The actuarial profession. Questions I get asked as an actuary

8 mins read

FAQ’s about the actuarial profession

First things first, the right word is Actuary.  A  C  T  U  A  R  Y . Not Actuarian, not Actuarist. Definitely not actuarial. Or any other version you can come up with. Call me an Actuary or don’t call me at all. Nothing else is acceptable. Get it right, right now. So one more time. The profession is called the Actuarial profession. The practitioner is called an Actuary. And now for the frequently asked questions about the actuarial profession, immediately after some suitable qualifications:

I took my last actuarial exam more than eleven years ago. Which is about the same time it took me to get my three letters, so don’t put too much credence in what I say. I wrote most of these answers at the same time. The path that I took to become an actuary was then as non-traditional and unconventional as possible. And most actuaries that I know here in town would rather have a cow first then recommend the route I took. This is fair since there are times when I would not recommend the things that I have done!

1. What is an actuary?

As a rule we are good with numbers. Not equations or theories or proofs. Just numbers.  Although in the course of our education we end up studying hundreds of equations and theories and proofs but in the end it all boils downs to numbers.

Our is not the only profession with a stranglehold on numbers.  But we specialize in distant numbers. Numbers that are in the future or numbers that have not been realized as yet.  The biggest problem with the future is that it is uncertain. Although actuaries are not magicians or palm readers they understand uncertainty (supposedly better than the general population). They are trained to evaluate uncertain future events and their financial impact.

Traditionally Actuaries worked with insurance companies. Thirty years ago an actuary was the person who could explain social security, life insurance, health insurance, casualty insurance, pension and annuities in one breath. Now he or she can also explain what’s happening to the stock and bond markets, where you should investment your money and why is it such a bad idea to convert everything you have to gold and bury it in your backyard or hide it under your mattress.

2. What do actuaries do?

Actuaries generally work within three fields. They work with insurance companies and decide what would be the right rates to charge for life, health and casualty insurance.  They also work with employers to decide what would be the right level of employee benefits you can afford and how much of your retirement benefits can you actually pay for with what you have in your pocket right now. Finally they work with the government to determine what kind of a social safety net the government can afford to provide to its citizens.

However actuaries are not just limited to the above three fields. They also manage investment portfolios; they assist in designing and operating risk management programs. They work as teachers, software developers, business analysts, chief financial officers, chief information officers and a lot more. What you end up doing and where you end up working depends on what interests you and what you want to do in the long run. There are no limits or boundaries. Other than the ones you decide to put around yourself.

3. What do you do?

I do a number of things. For the first two years I worked with pensions and employee benefits plans on how much money they need now to pay the benefits they owe to their employees in the future and then I got bored which led to the following professional milestones in the next four years

  • I worked with insurance companies and insurance brokers and advised them on information technology (IT) and systems
  • I designed and implemented financial accounting systems for non insurance enterprises
  • I managed teams of 15 people working together on IT projects lasting more than 2 years.
  • I worked with small startups and advised them on organizational structure and employee incentives
  • I worked with the risk management team of a large investment bank

This was followed by the truly non-traditional, non-conventional part of my career over the next 12 years which involved bets that led to two dead startups, two successful technology companies, a couple of economic cycles, a handful of books, one decent blog and loyal following of students who sneak up to me on random airport and ask me to guess their names.

4. What do your other actuarial friends do?

Very few friends and even fewer who are actuaries. Partly because there are just a handful of us around in a firm or a neighborhood. Mainly, because I am a introverted, quantitative geek who has difficulty getting along with the extroverted types as well as with other introverted, quantitative geeks.

5. Where do actuaries work?
1. With Insurance (Life, Casualty and Reinsurance) companies
2. As consulting actuaries with consulting organizations

3. With Pension funds and employee benefit trusts
4. With the government
5. For themselves
6. With software development setups
7. Within the investment management field
8. With investment banks and other financial institutions

6. How do you become an actuary?

With much difficulty! You generally appear in a series of professional membership exams. You pass all of the exams between six and ten years. You fulfill the membership requirements and behold! You are an actuary. It’s a lot more difficult than above. Check out the actuarial organizations by just doing a simple Google search on Actuarial professional bodies and actuarial exam and you will find nirvana. Write to one of the organizations telling them about your interest and they will get back to you.

7. Why should you consider becoming one?

If you like mathematics and you think you are above average than that is one good reason.  If you like interacting with people that is another good reason.  If you like responsibility and you have a thing for professional respect and awe, that’s another. If you think of yourself as a relative thinker and can easily handle a long term mindset you have reason number four. If you are very big on ethics, the right choice and making a difference, you have reason number five.

It is a great profession but with very exacting standards.  You may have a match with all of the five reasons above but being an actuary is not for everyone.  Consult with your family doctor, you psychiatrist, you loved ones and your insurance agent before even thinking about this path.

8. What are the pre-requisites to becoming an actuary – education / personal attributes?

None that I am aware off but they would definitely vary from region to region and one actuarial professional body to another. A high school education is generally a plus but beyond that you can do whatever you want. You have to be very hard working and consistent. You also need a thick hide to handle the disappointment of flunking your exams. Self motivation, mental stamina, patience and a sense of humor are also big assets.

9. Is being an actuary a recognized / respected profession?

Within an insurance company an actuary is like a prophet. If you don’t listen to him the wrath of God will strike you down. The younger you are, the higher is the potential status and respect you will receive. Very few people understand what you do and you are like a witch doctor in an Amazonian village. It’s well respected and well recognized in all countries that have insurance companies.

10. How many actuaries are there?

Quite a few but still not enough. The numbers vary dramatically from region to region. Within the US the largest population lives on the East coast. Outside the US, the next highest concentration would be within UK. After that Canada, Australia and then possibly India.

11. When and how did the actuarial profession start?

Somewhere in the mid seventeenth century when one of the founding fathers prepared a table of life and deaths. From then on there was no turning back.

12. Why is it needed?

Anybody who has anything to do with a financial claim due in the future, needs an actuary. Such organizations need a frame work to evaluate the future and the financial claim. But just having the framework is not enough, you also need to understand how likely the future you are playing with is and how exposed are you as an organization to changes in that future. Then there is the whole issue of accounting and financial reporting and insuring that one year’s cost and expenses are allocated appropriately against that year’s revenues.

Traditionally actuaries worked with insurance companies since they understood the complexity behind an insurance claim and came up with a very successful framework for handling it. They have now done the same for financial claims. As a result an increasing percentage is working with financial institutions other than life insurance companies.

13. What are the employment opportunities? Which fields can an actuary work in?

Pass the first few exams. That will make it relatively easier for you to find an opening. Starting points are generally local insurance companies or local consulting firms. Later on as you finalize your specialization you can either settle down with your existing employer or switch practice. A lot depends on what type of a person you are and what drives you. Just becoming an actuary is no guarantee that you will get that six figure position.

14. What is the salary range for an Actuary?

Depends on the where you live and the specialization you work with.  The range for Associates with experience is between 50K-75K per annum. Fresh Fellows with pre qualification experience generally fall between 70K-110K. Fellows with post qualification experience could be anywhere from 90K onwards to off the chart. Figures are for the US market and refer to salaries in US$.

15. How many kinds of Actuaries can there be?

Fiv most common specializations are

1. Life Insurance
2. Group Insurance
3. Pensions

4. Risk Management
5. Investments and Finance

 16. Is it like an MBA?

Nooooooooooo! Never compare an actuary with an MBA. You will probably cause the poor guy to have a stroke.

There are two key differences between an Actuary and an MBA. The first is that an MBA is an academic degree while an Actuary is a professional qualification.  The second is that an Actuary is bound by the standards of his membership organization. A complaint of professional misconduct can cost him his membership restricting his ability to practice as an Actuary or call himself one. Given that a student spends between 7-9 years to qualify as an Actuary, such an event is very tragic and is generally very rare. Rare not because the membership organizations are lenient but because actuaries are expected to have very high ethical standards.

This is on the professional side. As far as the education is concerned the actuarial education is focused more on risk management, contingent financial claims and the insurance industry. The MBA on the other hand is more focused on management issues and the problems associated with running a business. They have some overlap but overall the two fields are very different.

The educational experience is also very different. An MBA has a very strong support network in terms of his professors and his classmates. Which makes the whole experience a lot richer. Within a decent MBA program there is enormous focus on interaction and communication skills which has been a traditionally weak point for the actuarial profession.

The actuarial student generally doesn’t have any professors or classmates to fall back on which makes it a lot more tougher.

17. So how does it differ from a CFA?
The CFA focuses a lot more on portfolio selection and management. Actuarial education does that and also covers pricing for future financial claims, contingent claims and numerous subjects related to life insurance company organization and management.

18. Is the degree offered by Universities everywhere – where?

In a professional practice sense, there is no degree. Schools offer programs in actuarial science but they are not enough for you to qualify and practice as an Actuary. Remember the qualification is a professional membership, not an academic degree.  The possible exception is UK where the Institute of Actuaries has an arrangement with some local schools.

In UK you can exempt out of the first few papers of the Institute of Actuaries if you have completed the Actuarial Science program offered by University of London. However you still need to take a few additional papers conducted by the Institute before you qualify as a member.