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Actuaries answer questions about future risk, make pricing decisions, and formulate investment strategies. Some design insurance, financial, and pension plans and ensure that they are maintained on a sound financial basis. Most actuaries specialize in either life, health, or property and casualty insurance; others specialize in pension plans or in financial planning and investment.
Actuaries assemble and analyze statistics to calculate probabilities of death, sickness, injury, disability, retirement income level, property loss, or return on investment. They use this information to determine the expected insured loss, or to make other business decisions. For example, they may calculate the probability of claims due to automobile accidents, which can vary depending on the insured's age, sex, driving history, type of car, and other factors. They must make sure that the price charged for such insurance will enable the company to pay all claims and expenses as they occur. Finally, this price must be profitable and yet be competitive with other insurance companies. The actuary calculates premium rates and determines policy contract provisions for each type of insurance offered.
To perform their duties effectively, actuaries must keep informed about general economic and social trends and legislative, health, business, finance, and other developments that may affect insurance or investment practices. Because of their broad knowledge of mathematics, actuaries may work in investment, risk classification, or pension planning. Actuaries in executive positions help determine company policy. In that role, they may be called upon to explain complex technical matters to other company executives, government officials, policyholders, and the public. They may testify before public agencies on proposed legislation affecting their businesses, for example, or explain changes in contract provisions to customers. They also may help companies develop plans to enter new lines of business.
Some actuaries work in the financial services industry, where they manage credit, prepayment, and other risks, and help price corporate offerings.
Consulting actuaries provide advice for a fee to various clients including insurance companies, corporations, hospitals and other health care providers, labor unions, government agencies, and attorneys. Some consulting actuaries set up pension and welfare plans, calculate future benefits, and determine the amount of employer contributions. Others provide advice to health care and financial services firms. Consultants may be called upon to testify in court regarding the value of potential lifetime earnings lost by a person who has been disabled or killed in an accident, the current value of future pension benefits in divorce cases, or the calculation of automobile insurance rates. Pension actuaries enrolled under the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) evaluate the pension plans covered by that act and report on their financial soundness to employers and regulators.
Actuaries have desk jobs that require little physical activity; their offices generally are comfortable and pleasant. They usually work at least 40 hours a week. Some actuaries, particularly consulting actuaries, often travel to meet with clients. Consulting actuaries may also be expected to work more than 40 hours per week.
Actuaries held about 17,000 jobs in 1994. More than 1 in 10 were self-employed.
Over one-half of the actuaries who were wage and salary workers were in the insurance industry. Most worked for life insurance companies; others worked for property, casualty, and health insurance companies, pension funds, and insurance agents and brokers. Most of the remaining actuaries worked for firms providing services, especially management and public relations, and actuarial consulting services. A small number of actuaries worked for security and commodity brokers or government agencies. Some are employed developing computer software for actuarial calculations.
A good educational background for a beginning job in a large life or casualty company is a bachelor's degree in mathematics or statistics, or a business-related discipline, such as actuarial science, economics, finance, or accounting. Some companies hire applicants with any major, provided the applicant has a working knowledge of mathematics, including calculus, probability, and statistics, and has demonstrated this ability by passing at least the beginning actuarial exams required for professional designation. Courses in accounting, computer science, and insurance also are useful. Companies increasingly prefer well-rounded individuals who, in addition to a strong technical background, have some training in liberal arts and business. Good communication and interpersonal skills are important, particularly for prospective consulting actuaries. Although only about 55 colleges and universities offer an actuarial science program, most colleges and universities offer a degree in mathematics or statistics.
A strong background in mathematics is essential for persons interested in a career as an actuary. It is an advantage to pass, while still in school, two or more of the examinations offered by professional actuarial societies. Two professional societies sponsor programs leading to full professional status in their specialty. The Society of Actuaries (SOA) gives a series of actuarial examinations for the life and health insurance, pension, and finance and investment fields. The Casualty Actuarial Society (CAS) gives a series of examinations for the property and casualty field, which covers risks such as fire, accidents, medical malpractice, and personal injury liability. Because the first parts of the examination series of each society are jointly sponsored and cover the same material, students need not commit themselves to a specialty until they have taken the initial examinations. These examinations test an individual's competence in subjects such as linear algebra, probability, calculus, statistics, risk theory, and actuarial mathematics. The first few examinations help students evaluate their potential as actuaries. Those who pass usually have better opportunities for employment and higher starting salaries.
Actuaries are encouraged to complete the entire series of examinations as soon as possible, advancing first to the associate level, and then to the fellowship level. Completion of the promotion process generally takes from 5 to 10 years. Examinations are given twice each year. Extensive home study is required to pass the examinations; many actuaries study for months to prepare for an examination. Most reach Associateship within 4 to 6 years. They generally specialize in the SOA courses leading to a career in either life insurance, health insurance, investment, or pension services, or else the CAS examinations in property and the casualty insurance careers. Fellowship candidates usually have several years of experience. Most actuaries complete the Fellowship exams a few years after reaching Associateship. Both levels of examinations are extremely difficult.
Pension actuaries who verify the financial status of defined benefit pension plans to the Federal Government must be enrolled by the Joint Board for the Enrollment of Actuaries. Applicants for enrollment must meet certain experience and examination requirements as stipulated by the Joint Board.
Beginning actuaries often rotate between jobs to learn various actuarial operations and phases of insurance work, such as marketing, underwriting, or product development. At first, they prepare data for actuarial projects or perform other simple tasks. As they gain experience, they may supervise clerks, prepare correspondence and reports, and do research. They may move from one company to another in their early careers, as they move up to progressively more responsible positions.
Advancement to more responsible work depends largely on job performance and the number of actuarial examinations passed. Actuaries with a broad knowledge of the insurance, pension, investment, or employee benefits fields can advance to administrative and executive positions in their companies. Actuaries with supervisory ability may advance to management positions in other areas, such as underwriting, accounting, data processing, marketing, advertising, or planning.
Prospective actuaries will face competition for jobs. Employment of actuaries is expected to change or grow more slowly than the average for all occupations through the year 2005 due to expected slower growth in the insurance industry. Anticipated downsizing and merger activity in the insurance industry is likely to have the greatest negative effect on actuaries with the least experience. Since experience is of paramount importance in the actuarial field, experienced actuaries should enjoy a competitive edge when vying for available openings.
Employment growth of consulting actuaries is expected to be faster than the average employment growth in insurance carriers, traditionally the leading employer of actuaries. As many companies seek to boost profitability by streamlining operations, actuarial employment may be cut back in insurance carriers. At the same time, insurance companies will require fewer actuaries as a result of merger and acquisition activity within the insurance field. Investment firms and large corporations may increasingly turn to consultants to provide actuarial services formerly performed in-house.
The liability of companies for damage resulting from their products has received much attention in recent years. Casualty actuaries will continue to be involved in the development of product liability insurance, medical malpractice and workers' compensation coverage, and self-insurance, which may involve internal reserve funds established by some large corporations. The growing need to evaluate catastrophic risks such as earthquakes and calculate prices for insuring facilities against such risks, which may involve huge losses, will be an increasing source of demand for property and casualty actuaries. So is planning for the systematic financing of environmental risks, such as toxic waste clean-up.
In 1995, starting salaries for actuaries averaged about $36,000 for those with a bachelor's degree, according to the National Association of Colleges and Employers. New college graduates entering the actuarial field without having passed any actuarial exams averaged slightly lower salaries.
Insurance companies and consulting firms give merit increases to actuaries as they gain experience and pass examinations. Some companies also offer cash bonuses for each professional designation achieved. A 1994 salary survey of insurance and financial services companies, conducted by the Life Office Management Association, Inc., indicated that the average base salary for a newly designated Associate, Society of Actuaries, was about $46,600. Newly designated Fellows, Society of Actuaries, received an average salary of nearly $72,700. Fellows with additional years of experience can earn substantially more. For example, the average base salary for a Fellow of the Society of Actuaries (FSA) who received the designation ten years previously (in 1984) was $96,000.
Actuaries typically receive other benefits including vacation and sick leave, health and life insurance, and pension plans.
Actuaries determine the probability of income or loss from various risk factors. Other workers whose jobs involve related skills include accountants, economists, financial analysts, mathematicians, rate analysts, rate engineers, risk managers, statisticians, and value engineers.
For facts about actuarial careers, contact:
American Academy of Actuaries, 1100 17th St. NW., 7th Floor, Washington, DC 20036.
For information about actuarial careers in life and health insurance, contact:
Society of Actuaries, 475 N. Martingale Rd., Suite 800, Schaumburg, IL 60173-2226.
For information about actuarial careers in property and casualty insurance, contact:
Casualty Actuarial Society, 1100 N. Glebe Rd., Suite 600, Arlington, VA 22201.
Career information on actuaries specializing in pensions is available from:
American Society of Pension Actuaries, 4350 N. Fairfax Dr., Suite 820, Arlington, VA 22203.
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