AN OVERVIEW OF ACTUARIAL ACCOUNTING
Actuarial accountants use statistical data, including financial, social, and demographic information, to assess and manage future risks. They help businesses and clients minimize costs by quantifying risk and uncertainty and making data-driven recommendations to keep clients in solid financial standing.
While actuarial services are most frequently used in the insurance industry, actuaries also work with corporate clients, government entities, and in the financial sector. Actuary accountants apply mathematics and financial theory to perform risk analyses. Using computers and specialized software, they perform calculations and generate charts, graphs, and reports to support their findings.
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Actuaries must develop strong analytical skills to identify trends and forecast outcomes. They need skills in interpersonal communication, computing, and mathematics, including a solid grasp of calculus, statistics, and probability. Most professionals begin their actuarial accounting careers by earning a bachelor’s degree in actuarial science, math, statistics, or a related analytical field. Read on to learn more about how to become an actuary.
ACTUARIAL ACCOUNTING CAREERS
Actuarial accountants enjoy a variety of career possibilities. The Bureau of Labor Statistics (BLS) projects a 22% job growth rate for actuarial positions between 2016 and 2026. While insurance companies and private organizations create the majority of new positions, many actuaries find roles in government offices, the financial sector, and the healthcare industry.
Most actuaries specialize in one field, such as health or life insurance, pensions and retirement benefits, or enterprise risk in the private sector. Actuaries employed in the public sector provide services to both state and federal governments. For example, those working at the state level may examine and regulate insurance rates and policies.
Actuaries also work in federal offices, including the Social Security Administration (SSA), the Centers for Medicare and Medicaid Services, the Internal Revenue Service (IRS), and the Public Health Service (PHS). Each office employs actuaries to research, analyze, and assess risks associated with current programs, proposed strategies, and future developments. Actuaries in the SSA, for example, monitor the balance between future benefits and current social security taxation, while PHS actuaries analyze savings associated with vaccination programs and targeted interventions.
Actuarial accounting positions are as lucrative as they are challenging. BLS data indicates that actuaries draw a median annual salary of $102,880 — about 182% higher than median annual earnings for all occupations. Actuaries in the 90th earning percentile may draw more than $186,110 each year.
- CASUALTY ACTUARIAL SOCIETY: CAS certifies casualty and property actuaries and offers two certification levels of certification: associate (ACAS) and fellow (FCAS). While actuaries are not legally required to obtain certification, most employers prefer to hire actuaries who have the credential. ACAS candidates must pass seven exams, and FCAS certification requires two additional exams. On average, actuaries spend 4-7 years reaching associate status and 2-3 more years becoming a fellow.
- SOCIETY OF ACTUARIES: SOA certifies actuaries who work in health or life insurance, retirement and pensions, investment and finance, or enterprise risk management (ERM). SOA offers two levels of certification: associate (ASA) and fellow (FAP). ERM actuaries can pursue the chartered enterprise risk analyst (CERA) credential. ASA candidates must meet college coursework requirements, complete two courses, and pass seven exams. SOA offers six fellowship tracks: corporate finance and ERM, quantitative finance and investment, life/annuities, retirement benefits, group and health, and general insurance.
- IRS ENROLLED ACTUARY: The IRS employs actuaries who satisfy the standards and qualifications outlined in the Joint Board for the Enrollment of Actuaries regulations. Candidates must hold a bachelor’s degree and verify supervised experience. Unlike CAS or SOA certification, IRS enrolled actuaries must meet all requirements and gain approval from the Joint Board before working for the government agency.
Actuaries are a specialized profession in the U.S. According to BLS data, approximately 23,600 people worked as actuaries in 2016, with New York, Illinois, Pennsylvania, Ohio, and California employing the most actuaries.
With a median annual salary of $108,920, actuaries hold one of the nation’s most lucrative roles. Even those in the 10th percentile earn $61,140 annually — 58% higher than the 50th percentile for all occupations.
BLS projects a faster-than-average job growth rate for actuaries. The profession is projected to expand 22% between 2016 and 2026, adding 5,300 more actuarial positions to the sector.
The insurance industry revolves around risk, and actuaries play an integral role in developing and maintaining insurance policies. Most actuaries working in the insurance industry specialize in areas like health insurance, life insurance, or property/casualty insurance. While specific duties vary by specialization, insurance actuaries’ methods are largely the same. Using math, statistics, and forecasting, they analyze risk-related financial costs and determine ways to minimize the impact of undesirable future events.
- Calculating: While all actuaries use math on a daily basis, individual roles within teams influence how they apply their skills. Actuaries calculate a variety of risks, including policy liabilities, insurance premiums, and the cost of future claims.
- Analyzing: Actuaries continuously refine their analytical skills as they gain professional experience. An actuary tasked with pricing must know how to assess their employer’s competition, while valuation actuaries must continuously appraise the amount of total assets a company needs to maintain good standing.
- Reporting: Actuaries share their findings by presenting reports to managers, financial teams, or even board members. Actuarial reports must be detailed and include all relevant information, including changing assumptions and insight into future events.
- Modeling: Actuaries employ modeling software to make complex calculations. They must enter all assumptions and set the program’s parameters to receive accurate results.
- Managing: Many experienced actuaries choose to pursue managerial roles. Less concerned with the technical aspects of actuarial science, managers focus on decision-making and team leadership.
The path to becoming an actuary begins with earning a degree. Actuaries must hold an accredited bachelor’s degree in actuarial science, math, statistics, or a closely related technical field. Candidates should also possess a background in business and demonstrate solid communication skills.
An actuarial accounting career requires long-term, on-the-job training. Most companies hire actuaries who are pursuing certification and have completed the first few exams. On average, it takes 4-7 years to become a fully certified actuary, with 2-3 more years to become a fellow.
Actuaries in the financial sector often take jobs at banks and investment firms, where they assess risks on loan products, measure potential losses in investment portfolios, and analyze the balance between assets and liabilities. Investment bankers with a background in actuarial science assess risks associated with mergers, acquisitions, and stock purchases.
- Compiling: Actuaries collect and compile statistical data to use for calculations and analysis. For example, an actuary at an investment consulting firm might need to conduct asset allocation research for a pension asset/liability study.
- Assessing: Financial actuaries need strong math and modeling skills. They should be able to read financial statements and performance reports to determine liability risk and make prudent investment recommendations.
- Estimating: Actuaries analyze risk factors and uncertainties to estimate probabilities. They use these estimates to help banks manage liabilities and assets and determine accurate pricing.
- Testing: Financial actuaries design dynamic tests and credit-risk models that reflect current financial conditions and account for potential changes.
- Reporting: Actuaries report their findings to company decision makers who ultimately determine how a bank or investment firm manages risk-associated costs.
Finance actuaries must hold a bachelor’s degree in actuarial science, math, statistics, or a related technical field. An ideal curriculum includes courses in finance, microeconomics and macroeconomics, calculus, linear algebra, and computer science.
Many actuaries who work in finance pursue certification through the Society of Actuaries. During the certification process, candidates must pass several exams and complete three validation by educational experience (VEE) requirements related to economics, corporate finance, and applied statistical methods.
Actuaries employed at private corporations provide management with the information they need to make informed decisions. Actuary accountants deal specifically with risk evaluation, presenting company decision makers with relevant statistics and actionable insights. Many companies use ERM to assess, control, finance, and monitor risks. ERM actuaries factor in variables like competition, globalization, market volatility, and capital scarcity as they assess risk.
- Evaluating: Actuaries perform gap analyses to identify an organization’s existing capabilities. Using the resulting data, they compare the organization’s current conditions and future plans to develop new initiatives.
- Analyzing: Actuaries analyze current market conditions, including prices and benchmarks, to determine market values for fixed-income securities. They also compare their companies against competitors.
- Modeling: Models allow actuaries to help enterprises understand their organizational risk thresholds and develop mitigation strategies.
- Reporting: Actuaries disseminate their findings through reports, which often include charts, graphs, and other visualizations that can make the information more digestible.
- Managing: Many professionals advance within their organizations as they gain experience. Some serve as executive-level actuarial science experts, informing corporations on reports, statistical data, and applied assumptions.
ERM actuaries must hold a bachelor’s degree or higher. Common majors include actuarial science, math, statistics, and related technical fields.
Candidates pursuing certification from the Casualty Actuarial Society must meet college coursework requirements, pass at least seven exams, and complete three VEE requirements in economics, corporate finance, and applied statistical methods.
State and federal government offices employ many actuaries. Those employed in the public sector work on programs related to benefits, public health and welfare, taxes, housing development, energy, education, or transportation. While most federal positions are concentrated in the Washington, D.C. area, public-sector opportunities are available nationwide.
- Evaluating: Actuaries working for the federal government may evaluate proposed changes to government programs like Social Security or Medicare. They often design and test pension plans and determine the cost savings of a program, intervention, or proposed expenditure.
- Research: Actuaries in the public sector must continuously assess current data related to populations and groups to predict potential demographic changes over time.
- Analyzing: After collecting and compiling research, actuaries analyze data to determine trends and patterns that influence future uncertainty and events. Government actuaries spend a great deal of time analyzing economic and demographic information.
- Reporting: Actuaries should possess strong communication skills, as they must report their findings to management, financial teams, Congress, or the general public.
- Training: Experienced actuaries often take on more duties, such as training new professionals or leading teams. An IRS-enrolled actuary, for example, may advise, train, and assist other actuaries in their organizations.
Actuaries who wish to work in the public sector must hold a bachelor’s degree and complete at least 24 hours of coursework in actuarial science, math, statistics, business, finance, economics, insurance, or computer science. Candidates must also satisfy requirements set forth by the relevant governmental office, such as the IRS or SSA.
While government actuaries do not need to meet the certification criteria required in other industries, each department or branch upholds office-specific hiring guidelines. For example, the SSA hires actuarial accountants on at a level that reflects their education, experience, and exam results.