One of the main functions of actuaries is to help businesses assess the risk of certain events occurring and to formulate policies that minimize the cost of that risk. For this reason, actuaries are essential to the insurance industry. Actuaries assemble and analyze data to estimate the probability and likely cost of the occurrence of an event such as death, sickness, injury, disability, or loss of property. Actuaries also address financial questions, including those involving the level of pension contributions required to produce a certain retirement income and the way in which a company should invest resources to maximize its return on investments in light of potential risk. Using their broad knowledge of statistics, finance, and business, actuaries help design insurance policies, pension plans, and other financial strategies in a manner which will help ensure that the plans are maintained on a sound financial basis.
Most actuaries are employed in the insurance industry, specializing in life and health insurance or property and casualty insurance. They produce probability tables which determine the likelihood that a potential future event will generate a claim. From these tables, they estimate the amount a company can expect to pay in claims. For example, property and casualty actuaries calculate the expected amount payable in claims resulting from automobile accidents, an amount that varies with the insured person's age, sex, driving history, type of car, and other factors. Actuaries ensure that the price, or premium, charged for such insurance will enable the company to cover claims and other expenses. The premium must be profitable, yet competitive with other insurance companies. Within the life and health insurance fields, actuaries are helping to develop long-term-care insurance and annuity policies, the latter a growing investment tool for many individuals.
Actuaries in other financial services industries manage credit and price corporate security offerings. They also devise new investment tools to help their firms compete with other financial services companies. Pension actuaries working under the provisions of the Employee Retirement Income Security Act (ERISA) of 1974 evaluate pension plans covered by that Act and report on the plans' financial soundness to participants, sponsors, and Federal regulators. Actuaries working in government help manage social programs such as Social Security and Medicare.
Actuaries may play a role in determining company policy and may need to explain complex technical matters to company executives, government officials, shareholders, policyholders, or the public in general. They may testify before public agencies on proposed legislation affecting their businesses or explain changes in contract provisions to customers. They also may help companies develop plans to enter new lines of business or new geographic markets with existing lines of business by forecasting demand in competitive settings.
Both staff actuaries employed by businesses and consulting actuaries provide advice to clients on a contract basis. The duties of most consulting actuaries are similar to those of other actuaries. For example, some may evaluate company pension plans by calculating the future value of employee and employer contributions and determining whether the amounts are sufficient to meet the future needs of retirees. Others help companies reduce their insurance costs by lowering the level of risk the companies assume. For instance, they may provide advice on how to lessen the risk of injury on the job, which will lower worker's compensation costs. Consulting actuaries sometimes testify in court regarding the value of the potential lifetime earnings of a person who is disabled or killed in an accident, the current value of future pension benefits (in divorce cases), or other values arrived at by complex calculations. Many consulting actuaries work in reinsurance, a field in which one insurance company arranges to share a large prospective liability policy with another insurance company in exchange for a percentage of the premium.
Actuaries have desk jobs, and their offices usually are comfortable and pleasant. They often work at least 40 hours a week. Some actuariesparticularly consulting actuariesmay travel to meet with clients. Consulting actuaries also may experience more erratic employment and be expected to work more than 40 hours per week.
Actuaries need a strong background in mathematics. Applicants for beginning actuarial jobs usually have a bachelor's degree in mathematics, actuarial science, statistics, or a business-related discipline such as economics, finance, or accounting. About 100 colleges and universities offer an actuarial science program, and most offer a degree in mathematics, statistics, economics, or finance. Some companies hire applicants without specifying a major, provided that the applicant has a working knowledge of mathematics, including calculus, probability, and statistics, and has demonstrated this knowledge by passing one or two actuarial exams required for professional designation. Courses in economics, accounting, finance, and insurance also are useful. Companies increasingly prefer well-rounded individuals who, in addition to having acquired a strong technical background, have some training in liberal arts and business and possess strong communication skills.
In addition to knowledge of mathematics, computer skills are becoming increasingly important. Actuaries should be able to develop and use spreadsheets and databases, as well as standard statistical analysis software. Knowledge of computer programming languages, such as Visual Basic, also is useful.
Two professional societies sponsor programs leading to full professional status in their specialty. The Society of Actuaries (SOA) administers a series of actuarial examinations in the life insurance, health benefits systems, retirement systems, and finance and investment fields. The Casualty Actuarial Society (CAS) gives a series of examinations in the property and casualty field, which includes fire, accident, medical malpractice, worker's compensation, and personal injury liability.
The first four exams in the SOA and CAS examination series are jointly sponsored by the two societies and cover the same material. For this reason, students do not need to commit themselves to a specialty until they have taken the initial examinations, which test an individual's competence in probability, calculus, statistics, and other branches of mathematics. The first few examinations help students evaluate their potential as actuaries. Many prospective actuaries begin taking the exams in college with the help of self-study guides and courses. Those who pass one or more examinations have better opportunities for employment at higher starting salaries than those who do not.
After graduating from college, most prospective actuaries gain on-the job experience at an insurance company or consulting firm, while at the same time working to complete the examination process. Actuaries are encouraged to finish the entire series of examinations as soon as possible, advancing first to the Associate level (with an ASA or ACAS designation) and then to the Fellowship level (FSA or FCAS designation). Advanced topics in the casualty field include investment and assets, dynamic financial analysis, and valuation of insurance. Candidates in the SOA examination series must choose a specialtygroup and health benefits, individual life and annuities, pensions, investments, or finance. Examinations are given twice a year, in the spring and the fall. Although many companies allot time to their employees for study, home study is required to pass the examinations, and many actuaries study for months to prepare for each examination. It is likewise common for employers to pay the hundreds of dollars for examination fees and study materials. Most actuaries reach the Associate level within 4 to 6 years and the Fellowship level a few years later.
Specific requirements apply to pension actuaries, who verify the financial status of defined benefit pension plans for the Federal Government. These actuaries must be enrolled by the Joint Board of the U.S. Treasury Department and the U.S. Department of Labor for the Enrollment of Actuaries. To qualify for enrollment, applicants must meet certain experience and examination requirements, as stipulated by the Board.
To perform their duties effectively, actuaries must keep up with current economic and social trends and legislation, as well as with health, business, finance, and economic developments that could affect insurance or investment practices. Good communication and interpersonal skills also are important, particularly for prospective consulting actuaries.
Beginning actuaries often rotate among different jobs in an organization to learn various actuarial operations and phases of insurance work, such as marketing, underwriting, and product development. At first, they prepare data for actuarial projects or perform other simple tasks. As they gain experience, actuaries may supervise clerks, prepare correspondence, draft reports, and conduct research. They may move from one company to another early in their careers as they advance to higher positions.
Advancement 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 rise 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, and advertising. Some actuaries assume college and university faculty positions.
Actuaries held about 18,000 jobs in 2004, with 6 out of 10 employed in the insurance industry. A growing number of actuaries work for firms providing a variety of corporate services, especially management and public relations, or for firms offering consulting services. A relatively small number of actuaries are employed by security and commodity brokers or by government agencies.
Employment of actuaries is expected to grow faster than average for all occupations through 2014. Employment opportunities should remain good for those who qualify, because the stringent qualifying examination system restricts the number of candidates. Employment growth in the insurance industry is expected to continue at a stable pace, while more significant job growth is likely in some other industries. In addition, a small number of jobs will open up each year to replace actuaries who leave the occupation to retire or who find new jobs.
Steady demand by the insurance industrythe largest employer of actuariesshould ensure the creation of new actuary jobs in this key industry over the projection period. Actuaries will continue to be needed to develop, price, and evaluate a variety of insurance products and calculate the costs of new risks. Although employment of actuaries in life insurance had begun to decline recently, the growing popularity of annuities, a financial product offered primarily by life insurance companies, has resulted in some job growth in this specialty. Also, new actuarial positions have been created in property-casualty insurance to analyze evolving risks, such as terrorism.
Some new employment opportunities for actuaries should also become available in the health care field as health care issues and Medicare reform continue to receive growing attention. Increased regulation of managed health care companies and the desire to contain health care costs will continue to provide job opportunities for actuaries, who will also be needed to evaluate the risks associated with new medical issues, such as genetic testing and the impact of new diseases. Others in this field are involved in drafting health care legislation.
A significant proportion of new actuaries will find employment with consulting firms. Companies that may not find it cost effective to hire their own actuaries are increasingly hiring consulting actuaries to analyze various risks. Other areas with notable growth prospects are information services and accounting services. Also, because actuarial skills are increasingly seen as useful to other industries that deal with risk, such as the airline and the banking industries, additional job openings may be created in these industries.
The best job prospects for entry-level positions will be for those candidates who have passed at least one or two of the initial actuarial exams. Candidates with additional knowledge or experience, such as those who possess computer programming skills, will be particularly attractive to employers. Most jobs in this occupation are located in urban areas, but opportunities vary by geographic location. States in which actuary jobs are concentrated include Illinois, New Jersey, New York, and Connecticut.
Median annual earnings of actuaries were $76,340 in May 2004. The middle 50 percent earned between $54,770 and $107,650. According to the National Association of Colleges and Employers, annual starting salaries for graduates with a bachelor's degree in actuarial science averaged $52,741 in 2005. 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.