What to know about actuaries - the professionals who predict the financial future of companies with math and science

• An actuary is a professional who uses math and statistics to analyze risk and probability to help ensure companies remain profitable.
• An actuary creates risk categories that companies use to avoid undesirable outcomes.
• Actuaries design models to minimize the damage when undesirable events do occur.

Almost everything in life involves risk. When you get behind the wheel of a car you risk being involved in an accident. When you invest in the stock market, you risk losing your investment. The older you get, the greater the risk you will become ill.

Here we learn about people called actuaries, who quantify these risks so insurance companies, financial institutions, and hospitals, to name a few, are able to provide risk protection at a fair and competitive price.

What is an actuary?

An actuary is a business professional who measures and manages risk based on a deep understanding of mathematics, statistics, and business management. In essence, actuaries predict the financial future of a company with math and science.

Actuaries are experts at using their analytical skills, business acumen, and knowledge of human behavior to assess financial risks within an organization in order to help maximize profit and avoid catastrophe.

Quick tip: An actuary is not the same as an underwriter, though both work with the same data and in the same industries. Actuaries create the risk categories companies use to make business decisions. Underwriters sort customers or business decisions into the categories created by actuaries.

The future for actuaries is evolving due to advances in technology including artificial intelligence (AI), machine learning, and automation. These technologies will create new opportunities for actuaries as true business strategists.

Where do actuaries work?

Although actuaries often work for insurance companies, they're also employed by consulting firms, government entities, employee benefits departments, hospitals, banks - and even investment firms.

Any organization that needs to manage financial risk might employ an actuary. This could include making sure a pension fund's assets match its liabilities, working for the Social Security Administration (SSA), or analyzing a set of investment options to determine which one is more likely to be profitable.

What exactly do actuaries do?

Most actuaries, no matter their specialty, do the following with each project:

• Meet with clients or company officials to discuss the project at hand
• Compile and analyze statistical data
• Estimate the likelihood and cost of an unwanted event
• Design charts, tables, or reports to explain their calculations
• Discuss their findings with appropriate authorities and offer proposed solutions

By specialty, the role an actuary plays can vary:

• Health insurance actuaries develop long-term care and health insurance policies by predicting costs of providing care based on a variety of factors including family history, geographic location, and occupation.
• Life insurance actuaries create annuity and life insurance policies on the basis of risk factors such as age, gender, and other health factors.
• Property and casualty insurance actuaries formulate insurance policies that protect against accidents, natural disasters, fires, and other events.
• Finance actuaries develop investment strategies that manage risks and maximize returns for companies or individuals.
• Pension and retirement benefits actuaries design pension plans to ensure the availability of funds to pay future benefits and help companies develop alternate retirement plans such as 401(k)s.
• Enterprise risk actuaries identify economic, financial, or geopolitical risks that might impact a company's bottom line or long-term objectives.
• Public sector actuaries may work for the federal government and evaluate proposed changes to Social Security, Medicare, or other government programs.

All this, says Shane Canfield, CEO of federal employee insurance provider, WAEPA, "Allows actuaries to help businesses grow and provide value to their customers. Actuaries help leaders make strategic decisions and consumers prepare for their future."

What is actuarial science?

The field in which actuaries work is known as actuarial science. It is a discipline that assesses financial risks in the insurance, finance, and other fields using mathematical and statistical models.

Actuarial science deals with evaluating risk and maintaining the economic stability of an organization or business. It involves the use of mathematics, statistics, and probability principles to anticipate undesirable future events and take preventive measures.

How to become an actuary

The road to becoming an actuary begins with a college degree, Canfield says. "A solid undergraduate math degree is a must, usually through a dedicated university actuarial program. Mathematics is the foundation and principal discipline," he adds, "however, it is also critical to have sound knowledge of business management, risk management, finance, and forecasting."

Quick tip: Though not mandatory, a college program that offers an internship can help you decide on your ultimate focus, be it insurance, pensions, government, financial, or elsewhere.

Finally, depending on your specialty, there are credentialing exams to pass. Credentialing is done through one of two professional associations, the Society of Actuaries (SOA) or the Casualty Actuarial Society (CAS).

Actuary salary

When it comes to compensation, actuaries outrank other similar occupations including mathematician, statistician, financial analyst, and accountant. The median pay in 2020 was just over $111,000 per year according to the U.S. Bureau of Labor Statistics (BLS).

With job growth predicted to be 18% between 2019 and 2029, which is much faster than most related occupations, the long-term employment outlook in the actuarial field is solid for the foreseeable future.

Actuarial societies

There are two professional societies for actuaries: the Society of Actuaries (SOA) and the Casualty Actuarial Society (CAS).

The SOA is a worldwide professional organization for life, health, pension, and retirement actuaries. The CAS is the international organization for property and casualty (P&C) actuaries.

Both organizations provide credentialing pathways for their respective members and both offer professional development, educational opportunities, and advocacy for their constituencies.

The financial takeaway

An actuary is a business professional trained to model and predict the financial future of a company based on risk. Utilizing analytical skills, business acumen, and knowledge of human behavior, actuaries are able to foresee undesirable outcomes and suggest solutions in order to avoid financial catastrophe.

For those with a strong interest in mathematics, statistics, and analytics, a career as an actuary may be a great career choice. Rapidly evolving technologies and new opportunities for actuaries as business strategists have resulted in higher than average salaries and job growth in the actuarial field.