outline of the process for those studying to become actuaries in the United States.
The examination process is so lengthy and involved that many take the first few exams while they are still students in college who have yet to enter the job market. The initial required exams are the same for all actuary students. After successfully passing the early stages of the exam process, individuals will then take different exams based on their chosen specialty.
The rigorous examination process is considered so important to the profession that many firms offer paid time off to study for the exams and pay for employees to attend preparatory seminars for the exams. It is also customary for employees to receive a bonus upon successful completion of each exam series.
The authorities that design and govern the exam process are the professional organizations, the Society of Actuaries and the Casualty Actuarial Society. The levels of professional certification are as follows:
- ACAS – Associate of the Casualty Actuarial Society
- ASA – Associate of the Society of Actuaries
- FCAS – Fellow of the Casualty Actuarial Society
- FSA – Fellow of the Society of Actuaries
- CERA – Chartered Enterprise Risk Analyst
Where do actuaries work and how much does an actuary make?
The largest number of actuaries are directly employed by insurance companies. Some work for an actuarial firm such as Willis Towers Watson or Aon Hewitt. Others work for individual corporations or government entities as financial risk analysts, while some work independently as professional risk consultants.
They are some of the highest paid professionals in the financial services industry. The median salary for actuaries in the US in 2016 was $100,000. Salaries for those who have earned the highest credentials of Fellow or Chartered Enterprise Risk Analyst often exceed $150,000.
In addition, as noted above, along the way it is customary to receive bonuses in pay each time they successfully complete another round of examinations or professional education.
To further advance your financial education, take advantage of the following free CFI resources: