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Actuary: Scope, Exams and Certifications

Abhishek Bhandari

September 11, 2022
Actuary: Scope, Exams and Certifications

Actuaries try to predict the future possibility of the risk based on what has happened in the past. Predicting the future is challenging, and the only way people have come up with it is through statistics.

There are many risk factors involved that you can consider and use to predict how likely it is for this inevitable event to happen. And with this information in their judgment, actuaries help insurance companies manage and minimize these risks. So essentially, they’re identifying risk. And then measuring it and then trying to work it to prevent the company from making any financial loss.

The institute and Faculty of Actuaries website defined an actuary as an expert in risk management. As an actuary, you would use your skills to measure the probability or likelihood of future events occurring and predict the financial impact these events could have on a business and its clients.

Actuaries live in a world of probability and financial uncertainty. Asking questions such as what if? They are passionate about solving mathematical problems which have a real-world impact. Actuaries are working on new challenges as the world of risk constantly evolves. Take driverless cars, for example; if there’s an accident, who’s to blame? Is it the driver or the person who wrote the software? And actuaries need to be able to price this type of risk. They have to determine when they think their policyholders will get in accidents in the future. So to do that, they use probability, a big part of actuarial work.

That said, statistics and probability are not the only aspects of being an actuary. While actuaries are great at the technical stuff, they are also great communicators. It’s not just about making spreadsheets. It’s about explaining things that are complicated to people and trying to make them as simple as possible. If you’re just a person behind a computer crunching many numbers, you’re not adding any value because if people don’t understand what you’re saying, you can do the most complex math, but people won’t care.

So are you able to communicate your findings? To say, a non-specialist, can you break down something that seems so complicated and explain it simply to a non-actuary or someone from the general public?

We have all these computers and models that can easily take this data and turn it into more data. Still, one actuary can look at that data, make a story from it, explain what’s going on, and use expert judgment to make decisions.

An actuary is a professional who uses past data to quantify risk and value events that we don’t even know whether or not will occur in the future. But an actuary has to put a dollar value on those events. So basically, an actuary must answer questions such as: How much money does an insurance company have to pay out for policyholders if something happens, or how much money does the pension scheme need to put aside to pay benefits out to its members? Is being able to look at that number and say, is that number right and apply judgment, expertise, and broader knowledge to help make it the correct number?

Scope of Actuary

The actuarial profession is lucrative, with a reputation for being one of the highest-paid careers with an excellent work-life balance. You don’t necessarily have to work long hours, and you have to work smart. Essentially, your role could include analyzing the impact of climate change on businesses, advising companies on their pension plans, helping banks manage financial assets and liabilities, or determining the costs of car insurance premiums based on factors like the car being insured. Like things about the driver: that age, the years of driving experience and the location they live in: the amount of crime in the area, the number of accidents, and so on. All that being said, an actuary’s typical day will depend on the role that they are in, the business area that they're working in, and even the stage in their career.

Actuaries can also start working before they’re done with all their studies. So even though the process of becoming an actuary takes a long time. You can begin working an entry-level job before you have done the exams because you don’t have to be fully qualified to keep working.

But high rewards come with great responsibility, as actuarial science is notoriously the most challenging subject. Most people never finish all exams because it is tough, and even the most accessible exams have a first-time success rate of 40% - 50%. On the flip side, it is also one of the highest paying jobs globally, where you get a salary hike every time you pass an exam.

Jobs You Can Do As an Actuary

Actuaries work for insurance companies, actuarial consultancies, government actuarial departments, and large accountancy firms. Traditionally, actuaries have worked in pensions and life insurance. Still, with increased computer power over the last 20 years, they are now working in other fields such as risk management, general insurance, and other brand new areas such as big data and artificial intelligence. Most actuaries tend to work in insurance companies, but you will also find them working in investment management or corporate finance and at banks.

Actuary Exams and Certification: Actuarial Exam Process

You must complete a number of professional exams to become a fully qualified actuary. Aspiring actuaries are taught and tested on their mathematical prowess, their comprehension of insurance, and how it operates in the tests.

The actuarial exams are administered outside of any college or university programs. For instance, Nepal does not have a statutory authority that oversees the administration of actuarial exams. The nearest one is in India, where the Institute of Actuaries of India oversees the actuary and all of the exams and certifications.

The Bachelor in Mathematical Science (Actuarial Science) program of Tribhuvan University is undoubtedly related to actuary, but it is not the official course to become an actuary. However, after completing the program, one can get exemptions for a certain number of professional examinations.

How Do Actuary Exams Work?

There are two ‘levels’ of actuaries. The first level is called an associate, and the second is called a fellow. To become an associate-level actuary, you must pass all the preliminary exams. 

Preliminary Exams

The preliminary exams serve as the basis for all actuarial candidates. Future actuarial education will be based on success on the preliminary tests, regardless of the area of actuarial practice, a person chooses to enter.

Topics like probability, time worth of money, and statistics are included in the preliminary tests. Preliminary exam numbers vary from board to board. But they all share the same basic structure.

If you succeed in the preliminary exams, you will become an Actuary Associate. You must pass several tests after earning the associateship before becoming a fellow. Exams that must be taken following associateship are referred to as "fellowship-level exams."

Fellowship Exams

After achieving an associateship, you must pass more tests to advance to fellow designation. 

While the preliminary exams focus on testing mathematical ability and technical skills, the fellowship exams test you on all the nitty-gritty details about insurance, risk, and regulations that influence the insurance industry. An actuary will take the fellowship exams depending on their area of specialization. One may focus on life insurance, business risk management, finance and investing, retirement, group benefits, or property and casualty insurance. The area of specialization is termed as 'exam tracks.'

They are infamous for being significantly more challenging than the preliminary tests due to the variety of questions they might ask. Prioritization is typically a crucial ability when studying because it's very difficult, if not possibly impossible, to know everything that is required for a Fellowship exam.

Actuary vs. ACCA

The difference between an actuary and an accountant is that actuaries predict the financial impact of events that may or may not occur in the future. In contrast, accountants deal with the economic impact of events that have already happened. Some significant differences between actuaries and accountants are

  • Actuaries use thousands of data to calculate future events' probabilities, whereas accountants deal with known numbers. Their main goal is to report on the financial impacts of current events.
  • Actuaries mainly work in insurance companies. All types of insurance companies require actuaries. While there are other career options for an actuarial science student, most will join the insurance sector. But, almost every company needs an accountant.

- co-authored by Aarshika Pradhan