Actuaries, a poorly understood bunch of analytical thinkers doing unique corporate work


Author’s note

Prior to writing this article, I had a poor understanding of actuary, and from my interactions I've learnt that I'm not alone. To address this, a large part of the article will be focused on establishing an understanding of this wonderfully intellectual occupation.

For that, we will first focus on 4 common myths about actuary, and the work of an actuary with an example scenario as illustration. With the foundation set, we will then explore the intricacies of the work, and you can decide if it's the ideal work for you. 

Establishing actuarial work

Imagine with me.

A friend is looking to borrow money from you. Being the wonderful person you are, you’d lend without delay, and without interest.

But let’s say someone else you aren’t too familiar with looks to do the same. Then what? Furthermore, since it’s not someone close, you decide to charge interest. Depending on the person’s reputation and credibility, the interest might low or high. Why? It’s to safeguard yourself in case the loan goes sour.

What you have actually done, is to analyse risk and factor that into your loan, thus affecting interest.

Scale that to a company, industries or whole populations of people, add in more products and take the idea of risk broader, and you’d have a pretty good idea what actuarial science is, and what an actuary does.

4 common myths about actuaries

1. Actuary is an occupation

From Wikipedia:

An actuary is a business professional who deals with the financial impact of risk and uncertainty. Actuaries provide assessments of financial security systems, with a focus on their complexity, their mathematics, and their mechanisms (Trowbridge 1989, p. 7).

In other words, actuaries (plural of actuary) are the people who does the discipline of actuarial science. So don’t say things like wanting to work in an actuary. That's going to be really awkward. 

2. Actuaries are math wizards who solve logarithmic equations everyday

To be an actuary, you’d have to be good in applied math (i.e. applying math) but not necessarily at a level of a math wizard. Your tools of the trade would be mathematical and statistical methods, general programming skills, specialised actuarial software for risk modelling and Microsoft Excel.

3. Actuaries only work in insurance companies

Traditionally, insurance companies are where the industrial usage of actuarial science first started. And it makes sense because someone has to quantify risk for an industry that payouts when risk actually becomes reality.

Now, actuaries are diversifying out of insurance and find work in banks. Some do project risk management as well, an example being in the set up of oil and gas industries.

4. Actuaries and underwriters are one and the same

The easiest way to think about this is that actuaries focus on the macro: industries, whole populations of people etc. and underwriters focus on the micro: the individual. Remember the analogy I started this article with, where we adjust interest rates or even decline business of an individual depending on the calculated risk? That’s the job of an underwriter.

Now we are ready to move on to the next big section.

What do actuaries actually do? Pun intended

Hours as an actuary

Hours as an actuary follows the standard banking hours: 9 to 7pm, and when you are not in meetings (more on that later), you'd be at your desk doing actuarial work. 

Given the nature of the discipline, one can expect to work on projects, even multiple projects most of the time instead of routine grinds. While led that sounds dynamic and fun, bear in mind that there's a lot of meetings. Like seriously a lot. And that's because actuarial work is an iterative process involving many stakeholders. 

But before that happens, you'd be doing mostly grunt work for the first year a two, like data and Excel manipulation, or more generally, mundane stuff which the seniors do not have the time for or do not want to do. If you are in a pricing or consultancy role, the dynamic stuff might come sooner. 

Example of an actuarial project

As an illustration, we will look at what a pricing/product actuary might do. Other than pricing, there are also other roles employing actuarial expertise such as valuation or risk management, and their work might differ.  

Let's say insurance company X decides to launch a life insurance product for middle aged males that pays a large sum of money upon death. They would have to consider things like mortality rate, the economy, interest and inflation rates, competition and more in their design of the product, and that designer is you, the actuary.

The project has a fixed finite time frame (unlike many others elsewhere), and through the process you will work with different internal teams like underwriting, marketing, claims, senior management (CEO, CFO etc.) and the IT department, just to name a few. 

First you will quantify the mortality risk of the middle aged males and determine the right premium to charge the market. Next comes the risk bit. 

Besides the obvious mortality risk based on assumptions made using prior experience, you would also have to do a cash flow projection for the company to manage inflation, ongoing expenses (admin, renewal expense etc.), investment risk and more — it won't do good for the company to go bust lending money. An outcome would be a financial model that factors all these risks. 

Another consideration would be the supply and demand: rates charged by competitors and the demand for this product in the market. 

After everything is considered and calculated, you then set a price, or in this case, set the premium for the imaginary middle aged males. By the time you are done, it would have been 3-6 months in. And remember, you are expected to manage several projects.

Introverts as actuaries and the supportive culture of the office

The prevalence of introverts in actuarial work

Maybe it's the nature of the job which attracts introverts, or maybe introverts naturally excel in actuary, but truth is that actuaries are kinda an introverted bunch. And what this means is that the office is quiet and serene; hardly a resemblance to the usual boisterous office. 

Speaking up as you move forward

When you first start out as an actuary, you’ll be the one handling the data and detailed modeling work, so you’ll be desk-bound most of the time and may not have time to talk to others. But as you progress and manage other team members and stakeholders, more interaction comes in. Remember the example of an actuarial project we explored? Managing relationships with multiple teams become a necessity.

 As you move forward in your career, you’d be required to communicate with senior management who might not be technically trained, so it's crucial that you develop the ability to simplify critical technical concepts to make your case, and help everyone understand what needs to be done. 

Supportive culture for actuarial examinations

A very unique thing about actuarial work is that your learning, and by extension, examinations don't end upon graduation. In fact, it's a rite of passage for any actuary and because many have passed through the intensive examination process, there's great support from colleagues and seniors. And that support also translates to empathy when you fail your examinations. Study leave is abundant — about 10+ days a year — for those still pursuing their papers, and for advanced papers, there could be more. This is one of the rare places in the corporate world where people would openly encourage you to pursue your professional certification. 

Challenges of an actuary

Examinations that wouldn't go away

Interestingly, the most challenging thing about actuarial work is not politics or management or even the lack of perks, but examinations. There's a total of 15 papers* to complete, and that could take 5-6 years. As if that isn't bad enough, some papers have a 50% failure rate. 

Even though failure is a norm, it will still get to you especially if you had put in everything you have. It's almost like the nightmare of failing school examinations and facing your parents with a bad report card all over again. Except you are an adult now, and these papers have a direct impact on your career progression. To stick with the work and fight through the examinations take much tenacity; it's not uncommon to see people discouraged by multiple failures to move out of actuarial work totally. 

*The 15 papers refer to the UK system, and it differs for the States and Australia. Content wise it's similar though.

The difficultly of explaining what you do

Not a challenge exactly, but nonetheless a frustration. And that's having a difficult time explaining to others what you do. Imagine spending half an hour telling someone about this wonderful work only to be greeted with a blank face... every time you meet someone new. 

Perks of being an actuary

A career that's relatively stable with a clear progression path

As a fresh graduate, you already would be commanding a slightly higher salary than your peers but the best part is that your salary increases each time you pass an examination. What this means is that your salary progression is clear, and somewhat within your control, in the way you work towards passing your papers. 

A tight knit industry

For better or for worse, it's a tight knit industry where everyone seems to know everyone else. This means that there's a lower chance of backstabbing, and support comes easier. 

Internationally mobile

The moment you finish your 15 papers, you are free to work in any country because certification is internationally recognised. As a case in point, a significant number of actuaries would have worked in more than one country in the course of their career.

Advice to students who want to be an actuary

Attempt your papers and do actuarial work as an intern

Given that the 15 papers pose the greatest hurdle to progression, attempting to take them during your undergraduate years would be your best bet. Besides showing prospective employers your commitment, it also gives you a practical edge over those without any papers under their belt. Furthermore, it's a highly competitive industry especially at the entry level so without internship experience, most companies will pass you by. 

There is also the exemption system, where you may get exempted for certain professional papers based on your degree and results. Nevertheless, more papers and more experience equates to a better hiring chance. 

Academic inclinations

While you don't need to be a math wizard, you do need to be decently good at it, especially with statistics. And decently good refers to an 'A' for mathematics at GCE A Level or equivalent without significant effort, because that's the minimal profile of the competition you are up against with. Analytical thinking is must too. 

Through I mentioned mathematics, that's only true for lower level papers; upper level papers are primarily essay based. Some written and verbal (for those practical exams) communication skills are certainly required as well. Remember the earlier part on actuaries getting stuck with their exams? That is almost always due to the upper level papers.

Advanced knowledge of Microsoft Excel is also helpful, and by advanced knowledge I mean pivot tables and hotkeys as a bare minimum. This is to allow you to solve potentially open-ended modeling problems which might be thrown at you. Or more commonly, know enough to modify an existing Excel model and make sense of the results in a timely manner. Lastly, the first few years will be desk-bound so be prepared for it. 

Concluding thoughts

Actuarial work is unique among the many corporate work today which revolves around sales or project management. It requires perseverance in the face of seemingly unending examinations, but the payoff is high in that you'd end up with a career that's internationally mobile and highly sought after. It also requires a good mix of analytical thinking, a love for working independently, the ability to explain difficult concepts and willingness to work in teams. 

If corporate work is too boring for you, and you have the skills and tenacity to slug out those early years, actuarial work might just be your calling.