Actuary:

An actuary is a business professional who deals with the financial impact of risk and uncertainty.

Actuaries are those with a deep understanding of financial security systems, their reasons for being, their complexity, their mathematics, and the way they work (Trowbridge 1989, p. 7). They evaluate the likelihood of events and quantify the contingent outcomes in order to minimize losses, both emotional and financial, associated with uncertain undesirable events. Since many events, such as death, cannot be totally avoided, it is helpful to take measures to minimize their financial impact when they occur. These risks can impact both sides of the balance sheet, and require asset management, liability management, and valuation skills. Analytical skills, business knowledge and understanding of human behavior and the vagaries of information systems are required to design and manage programs that control risk (Be An Actuary 2005).

Actuaries' insurance disciplines may be classified as life; health; pensions, annuities, and asset management; social welfare programs; property; casualty; liability; general insurance; and reinsurance. Life, health, and pension actuaries deal with mortality risk, morbidity, and consumer choice regarding the ongoing utilization of drugs and medical services risk, and investment risk. Products prominent in their work include life insurance, annuities, pensions, mortgage and credit insurance, short and long term disability, and medical, dental, health savings accounts and long term care insurance. In addition to these risks, social insurance programs are greatly influenced by public opinion, politics, budget constraints, changing demographics and other factors such as medical technology, inflation and cost of living considerations (Bureau of Labor Statistics 2006).

Casualty actuaries, also known as non-life or general insurance actuaries, deal with catastrophic, unnatural risks that can occur to people or property. Products prominent in their work include auto insurance, homeowners insurance, commercial property insurance, workers’ compensation, title insurance, malpractice insurance, products liability insurance, directors and officers liability insurance, environmental and marine insurance, terrorism insurance and other types of liability insurance. Reinsurance products have to accommodate all of the previously mentioned products, and in addition have to properly reflect the increasing long term risks associated with climate change, cultural litigiousness, acts of war, terrorism and politics (Bureau of Labor Statistics 2006).

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, actuaries had been the top rated job (Lee 2002). The survey used six key criteria to rank jobs: environment, income, employment outlook, physical demands, security and stress. A similar survey by U.S. News & World Report in 2006 included actuaries among the 25 "Best Professions" that it expects will be in great demand in the future (Nemko 2006).

Responsibilities:

Actuaries use skills in mathematics, economics, finance, probability and statistics, and business to help businesses assess the risk of certain events occurring, and to formulate policies that minimize the cost of that risk. For this reason, actuaries are essential to the insurance and reinsurance industry, either as staff employees or as consultants, as well as to government agencies such as the Government Actuary’s Department in the UK or the Social Security Administration in the US. Actuaries assemble and analyze data to estimate the probability and likely cost of the occurrence of an event such as death, sickness, injury, disability, or loss of property. Actuaries also address financial questions, including those involving the level of pension contributions required to produce a certain retirement income and the way in which a company should invest resources to maximize its return on investments in light of potential risk. Using their broad knowledge, actuaries help design and price insurance policies, pension plans, and other financial strategies in a manner which will help ensure that the plans are maintained on a sound financial basis (Bureau of Labor Statistics 2006).

Traditional Employment:

On both the life and casualty sides, the classical function of actuaries is to calculate 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, this analysis often 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. Forecasting interest yields and currency movements also plays a role in determining future costs, especially on the life side.

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

Actuaries also 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.

Non-traditional Employment:

Many actuaries are general business managers or financial officers. They analyze prospective business prospects with their financial skills in valuing or discounting risky future cash flows, and many apply their pricing expertise from insurance to other lines of business. Some actuaries act as expert witnesses by applying their analysis in court trials to estimate the economic value of losses such as lost profits or lost wages.

There has been a recent widening of the scope of the actuarial field to include investment advice and asset management. Further, there has been a convergence from the financial fields of risk management and quantitative analysis with actuarial science. Now, actuaries also work as risk managers, quantitative analysts, or investment specialists. Even actuaries in traditional roles are now studying and using the tools and data previously in the domain of finance (Feldblum 2001 p. 8). One of the latest developments in the industry, insurance securitization, requires both the actuarial and finance skills (Krutov 2006). (Tong 2006).

Remuneration:

The credentialing and examination procedure for becoming a fully qualified actuary can be discouraging. Consequently, the profession remains very small throughout the world. As a result, actuaries are in high demand, and they are highly paid for the services they render (D.W. Simpson 2006). In the UK, where there are approximately 8,000 fully qualified actuaries, typical starting salaries range between GBP £24,000 and £30,000 (approx. US$44,000–US$55,000 c. June 2006) and newly qualified actuaries in insurance companies earn somewhere between £44,000 and £64,000 (approx. US$81,000–US$118,000 c. June 2006) per year. Many successful actuaries earn over £100,000 a year (approx. US$185,000 c. June 2006) (Dixon 2004).

In developing markets such as India, annual compensation for newly qualified actuaries starts at around 8 lakh (800,000 Indian rupees or approximately US$17,500 c. June 2006) and can go as high as 20 lakh (approx. US$43,600 c. June 2006) (Bimaonline.com 2003).

Credentialing and Exams

Becoming a fully credentialed actuary requires passing a rigorous series of exams, usually 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 the UK, most study takes place during employment.

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. 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 may only be taken upon having officially joined the body, unlike many other countries where exams may be taken earlier. However, a candidate may offer proof of having previously covered topics, usually while at university, in order to be exempt from taking certain subjects. The exams themselves are now split into four sections: Core Technical (CT), Core Applications (CA), Specialist Technical (ST), and Specialist Applications (SA). For students that joined the Profession after June 2004, a further requirement that the student carry out a "Work-based skills" exercise has been brought into effect. This involves the student submitting a series of essays to the Profession detailing the work that he or she has been involved in. In addition to exams, essays and courses, it is required that the candidate have at least three years' experience of actuarial work under supervision of a recognized actuary for him or her to qualify as a “Fellow of the (Institute/Faculty) of Actuaries” (FIA/FFA) (Faculty and Institute of Actuaries 2006).

Budding actuaries can also gain partial credit towards Fellowship of either the Faculty or Institute of Actuaries by following an actuarial science degree at an accredited university. In the UK these include the London School of Economics, University of Southampton, Heriot-Watt University, the Cass Business School, and the University of Kent.

United States

In the U.S., for life, health, and pension actuaries, exams are given by the Society of Actuaries, while for property and casualty actuaries the exams are administered by the Casualty Actuarial Society. The Society of Actuaries’ membership requirements include passing six examinations for Associateship, and an additional two exams, together with the completion of a professional paper, for Fellowship (SOA 2006). The Casualty Actuary Society requires the successful completion of seven examinations for Associateship and two additional exams for Fellowship. In addition to these requirements, casualty actuarial candidates must also complete professionalism education and be recommended for membership by existing members (CAS 2006).

In order to sign statements of actuarial opinion, however, American actuaries must be members of the American Academy of Actuaries. Academy membership requirements include membership in one of the recognized actuarial societies, at least three years of full-time equivalent experience in responsible actuarial work, and either residency in the United States for at least three years or a non-resident or new resident who meets certain requirements (AAA 2006). Continuing education is required after certification for all actuaries who sign statements of actuarial opinion (AAA 2001).

In the pension area, American actuaries must pass three examinations to become an Enrolled Actuary. Some pension-related filings to the Internal Revenue Service and the Pension Benefit Guaranty Corporation require the signature of an Enrolled Actuary. Many Enrolled Actuaries belong to the Conference of Consulting Actuaries or the American Society of Pension Professionals and Actuaries.

Canada

The Canadian Institute of Actuaries (the CIA) recognizes fellows of both the Society of Actuaries and the Casualty Actuary Society, provided that they have specialized study in Canadian actuarial practice. For fellows of the SOA, this is fulfilled by taking the CIA’s Practice Education Course (PEC). For fellows of the Casualty Actuarial Society, this is fulfilled by taking exam 7C (Canada) instead of exam 7US. Unlike their American counterparts, the CIA only has one class of actuary—Fellow. Further, the CIA requires three years of actuarial practice within the previous decade, and 18 months of Canadian actuarial practice within the last three years, to become a fellow (CIA 2004).

Sweden

Actuarial training in Sweden takes place at Stockholm University. The four year master's program covers the subjects mathematics, mathematical statistics, insurance mathematics, financial mathematics, insurance law and insurance economics. The program operates under the Division of Mathematical Statistics (Stockholm University 2006).

Denmark

In Denmark it normally takes five years of study at the University of Copenhagen to become an actuary with no professional experience requirement. There is a focus on statistics and probability theory, and a requirement for a master's thesis (Norberg 1990). By Danish law, responsibility for the practise of any life insurance business must be taken by a formally acknowledged and approved actuary. In order to be approved as a formally responsible actuary, three to five years of professional experience is required (Haastrup and Nielsen).

Australia

The education system in Australia is divided into five parts. The first three are exam-based curricula, and the final two require a professionalism course and work experience (IAA-Ed 2006).

Part I relies on exemptions from an accredited under-graduate degree from either Macquarie University, University of New South Wales, University of Melbourne or Australian National University (IAA-Part I 2006). The courses would cover subjects including finance, financial mathematics, economics, contingencies, demography, models, probability and statistics. Students may also gain exemptions by passing the exams of the Institute of Actuaries in London (IAA-Part I 2006).

Part II is the Actuarial Control Cycle and is offered by the 4 universities above (IAA-Part II 2006).

Part III consists of 4 half-year courses of which two are compulsory and the other two allow specialization (IAA-Part III 2006).

Notable Actuaries:

Edmond Halley - While Halley actually predated much of what is now considered the start of the actuarial profession, he was the first to mathematically and statistically rigorously calculate premiums for a life insurance policy (Halley 1693).

James Dodson - Head of the Royal Mathematical School, and Stone's School, Dodson built on the statistical mortality tables developed by Edmund Halley in 1693 (Faculty and Institute of Actuaries 2004).

Frank Redington - Developed the Redington Immunization Theory

Edward Rowe Mores - First person to use the title ‘actuary’ with respect to a business position (Ogborn, 1956).

William Morgan - Morgan was the appointed Actuary of the Society for Equitable Assurances in 1775. He expanded on Mores's and Dodson's work, and may be rightly considered the father of the actuarial profession in that his title became applied to the field as a whole.(Faculty and Institute of Actuaries 1973).

Isaac M. Rubinow - Founder and first president of the Casualty Actuarial Society (CAS 2006).

Elizur Wright - American actuary and abolitionist, professor of mathematics at Western Reserve College (Ohio). He campaigned for laws that required life insurance companies to hold sufficient reserves to guarantee that policies would be paid (Stearns 1905).

Maurice Princet - French actuary and close associate of artist Pablo Picasso. Princet is considered "Le Mathématicien du Cubisme" ("The Mathematician of Cubism") for his "critical influence on Picasso’s development as an artist at the birth of cubism" (Boyle 2002).

Timothy P. Berghoff - American actuary and one of the number-crunchers behind WhatIfSports.com.

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