Who or What is an Actuary?

Many people will effortlessly tell you who a teacher or policeman or doctor is. In fact they will in many cases proceed to tell you what a teacher or policeman or doctor does as a professional. 

“Hello, my name is so and so. I ‘am a practising Actuary”. On one hand, many people will look back blankly at a person who introduces themselves as an actuary. Basically because a sufficiently large number of people will have never heard of what an actuary is. Even more they will not have ever interacted with one. 

On the other hand, there are a few people who, with knowledge of what actuaries do, will be very thrilled to encounter one. This is because of the reputation that actuaries are associated with. Actuaries are professions known for their mathematical dexterity and the complexity of their work includes expressing financial expectations in statistical models. In addition their training is associated with difficult examinations. 

Simply put actuaries are considered to be some of the smartest people in business. They apply their mathematical, statistical, and problem-solving skills to forecast and evaluate the financial implications of decisions made by private and public institutions. 

Traditionally the actuary’s work was only associated with insurance companies and pension fund management. However, today the actuarial profession is playing very significant role in healthcare, banking, business management, and risk assessment. Governments in developed countries are known to increasingly use actuaries in the formulation policies.

What do Actuaries do?

Actuaries are trained to apply financial and mathematical theories to resolve real life business problems. Often times a student of mathematics at high school, college or university will wonder why they are tortured with seemingly irrelevant mathematical theories and theorems. In fact several statistical and mathematical theories and concepts are applied in the actuarial practice. 

Real life business problems are resolved by typically analysing future financial events, especially when the amount (the quantum) of a future payment, or the timing of when it is paid (the event), is uncertain. A lot of actuaries’ work might be thought of as ‘risk management’, assessing how likelihood (probability) an event may be and the (magnitude of) costs associated with it.

Understanding how businesses operate, how legislation or government policy may impact, and how financial economics (e.g. inflation, exchange rate and interest rates) can affect values are all vital skills for an actuary. But what differentiates actuaries is their core mathematical, economic and statistical understanding and their ability to apply this to real financial problems.

Actuaries in the Business Environment

The work of expert actuaries has been very useful in:

Consultancy

Actuaries in consultancy practice offer a whole range of services to their clients. The common areas include: acquisitions, mergers, corporate recovery and financing capital projects.

Many offer expert advice to employers (sponsors of pension schemes) and trustees who run occupational pension schemes. In fact, such consultancies are probably the biggest employers of actuaries in the United Kingdom.

Investment

In the field of investments, actuaries are engaged by institutional investors, investment managers, banks, issuers of securities e.t.c. in: pricing financial derivatives, working in fund management, or working in quantitative investment research. Often investment actuaries work in fields where their expert understanding of insurance or pension liabilities helps them to manage the investment of the corresponding assets.

Insurance

In insurance the work of actuaries includes: designing new insurance policies, setting appropriate premium rates, calculating a company’s financial solvency status (based on the policies already sold), and answering technical queries from policyholders. Insurance actuaries may also undertake detailed investigations of different adverse or favourable business trends; such as how assets and expenses have performed and the extent (frequency and severity) of different types of claims for different types of insurance policies (e.g. death claims for funeral insurance or road traffic accidents for motor insurance).

Pensions

Actuaries working in the pensions field, are usually involved in designing and advising pension schemes, sponsoring employers and fund managers especially on the valuation of a scheme’s accumulated pension promises. This could be in the form of a formal valuation of a whole scheme, which is legally required every three years or for an individual’s benefits (perhaps if they want to transfer their entitlements from one scheme to another).

The Actuary as a Professional

After successfully passing the exams an actuary must then develop their capacity to give sound expert advice. In general this will involve dealing with non-actuaries and the general public, so the ability to communicate difficult topics clearly to non-specialists is of key importance.

With experience, actuaries tend to spend less of their time working on the strictly technical aspects, instead applying their expertise to more general areas; whether it’s managing a business, advising a client on remuneration policy, advising on a corporate takeover, or undertaking one of many other different types of projects.

Being an expert carries huge responsibilities and rewards in equal measure. Actuaries’ pay and conditions are comparably better than those of other professions. But for most actuaries, the real satisfaction is derive from doing a stimulating job that requires them to think rationally and make a positive enduring impact on legislation, businesses and individuals lives.

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