Most of us are not aware of what an actuary does and the importance of the role in an insurance company. Undoubtedly, an actuarial job may seem quite boring, but it is one of the most challenging and high-paying jobs. If you are a math or statistics genius, then this may be the perfect career for you. The actuary's main responsibility is assessing/quantifying risk and developing means of mitigating risks. Actuaries are largely known for their work in the insurance and pension fields, where they design financially secure benefit programs to protect customers. Let's take a look at the role, certification process and career advancement of an actuary.

What is an Actuary?

Actuaries are the financial engineers of the insurance industry, specializing in either life and health insurance or property and casualty insurance. Basically, they formulate probability tables or employ highly advanced dynamic modeling methods that predict the probability that a potential event will generate a claim. From these tables, they ascertain the amount of money needed for claims payouts.

Different actuaries have different roles and may work for insurance companies or consulting firms, as well as in other businesses. They may be involved with devising a new retirement program for a company or even calculating the impact of laws banning car-cellphone use in automobile losses and determining suitable rate discounts. For instance, in property insurance, property and casualty actuaries compute the number of claims likely to result from natural catastrophes. The actuaries take into account the property's location, construction and several other factors before determining the premium.

Similarly, the figures calculated by actuaries ensure that insurance companies charge enough for premiums to cover predicted costs. In addition, actuaries have to make sure that the premium charged for that insurance is competitive with that charged by competing insurance companies. (For more on insurance, see Extended Warranties: Should You Take The Bait?)

Educational Background

If you are interested in becoming an actuary, you are required to earn an undergraduate degree in statistics, mathematics, finance or actuarial science. There are many schools and colleges that offer programs in actuarial science.

Before becoming a fully qualified actuary, individuals must pass examinations given by either the Society of Actuaries (SOA) or the Casualty Actuarial Society (CAS) over a period of five to ten years. Students are normally allowed to take the first two examinations while they are still in college. After graduation, students often obtain jobs as entry-level actuaries and work through the certification process while simultaneously gaining some experience in the field. In return, employers may pay the examination fees and provide extra study time to their employees. As actuaries pass exams, they are compensated with pay raises.

The two actuarial societies provide basic education in the fundamental principles of actuarial science, professional development and continuing education for practicing actuaries. The SOA provides professional certification in life insurance, retirement systems, investment and finance and health benefits systems. The CAS is related to specialization in the property and casualty field. Generally, three of the first four exams in the SOA and CAS examination series are jointly administered by the two societies and, thus, include the same material.

CAS Certification Process

Associate Level (ACAS) You are required to complete 7 exams, attend one course on professionalism and complete coursework in applied statistics, corporate finance and economics as required by both the SOA and CAS. Normally, 4 to 6 years are required to reach this level.
Fellowship Level (FCAS) You must pass 3 additional exams on advanced topics, such as estimation of policy liabilities, insurance company valuation and advanced ratemaking. Typically, actuaries make it to the fellowship level 2 to 3 years after attaining Associate status.

SOA Certification Process

Associate Level (ASA) You are required to pass initial 5 exams, one course in professionalism, and Fundamentals of Actuarial Practice (8 computer modules with 2 comprehensive written assessments).You also must complete coursework in applied statistics, corporate finance and economics as required by both the SOA and CAS. Normally, 4 to 6 years are required to reach this level.
Fellowship Level (FSA) You must pass 3-4 additional exams within a chosen specialty: Corporate Finance and ERM, Quantitative Finance and Investment, Individual Life and Annuities, Retirement Benefits (Canada or US), Group and Health, and General Insurance Track. You must also complete 4 computer modules and a professionalism course. Typically, actuaries make it to the fellowship level 2 to 3 years after attaining Associate status.

It is important to take note that both Associate and Fellowship exams are extremely tough, and becoming an actuary requires hard work, total dedication and patience through the long period of study and preparation.

Employment Opportunities

Actuaries work in all sectors of the economy but they are chiefly concentrated in the financial-services sector, such as investment banks, insurance companies, commercial banks and retirement funds. The state and federal government, corporations and consulting firms also employ them. Non-traditional opportunities exist in the area of financial planning, where the actuary is responsible for reducing financial risks for families and businesses.

Consulting actuaries work with and advise high-level executives, especially in financial services, on matters of risk management and healthcare. With their exhaustive knowledge of the insurance, pension, investment or employee-benefits fields, actuaries can rise to administrative and executive positions in their companies. Actuaries with decision-making capability can progress to management positions in areas of advertising, marketing, accounting, underwriting and data processing.

According to 2014 figures from the U.S. Bureau of Labor Statistics (BLS), the mean annual earnings of actuaries is $110,090. Actuaries who work as consultants provide advice to clients for a pre-determined fee. Experience, location and demand play a major role in determining the salary of an actuary. Larger cities pay actuaries handsomely due to the higher cost of living and intense competition (for example, the 2014 mean wage in New York was $135,620). Similarly, smaller companies may pay a higher salary to actuaries and provide better benefits due to their high level of responsibility in the company.

The Bottom Line

Who wouldn't want continuous upward career advancement, paid study time and high pay? If you are a math whiz kid and would like to help people through insurance, then becoming an actuary is an ideal route to a successful career. For more information, see The Top 5 Skills Every Actuary Needs and A Day in the Life of an Actuary.

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