Actuary

Actuaries (from the Latin verb agere "to do, drive") are business professionals who deal with the financial impact of risk. Actuaries use skills in mathematics, economics, finance and statistics to handle uncertain future events, especially those of concern to insurance and reinsurance companies, employee benefits such as medical insurance and pension plans, and social welfare programs such as social security and Medicare.

Actuarial Work

Disciplines

There are two major actuarial disciplines, usually referred to as Life and Casualty. Life actuaries deal with risks that pertain to the ongoing health, well-being, and natural mortality of people such as life insurance, annuities, pensions, disability and medical insurance. Casualty actuaries deal with more catastrophic, unnatural, risks that can occur to people and property. This area is known in some countries as general insurance and in the US as Property/Casualty insurance, where the terms casualty and liability may be used interchangeably. These risks include those such as auto, homeowners, commercial property insurance, workers' compensation, title insurance, medical malpractice insurance, products liability insurance, directors and officers liability insurance, environmental insurance, and other types of liability insurance.

Traditional Responsibilities

On both the life and casualty sides, the classical functions of actuaries are to compute 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, especially casualty companies, you will find that the liability side consists mainly of reserves.

On the casualty side, often this analysis 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, often, the analysis 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 a frequency and severity distributions and the parameters of these distributions. Also, forecasting interest yields and currency movements play a role, especially on the life side.

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

As actuaries have always been considered as the preeminent experts on financial risk, there has been a recent widening of the scope of the actuarial field to include investment advice and even asset management.

Typical Employment

Actuaries are employed in insurance or reinsurance companies, consulting firms (i.e., firms that sell actuarial advice and analysis to other companies), and government departments, such as the Government Actuary's Department in the UK or the Social Security Administration in the US.

Actuaries 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.

Credentialing and Exams

Becoming a fully certified actuary requires passing a rigorous series of exams taking several years. In some countries, such as France, most study takes place while still in college, while in others, such as the U.S., most study takes place after college during employment. For instance, U.S. exams are given by the Society of Actuaries (www.soa.org) (for Life/Health actuaries) and the Casualty Actuarial Society (www.casact.org) (for Property/Casualty actuaries). These align with the two major actuarial disciplines.

The Society of Actuaries' extensive membership requirements include passing six examinations for Associateship and two additional exams for Fellowship. The Casualty Actuary Society requires the successful completion of seven examinations for Associateship and two additional exams for Fellowship. The exams have a reputation for being especially difficult. Passing percentages are typically below 50% and are often in the 30-40% range, and the examinations are also only offered twice per year. In addition to rigorous exam requirements, actuarial candidates must also complete educational requirements (approved by the societies) and professional development requirements. Only when an actuarial student attains the status of Associate or Fellow may he or she officially be called an "actuary."

Exams 1, 2, & 4 (recently renamed P, FM, and C) are common to both the Society of Actuaries and the Casualty Actuarial Society. This allows students to work on the initial requirements before they choose a specific discipline to pursue. The first four exams ("Preliminary Exams") consist largely of core mathematics related to actuarial science (probability, statistics, interest theory, life contingencies, and risk models).

Upper-level exams differ between the two societies, but both societies' upper-level exams focus on more qualitative information than the preliminary exams. Upper-level exams also have an essay/short answer component (preliminary exams are solely multiple choice). Upper-level exam topics for Casualty Actuary Society include: ratemaking, insurance accounting, loss reserving, and reinsurance with Fellowship exams on advanced investments/finance, advanced ratemaking, and risk rating plans. Upper-level exam topics for the Society of Actuaries include plan design, risk classification, ratemaking, valuation, and finance & investments. Fellowship exams cover applied modeling and an area of specialization chosen by the candidate.

Actuarial Organizations

Actuaries usually belong to one or more professional bodies, which include:

The Actuarieel Genootschap in The Netherlands
The Actuarial Society Of India in India
The Actuarial Society Of South Africa in South Africa
The American Academy of Actuaries in the US
The Canadian Institute of Actuaries in Canada
The Casualty Actuarial Society in the US
The Danish Actuarial Society in Denmark
The Deutsche Aktuarvereinigung e.V. in Germany
The Faculty of Actuaries in Scotland
The Groupe Consultatif of the European Union
The Hungarian Actuarial Society in Hungary
The Institute of Actuaries in England and Wales
The Institute of Actuaries of Australia in Australia
The Instituto Brasileiro de Atuária in Brazil
The International Actuarial Association
The International Association of Consulting Actuaries
The Israel Association of Actuaries
The Royal Association of Belgian Actuaries in Belgium
The Society of Actuaries in the US
The Society of Actuaries in Ireland in Ireland

External links

References