About the Actuarial Profession

Career Overview

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 staff. 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 under- graduate degrees in mathematics, statistics, engineering, or actuarial science. How- ever, these types of degrees are certainly not required. Actuaries come to the profession from 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 his- tory than what you studied in school. So, the employee with a master’s degree in mathematics who has difficulty passing exams FAM, for example, may end up being less attractive to employers than the candidate with a B.A. in Art History who has passed each of the first four exams on their first attempt (all other things being equal). As indicated above, this is good news for those considering a career change into the actuarial profession from another field.

Supply vs. Demand

The actuarial career is regularly rated by business publications as one of the best careers in the U.S. and Canada. Why? The short answer is favorable supply and demand characteristics. Experienced actuaries are in short supply relative to the demand by employers. This leads to an enviable degree of employment security and high compensation levels. Most actuaries also enjoy an attractive work-life balance, though decidedly much more so, after they have completed their actuarial exams. In today’s employment market it is hard to ask for much more than that. However, as I will discuss later, getting your first actuarial job can be challenging for most actuarial students.

Recession Resistant

The global pandemic laid waste to a number of industries and bolstered other industries in ways that no one could have predicted. Through it all, insurance companies weathered the crisis well. The insurance industry did not escape its impact, but it was muted. Despite these challenges, the crisis presents insurers with new opportunities in the future.

Similar resilience was found during the economic crisis from late 2007 to early 2010. The “Great Recession” spared very few industries and companies. According to the Bureau of Labor Statistics, roughly 8.7 million jobs were lost during this period, GDP contracted by 5.1% and the unemployment rate more than doubled to 10% from 4.7%. We all read the headlines about blue chip companies such as Bank of America, General Motors, 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 prices of nearly all asset classes during this time 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 continued 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 remained significant and it was simply too difficult to hire enough qualified actuaries for most companies to lay off actuarial staff.

Central Role

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 and maintained by the actuarial staff.

Compensation

As a result, compensation for actuarial professionals is quite attractive. Entry-level salaries begin at approximately $55,000 - 65,000 with some companies paying new graduates into the 70s. Six-figure compensation is expected for nearly all actuaries who have achieved Fellowship. For those that are interested to learn more about compensation for actuarial professionals, numerous actuarial recruiting firms post regularly updated salary survey results on their websites. In my experience these surveys are accurate in gauging the general pay ranges for most actuaries, based on the parameters outlined in the survey. However, individual circumstances will and do vary, sometimes significantly.

Difficulty of Exams

Unfortunately, as most of you already know, the difficulty of the exam process makes becoming an actuary particularly challenging. This is a critical piece of information that these business publications and career websites fail to mention! For those out- side of the profession, I compare the actuarial exam process to law school graduates sitting for the bar exam every six to twelve 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. Its focus is to examine career options traditionally open to actuaries as well as prospects for individuals seeking an alternative to the traditional exam path.

Actuarial Employment - Overview

There are over 31,000 accredited members of the Society of Actuaries (SOA) and 9,000 accredited members of the Casualty Actuarial Society (CAS), worldwide. Of course, there are also many thousands of actuarial students pursuing accreditation by the SOA, CAS or Canadian Institute of Actuaries (CIA). CIA membership stood at over 5,000 in 2017.

The actuarial profession is expanding around the world and generally speaking, the demand for actuaries is greater than the supply, except perhaps at the entry-level. According to the US Bureau of Labor Statistics, the employment of U.S. actuaries is projected to grow 20 percent from 2018 to 2028.

Actuaries are typically employed in metropolitan areas, either downtown or the sur- rounding suburb. North American cities with the largest populations of actuaries include New York, Chicago, Hartford, Boston and Philadelphia in the US and Toronto and Montreal in Canada.

As can be seen by the map above, most U.S. actuaries work on the East Coast, Mid- west, 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 also set up their 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, do not despair. If your city has a “major professional sports team” then it is likely to also have a somewhat smaller but thriving actuarial employment market. Examples include Cincinnati, Charlotte, Houston, Denver and Indianapolis.

In addition, there are many of “one-horse towns” where a single insurance company employs a sizable number of actuaries with little other actuarial employment in the area. Examples include State Farm (Bloomington, IL) and USAA (San Antonio, TX).

Finally, as will be discussed later in the book, pension consulting actuaries typically have greater geographic flexibility than most other actuaries. If personal circum- stances dictate that you live and work in a smaller city such as Syracuse, Albuquerque, or Knoxville, you are much more likely to find employment at a small benefits consulting firm than at an insurance company.

Today’s Insurance Market Business today is fast paced. Change is constant and the insurance industry is no exception. In fact, the insurance industry is very competitive with nearly 6,000 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 greater career opportunities for actuaries. Actuaries work for a variety of employers, including:

•  Insurance / Reinsurance Companies

•  Consulting / Accounting Firms

•  Federal / State Government Agencies & Insurance Depts.

•  Banks / Investment Companies

•  S&P/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.

Actuaries by Product / Specialty Area

As previously mentioned, actuaries have 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 early in their careers. For now, it is 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 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. 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.

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