Year: 2019

This blog has focused strictly on the Society of Actuaries’ Fellowship track, but the SOA’s most recent FSA has started to infringe upon another credentialing agency: The Casualty Actuary Society (CAS). CAS focuses strictly on Property and Casualty, whereas SOA has historically credentialed life, health, and pension until about four years ago when it introduced the General Insurance Track. The SOA intends for the General Insurance path to compete with CAS’s FCAS in the property and casualty actuarial job market, but the track has gained the respect and accreditation of neither the companies nor the candidates it desires.

Nevertheless, the General Insurance FSA, just like the other FSAs and the FCAS, offers candidates careers in insurance and consulting primarily, with increased opportunities in reinsurance (insuring insurance companies). Exit opportunities and compensation in reinsurance mirror typical insurance, but many find the more macro-scale work more engaging. Regardless of path, property and casualty actuaries tend to have a challenging work-place due to the variable time-frame; car insurance for example: auto actuaries know the price (or price range) the company will pay given the upper price bound of the car’s value, but they do not know when, or even if, an insured will have an accident.

In both consulting and insurance, Property and Casualty actuaries follow a very normalized progression from analyst to profit sharer (either partner or vice-president, respectively). This path generally consists of varying levels of associate, manager, and director between these extremes, but every level of the path, especially with a focus on P&C, has adequate compensation.

Recently, property and casualty has experienced an increase in average salary relative to other actuarial fields, seen by the relative compensation of Liberty Mutual’s (whose pay structure mirrors many other P&C firms) senior analysts (above). Further, the effective value (NPV) of a P&C actuary’s career earnings lie over a million dollars above the average actuary, with the former’s gross earnings nearly two million dollars greater than the average actuary. Despite entry level P&C associates making $2000 less than the average actuary, the long-term salary growth and accumulation differentiates the Property and Casualty route salary-wise.

To achieve this spectacular compensation and challenging work-environment, candidates previously had to attain an FCAS, but can now pursue the SOA’s General Insurance track. Achieving this FSA requires the standard four modules and professionalism course, in addition to four exams (one more than all other tracks). Luckily, the additional exam (Introduction to general insurance) only lasts 1.5 hours and consists solely of multiple choice opposed to the other three 4-5 hour written exams. All exams in this track prepare candidates for all areas of insurance, but specifically pricing and regulation within property and casualty.

Time to discuss the “escape clause” of the actuarial profession: the enterprise risk management and corporate finance track (henceforth ERM). Many candidates pursue the ERM track because they have little interest in pursuing a more traditional actuarial role in health or life and would prefer to give the challenging and frantic world of corporate finance a try. While relatively unpopular at second to last in number of exam passers, the ERM track teaches general business acumen rather than specific actuarial regulations and techniques, which provides opportunities to continue within the actuarial profession in a less specialized role, or to leave altogether and pursue finance.

Candidates pursuing the ERM track will likely struggle to find employment in insurance due to these fields’ highly specialized nature, making general corporate finance and consulting the more typical paths. Similar to the other FSA tracks, careers in consulting can offer MBA opportunities and exit opportunities into industry (in this case, corporate finance); largely unlike the other tracks, however, corporate finance can pipeline candidates into consulting as well, making consulting both an entry level and an executive level opportunity for ERM actuaries.

Also unlike other FSA tracks, ERM better prepares candidates for strategy consulting rather than industry specific (life/health) consulting. The general business knowledge, including finance, management, marketing, and accounting, taught by the ERM track applies directly to strategy consulting rather than to specialty firms like Wakely Consulting or Oliver Wyman. Within strategy consulting, a risk specialization fits ERM actuaries best as they can apply the risk management background from most actuarial curricula as well as the business acumen from the ERM track. Most strategy consultant strive to become a partner in their firm after ten to twenty years in consulting and managing roles, but an immediate risk specialty can expedite this process by jumping directly into a more specialized role.

The terminal professions for most ERM actuaries who start and stay in finance are the Chief Financial Officer and Chief Risk Officer; these C-Suite professions offer the most compensation and the highest regard among finance professions, making them a widely held end goal.

Typical intermediate steps for corporate actuaries include financial and corporate controller or treasury manager, among other middle management positions that manage the risk and finances of a company. Regardless of entry position and progression, compensation for the finance path remains just under six figures with upper level positions seeing salaries well into the two-hundred thousands and even higher for top companies.

Since the ERM FSA must cover a broader range of material than any other track, many consider it the most difficult and “risky” of FSAs since the demand for corporate actuaries typically falls below that of insurance actuaries and other more traditional actuarial roles. Like the other FSA paths, ERM consists of three tests, four modules, and the professionalism course, with the two five hour written tests, Foundations of Corporate Finance and Strategic Decision Making contributing most of the path’s difficulty.

Falling slightly below the popularity of Quantitative Finance and Investments, but differing significantly in type of work and company, the retirement benefit track offers other unique paths for actuaries with this designation. As with the life and health tracks, retirement benefit actuaries can pursue both industry and consulting and progress to manager and director roles within both fields.

Unfortunately, retirement has the worst growth potential of any actuarial path because of the decreasing prevalence of company sponsored pension plans. This decline makes the demand for retirement actuaries greatest in consulting since a consulting firm can serve thousands of companies and make small improvements in their benefit valuations, among other issues. Nevertheless, while consulting typically offers a unique blend of challenging and fast-paced work, retirement actuaries experience the least eventful and often least challenging environment because of the known-amount, predictable duration nature of the field. For example, a company can largely anticipate when a certain worker will retire, and the company and retiree will have already agreed to a benefit plan; this makes the actuary’s job fairly simple since he already knows or can easily predict all desired information.

Regarding compensation, retirement actuaries rival their more active counterparts with entry level salaries around $75000 and just over $100000 with five years of experience. Further, retirement actuaries have the potential for drastic salary jumps due to the consulting-focus, which can see threefold salary increases for directors and partners. When working for a consultancy, retirement benefit actuaries will identify deficiencies in a company’s benefit programs, then propose cost-driven changes to increase profit and retiree satisfaction. Benefit actuaries working for a single company tend to focus strictly on that company’s retirement program, again to locate weaknesses and suggest solutions.

As with all other FSA tracks, retirement benefits requires three exams, four modules, and the fellowship course, with one module and all three exams unique to this track. The most unique  aspect of retirement benefits comes in the Enrolled Actuaries Exams, which counts as one exam but actually consists of three separate exams: EA1, EA2F, EA2L. The latter two exams, which the SOA uses from Enrolled Actuaries, cover topics such as assumptions, minimum contributions, and benefit legality; the first exam covers more basic actuarial concepts covered by exams FM and LTAM (in the Associateship track), and passing these two exams gives exemption from exam EA1. The second exam, design and accounting, covers exactly what it sounds like: the design of benefit structure using assumptive valuation techniques, as well as the accounting and financial analyses on the proposed design. Candidates have the option to take the Enterprise Risk Management exam or the Retirement Plan Investment and Risk Management exam, then finish the requirements with the Social Insurance Module. These unique exams cover retirement benefit specific regulations and analysis techniques necessary for successful risk mitigation and lawful benefit practice.

A significant drop-off in FSA recipients occurs between Health & Group and Quantitative Finance and investment; in fact, this third most popular track has fewer than half the amount of passers as health and group, and less than a quarter of the amount of Life and Annuity passers. Quantitative Finance and Investments (henceforth QFI) offers one of the most unique paths for an actuary, as these specialists effectively forego insurance and consulting to assume the role of a quantitative financial analyst (henceforth quant), a position that typically requires a masters or PhD in Financial Engineering. The type of work given to a QFI actuary and a quant may differ slightly, however, because actuaries tend to have a risk-management focus allowing them to focus on the risk of a firms potential investments, whereas a typical quant will focus more on developing general investment strategy with a greater focus on return than risk. Due to the nature of each career, much of this post’s description of QFI actuaries’ professions will overlap with the quant career path; just keep in mind that the two positions function very similarly except that quants typically create a promising investment plan and QFI actuaries analyze its risk to ensure that the company will not go bankrupt if something goes awry.

Long hours, high pay, and mathematically rigorous work succinctly define the quant profession. Similar to any other Wall Street financial analyst, quants work “as long as needed,” with the typical minimum work-week lying in the upper-forty hours range, and the maximum reaching eighty hours. Some solace for the strained work-life balance comes in the form of immediate compensation and soaring career prospects. Beyond the nearly six-figure average starting salary, with a couple years of experience, quants average about $130000 annually and they still lie fairly low on the “totem pole”. Quants have limitless growth potential within a company as analysts often set sights on a C-suite position, with CFO and CEO being far from unattainable for especially successful financial engineers and developers. Further, if a quant has a proven ability to predict markets and grow a company, other firms have the ability to “poach” the analyst and put him/her in a higher position; the current company would then have the opportunity to counter both salary-wise and position-wise to keep quant. Hypotheticals aside, any job in the quantitative finance profession involves rigorous mathematical and programming work, hence the necessity of a masters or PhD in quantitation or computer science.

Diving briefly into the path for a QFI actuary: candidates for this track must also take three written exams, two of length five hours, one of length 2-2.5 hours. The first two exams cover introductory and advanced Quantitative Finance (respectively), while the last exam covers the candidate’s choice of Risk Management for Investment or Enterprise Risk Management. As with all other tracks, QFI candidates must take the Enterprise Risk Management Module; however, QFI has two modules unique to itself in Financial Modeling and Financial Reporting (whose names define their contents fairly accurately).

A close second in FSA recipients and actuarial insurance positions; a potentially lucrative and rewarding option; and, often regarded as the most exciting and fast-paced of the actuarial fields: we will now move onto the Health and Group track. Similar to life and annuities, the group and health track offers excellent progression opportunities in a company, while the administrative duties within health actuarial consulting allow for exit opportunities into MBA programs and leadership roles in insurance companies.

Unlike life and annuities, however, health and group actuaries have the ability to pursue healthcare specific consultancies like Wakely Consulting and Oliver Wyman. This track offers a unique opportunity because the exit opportunities flow more directly into companies looking for leaders, but the healthcare experience also ensures that an actuary can achieve a supervisory position in a health insurance company immediately. Actuaries specifically seek out the health path in part for the compensation, which offers a competitive starting salary and allows for fast and significant growth.

The other primary incentive for actuaries to pursue the health path comes in the form of an active and challenging workplace; actuaries regard the health profession especially highly due its unpredictable in both duration and amount (claim price). Unlike life and annuities which had an uncertain time-period but well-defined payout structure and quantity, health actuaries combat temporal uncertainty and price volatility. Since an actuary cannot know exactly when an insured will get sick or injured, nor will he or she know the severity or coverage options of the ailment, making both the timeline and the payout ill-defined.

In industry, health actuaries serve to price insurance plans and forecast potential claims to reduce an insurer’s overall financial risk. Similar to life actuaries, health actuaries who work directly for insurance firms will only manage the finances and risk of their own firms, while consulting health actuaries advise insurers and other firms/programs (hospitals, medicare facilitators, etc.).

Most actuaries who choose to pursue health-focused professions first achieve their FSA in the Health and Group option. The SOA intends for this fellowship to prepare candidates for careers in health and benefits fields, but it also prepares fellows to lead both small teams and large companies. Besides the exams (which I will touch on later), the mandatory Health Economics and Health Foundations Modules appear to comprehensively cover both the quantitative and qualitative sides of healthcare analysis. The exams undertake the same format as the ILA track, that being two 5.5 hour and one 2 hours exam, and consist of a sequence of three health specific exams: Group and Health Core, Advanced, and Specialty. These exams test knowledge of health-related actuarial concepts, but also the ability to competently express these difficult concepts in deliverable essay form. The final two modules and professionalism course do not deviate from the standard FSA path, so we will not dive into them again.

With the actuarial profession outlined and the FSA overviewed, let’s begin with the most popular Fellowship subsection: The individual life and annuities path. People may flock to this path more than general insurance or retirement benefits because of the especially lucrative opportunities, many of which see strong potential for progression within the company.

Furthermore, life and annuity actuaries have both consulting and traditional roles available to them, as the need for their unique skillset exists in both Human Capital Management Consulting^* as well as in life-focused insurance companies like this^* director position at Prudential.

These actuaries’ ability to mitigate a company’s risk by advising on product pricing and to encourage stability by defining costs despite difficult quantification (“reserving”) make their skills valuable and therefore desirable. Since a life actuary focuses on life (and death) expectancy, they tend to deal with the question “when” as opposed to “what.” For example, if a woman dutifully purchased a life insurance plan at her entry level job out of college, the continued to contribute to it throughout her successfully career, an actuary will have complete, data-backed knowledge of how much her family will receive when she passes as well as how that will impact her insurer. However, the actuary does not know, and therefore will attempt to determine, when she will ultimately die; this uncertainty indicates why the “when” question needs answering regarding life insurance (we will dive into other paths’ what/when in future posts).

Those working for direct life insurers, such as Prudential or New York Life, will consider only their own company’s insureds and the impact a claim (or many claims) will have on the financial stability of the firm. Per the description of the actuarial profession (see posts one and two), risk management takes priority here since a successful actuary will effectively mitigate his or her company’s risk by forecasting death dates and thus advising on adequate preparation for claim influxes. Contrarily, a life actuary at a consulting firm, such as Willis Towers Watson or Pryor Personnel, will manage the risk of client companies by analyzing their data and advising on asset and capital allocation with respect to expected claim rates over time.

To get to this point, however, an actuary needs to pursue the Individual Life and Annuities FSA track, which includes three life pricing and risk specific exams. The Life Pricing and Life Finance and Valuation exams each take 5.5 hours and have an essay-based format. The Life Risk Management exam (or substitutable Enterprise Risk Management exam) takes 2.25 hours and also consists of a business focused essay. Alongside the exams, ILA candidates must pass four modules, with Regulation and Taxation and Financial Economics unique to ILA. Otherwise, the FSA in Individual Life and Annuities has few differences from the other Fellowships, of which we will next delve into Group and Health.

Now that we have covered the basics of the actuarial profession and some potential career paths, we can now move on to how to get there. As in any other industry, actuarial science specific credentialing exists and will play a significant role in the both the type and quality of company and position you can pursue. Similar to the Bar Exam, the CPA Exam, or a physician’s specialty board exams, actuaries also have graduate level examinations necessary to progress to the next level in the career. The actuarial exams, however, assume certain characteristics of nearly all other graduate exams, then add their own twist.

While the graphic captures the approximate cumulative length (~14 hours) of the actuarial fellowship exams (3-4) as well as the diminutive relative frequency of passing, some additional idiosyncrasies of the fellowship exams arise in the mandatory modules and fellowship admission course. In addition, the Society of Actuaries offers six separate paths, all of which we will delve into a bit later. The only parallel to the SOA’s fellowship structure lies in the board exams doctors take to enter a specialty; similar to a physician choosing internal medicine or pediatrics, an actuary can take any of the following tracks and end in a different career path:

• Corporate Finance
• Quantitative Finance
• Individual Life and Annuities
• Retirements Benefits
• Group and Health
• General Insurance

Achieving a fellowship, more commonly referred to as an FSA for Fellowship of the Society of Actuaries, in any of these branches will allow an actuary to achieve success at the highest level. We will take a look at each branch individually throughout the course of this blog, but most senior actuary and actuarial director positions open up only for FSA recipients.

Achieving an FSA typically requires three exams, four learning modules, and a Fellowship Admissions Course by the SOA. While the total amount of exams taken varies between three and four depending on the path chosen, the total time spend testing always runs between thirteen and fifteen total hours. Each module consists of 50-60 hours of content in addition to a comprehensive test and business problem (we will visit specific modules in later posts). The SOA intends for candidates to complete the Fellowship Admissions Course upon completing all exams and modules, and hopes that candidates learn and maintain a professional attitude while increasing proficiency in solution evaluation and communication. The FAC consists of a business case to which a team of potential FSAs must create and present a solution; this solution and its presentation will determine whether the candidate will receive the FSA.

Some reason must exist for CNN placing actuaries in the top twenty jobs in America, right? And I suppose it doesn’t hurt that CNN also put the career in the ten top-paying jobs, right? If that weren’t enough, the profession’s 22% projected ten-year growth rate, which, keep in mind, triples that of the average American job, would convince you that the actuarial career path is one worth pursuing, right? Hopefully I’ve convinced you to read about this career that clearly garners respect from professionals, businesses, and the media. Now let’s jump into it!

The simplest definition of an actuary as a statistician for businesses overviews the field a bit, but this explanation needs some refining into something that I can work with and that will help you follow along with the next nine blogs a bit easier. More precisely, a typical actuary works in the insurance field and manages the risk a company undertakes by numerically evaluating past, present, and future events, then helps to devise a strategy for the company to mitigate that risk while remaining profitable. For actuaries serving such an important role, companies typically compensate this profession very well. We will delve into more on a field-by-field basis later in the blog, but nearly any path chosen by an actuary will prove relatively lucrative.

Actuaries have the ability to work in quite a few sectors, but about 85% pursue either insurance (including retirement/benefits) or consulting so the focus throughout this blog will remain on these industries.

Generally, the four finance/insurance opportunities for actuaries consist of the following: Health, Life, Property & Casualty, Retirement & Benefits. You can refer to the above matrix for an overview of the basic differences between each field, but most people find health and P&C the most exciting due to the more short-term nature, while many people find a niche in the life department where the actuary has both long-duration and lots of uncertainty to combat. Most people consider Retirement & Benefits a dryer and slower field, but many actuaries do find success and happiness here.

Typically, an actuarial consultant will work for either one of the big four management consulting firms (Deloitte, Ernst & Young, PricewaterhouseCoopers, KPMG) in a generalist role with an actuarial specialty, or a boutique actuarial consulting company (Willis Towers Watson, Milliman, Wakely, etc.) in a field specific role. Minimal difference in the magnitude of work exists between the two, but a generalist with an actuarial focus will work distinguishably different cases than will someone in a more industry specific role. For example, an actuarial generalist may help advise a tech company on investment strategy by analyzing the risk relating to its current approach, whereas an actuary in a health specific role will almost always advise a health insurance company in pricing and valuation of its plans and management of the risk within its client base.

The only thing more fun than learning about the paths you can take in the future is the credentialing it will take to get you there, and we will take a look at that in the next post!