Actuary – definition and meaning

An actuary is a person who analyzes the chances of a risk occurring and what the financial consequences would be. He or she uses statistics, mathematics and financial theory to study future events that could happen – especially those that are of interest to pension programs and insurers such as disability, sickness, injury, death or loss of property.

In other words, an actuary uses statistical and financial theories to assess the likelihood of particular events happening, and also what the financial costs would be if they occurred.

Actuaries also address questions of a financial nature, including those involved with levels of pension contributions required to produce a certain income on retirement, as well as how a company should invest resources in order to get the best return on investments in light of potential risk.


Actuary

If you are really good with numbers and dealing with people, like solving problems, want to earn a good salary, and see job security as a top priority, you should consider becoming an actuary.


Using their extensive financial and business knowledge, actuaries help design and set the price for insurance policies, pension plans, and other financial strategies in a way that will help ensure that the plans are financially viable for the provider.

Actuaries are highly-regarded business professionals

Actuaries are highly-regarded individuals – they are problem solvers and strategic thinkers with a profound understanding of financial systems.



Actuaries analyze data, evaluate financial risks, and communicate this data to lay people – people who are not specialized in actuarial science.

Put simply, they evaluate, manage and advise on financial risks. They use their business, economics and financial expertise, plus their understanding of probability theory, investment theory, and statistics, to provide strategic, financial and commercial advice.

This highly-specialized professional applies his or her mathematical, statistical and economic awareness to real-life situations in the financial world. He or she must be able to communicate the difficult topics to a range of people, many of whom are non-specialists.


Life actuary and non life actuary

There are two main categories of actuary.


Good people skills and financial & business knowledge

Good social and communicative skills are therefore of vital importance. Can you discuss complex topics in an easy-to-understand way – a simple way? If so, perhaps you should consider training to become an actuary. You also need to be really good with numbers, as well as business and financial concepts.

Actuaries may work for consulting firms, the government, the employee benefits department of a large company, banks & investment firms, hospitals and insurance companies. Any business that needs to manage financial risk needs actuaries.



According to Purdue University’s Department of Mathematics:

“A career as an Actuary is better described as a ‘business’ career with a mathematical basis than as a ‘technical’ mathematical career.”

Despite the high pay, perks, interesting work and strong demand for actuaries, very few people have ever heard of the profession and even fewer know much about it. In 2013, the field was rated as the Number 1 Job by CareerCast.com.

According to The Society of Actuaries, an actuary is:

“An actuary is a business professional who analyzes the financial consequences of risk. Actuaries use mathematics, statistics and financial theory to study uncertain future events, especially those of concern to insurance and pension programs. They evaluate the likelihood of those events, design creative ways to reduce the likelihood and decrease the impact of adverse events that actually do occur.”

“Actuaries are an important part of the management team of the companies that employ them. Their work requires a combination of strong analytical skills, business knowledge and understanding of human behavior to design and manage programs that control risk.”


Calculating risk and financial consequences of risk happening

Actuaries do not only calculate risk – the chances of something happening – they also estimate what the financial consequences would be if that event happened.


Most actuarial disciplines fall into two main categories – life and non-life.

Life actuaries

Life actuaries, which include pension and health actuaries, mainly deal with investment risk, morbidity risk (illness risk) and mortality risk.

The products that are most prominent in their work include:

– long-term care insurance

– health savings accounts

– health insurance

– long-term disability insurance

– pension

– annuities

– life insurance

Non-life actuaries

Also known as general insurance, property or casualty actuaries, non-life actuaries deal with both legal and physical risks that affect people or their property.

The products that are most prominent in their work are:

– vehicle insurance

– commercial property insurance

– workers’ compensation

– homeowners insurance

– malpractice insurance

– marine insurance

– terrorism insurance

– product liability insurance


Calculating risk for life insurance policies

Without actuaries insurance companies would not be able to function.


Actuaries are well paid and sought after

Given that there are relatively few actuaries across the world compared to other professions, their services are in high demand, and they are paid well.

In 2014 in the USA, newly-qualified actuaries earned approximately $100,000 per year, while more experienced professionals earned more than $150,000 annually.

In the UK, a 2014 survey found that actuaries start off with a £50,000 annual salary, which during their career will rise to considerably more than £100,000.

On both sides of the Atlantic Ocean, the actuarial profession has been consistently ranked as one of the most desirable.

An actuary works reasonable hours, in comfortable conditions without the need for physical exertion that may lead to injury. He or she has a virtually recession-proof profession.

The profession was included among the top twelve jobs for women by Naomi Shavin in an article in Forbes.

To qualify as an actuary

In the United States, there are many actuarial science programs available from a variety of colleges and universities.

Be An Actuary says the following for people in the USA interested in the profession:

“While there are advantages to attending such programs, you should know that you don’t have to major in actuarial science to become an actuary, nor is an advanced degree required.”

“Many students come to the profession from backgrounds in math, statistics, finance, economics and other areas. However, potential actuaries all seem to have a couple of key things in common an interest in, and an aptitude for, math and a desire to put math skills to use in a business context.”

“To earn an actuarial credential, you must complete a series of actuarial examinations, e-Learning components and other requirements through an actuarial membership organization such as the Casualty Actuarial Society (CAS) or the Society of Actuaries (SOA).”

The Society of Actuaries has a section which lists all the universities and colleges with actuarial programs.


Destination of actuarial science graduatesThese statistics from the University of Kent in England, show where Actuarial Science graduates went after successfully completing their degree. The data only covers the first six months after graduation. (Image: kent.ac.uk)


To quality as an actuary in the UK, you need to apply to become a student member of the Institute and Faculty of Actuaries. You then need to sit and pass their exams, or obtain excemtions and gain a satisfactory level of work-based skills.

It is essential that trainee-actuaries have excellent mathematical skills. The majority of actuaries begin their training after they graduate by joining an actuarial firm as a trainee. Work experience develops essential skills which help in passing the required exams.

In the UK, actuarial employers seek trainees with a good university degree (2:1 or above). They prefer applicants with degrees in numerate subjects such as mathematics, economics, engineering, statistics, chemistry, physics or actuarial science.


Edmund HalleyEnglish astronomer, mathematician, physicist, meteorologist and geophysicist, Edmund Halley (1656-1742), whose namesake was given to Halley’s Comet, invented the first mortality table in 1693. This table, along with his formula to calculate the probability of life expectancy, then formed the basis of the actuarial profession. (Image: Wikipedia)


Actuarial joke

(Source: actuarialjokes.com) Two people are flying in a hot air balloon and get completely lost. They see a woman standing on the ground, so they navigate their balloon so that they can talk to her. One of the people in the hot air balloon shouts to the woman asking for help. The conversation proceeds as follows:

Man in balloon: “Can you help us, please? We are lost.”

Woman on ground: “You are in a hot air balloon, approximately 100 feet up in the air.”

Man in balloon: “You must be an actuary.”

Woman on ground: “Yes!! How did you know?”

Man in balloon: “You gave us very accurate but completely useless information.”

Woman on ground: You must be in marketing.”

Man in balloon: “Yes! How did you know.”

Woman on ground: “Your situation has not changed since you talked to me – it is the same. However, now it is my fault.”

Video – What does an Actuary do? How to get started

This video explains what an actuary does and how you can prepare for an actuarial career.