WHAT IS AN ACTUARY?

An actuary is typically defined as an insurance professional who is responsible for creating, modifying, and interpreting a broad range of financial models, data and reports related to insurance products or employee benefits. Most often, actuaries are employed by insurance companies or consulting firms to manage and perform functions related to product pricing and development, establishing and monitoring reserves, managing corporate risk, financial forecasting and financial reporting. As a result, most medium to large insurance companies have sizeable actuarial staffs. In addition, insurance and other large employers may engage actuarial consultants to help them manage, analyze and modify their employee benefits as well as assist with any number of special projects such as risk management or new product creation.

What skills are needed? What degree?

Actuarial work is very technical and requires a strong aptitude for mathematics and statistics. A high percentage of actuarial students enter the profession with undergraduate degrees in mathematics, statistics, engineering or actuarial science. However, these types of degrees are certainly not required. Actuaries come to the profession from nearly every degree imaginable. Many people transition to the profession after several years in a different field and hence their math skills are often rusty as they begin learning the material for the first exams. No matter what your background, employers are much more interested in reviewing your actuarial examination history than what you studied in school. So, the employee with a Ph.D. in Mathematics who has difficulty or cannot pass exams IFM or LTAM is going to be less attractive to employers than the candidate with a B.A. in Art History who has passed each of the first four exams on his or her first attempt (all other things being equal).

Why it is a great career?

The actuarial career is regularly rated by business publications, such as Forbes, as one of the best careers in the U.S. Why? The short answer is favorable supply and demand characteristics. Actuaries are in short supply relative to the demand by employers. This leads to a high level of employment security and relatively high compensation levels. In today’s employment market it is hard to ask for much more than that.

The most recent economic downturn spared very few industries and companies. We all read the headlines about blue chip companies such as Bank of America, General Motors, Nokia, and H-P announcing layoffs of thousands of employees. Insurance companies, particularly life insurance companies, struggled mightily as well. The widespread and steep drop in nearly all asset classes during the “great recession” led to portfolio losses at these and other insurance companies. The most extreme example, of course, was AIG and the historic government bailout needed to cover enormous losses incurred by the firm’s financial products unit. AIG and dire headlines aside, actuaries were mostly spared. Actuarial layoffs were higher than in years past, but overall, most actuaries continue to be secure in their positions despite continued economic struggles. The reason, mentioned previously, is supply and demand. The need for actuaries within these companies is still significant and it is simply too difficult to hire enough qualified actuaries for most companies to lay off actuarial staff.

I think of actuaries as the “hub” in the “hub and spoke” organizational structure of an insurance company. Actuaries are central to the success of any insurance company. They develop/revise the products and establish/account for the reserves. Nothing is more central to an insurance company. All other areas of the insurance company from sales, underwriting, marketing, compliance, finance, and administration are the “spokes” that take (and give) direction from the work of actuaries. Of course, each of those non-actuarial functions is critical to the successful operation of any insurance company, but it all starts with the product. And the product, a financial liability or obligation to pay if a particular event happens, is created by the actuarial staff. As a result, compensation for actuarial professionals is quite attractive. Entry-level salaries begin at approximately $45,000 and six-figure compensation is expected for most actuaries who have achieved Fellowship.

Unfortunately, as most of you already know, the difficulty of the exam process makes becoming an actuary very challenging. This is something that Forbes magazine fails to mention! For those outside of the profession, I compare the actuarial exam process to law school graduates sitting for the bar exam every six months for 5 to 10 years. It requires an enormous amount of time and energy with no guarantee of success. It bears mentioning that it takes the typical actuarial student 5-10 years to achieve Fellowship. Of course, many do not achieve Fellowship. Many actuarial students stop at the Associate-level and others have successful careers with little or no exam progress. This book will not attempt to address the academic rigors required to pass actuarial exams but will examine career options traditionally open to actuaries as well as prospects for individuals seeking an alternative to the traditional exam path.

Today’s Employment Market

Business today is very fast paced. Change is constant and the insurance industry is no exception. The insurance industry, in particular, is very competitive with nearly 4,000 insurance companies in the U.S, many owned by the same parent companies. These companies are constantly offering new products, revising their strategies and reassessing their risks. This has led to employment growth in the insurance industry overall and it has led to greater career opportunities for actuaries in particular. Actuaries work for a variety of employers, including:

Insurance / Reinsurance Companies
Consulting / Accounting Firms
Federal / State Government Agencies & Insurance Depts.
Banks / Investment Companies
Fortune 1000 Companies
Software Development Firms
Insurance Brokers

Approximately 80% of actuaries work at either insurance companies (including reinsurers) or in consulting (including accounting firms). All other areas of actuarial employment represent relatively small niche areas within the field. Actuarial employment in all of the above areas listed is growing (modestly), except perhaps in the government sector.

Most U.S. actuaries work on the East Coast, Midwest, Texas or California. The reason for this is that most insurance companies and other large employers are located in these states. Therefore, most consulting firms set up offices close to their clients or potential clients. U.S. metropolitan areas with significant pools of actuaries include:

New York
Chicago
Boston
Philadelphia
Los Angeles/Orange County
San Francisco
Dallas/Ft. Worth
Minneapolis/St. Paul
Hartford
Atlanta
Baltimore/Washington DC

I stress “metropolitan areas” because often these companies are located in the suburbs of the major cities and not the downtown areas. The two largest markets of New York and Chicago are two very good examples of this geographic spread. Actuarial employment in the suburbs of these two cities is far greater than in the cities themselves. If your city is not listed above, don’t despair. If your city has a “major professional sports team” then it’s likely to also have a somewhat smaller, but thriving actuarial employment market. Examples include Cincinnati, Charlotte, Houston, Denver and Indianapolis.

Finally, as will be discussed later in the book, pension actuaries typically have greater geographic flexibility than most other actuaries. If you have to work in a small city such as Syracuse, Albuquerque, Salt Lake City, or Knoxville, you’re much more likely to find employment at a small benefits consulting firm than at an insurance company.

Actuaries by Product / Specialty Area

As previously mentioned, actuaries have very high job security because employers find it difficult to hire enough qualified actuaries. This difficulty stems, in great part, from the specialization that all actuaries pursue very early in their careers. For now it’s enough to point out that there are health actuaries, life/annuity actuaries, pension actuaries, commercial lines actuaries, personal lines actuaries, etc. Each “type” of actuary has very specific skills, knowledge and training. And for reasons discussed later in the book, actuaries typically stay employed within one or two primary product areas throughout their careers. So very early in your career, whether you know it or not, you will be making a choice (actively or passively) about what “type” of actuary you are going to be.