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Actuarial Exams to Pass: How to Become an Actuary?

Actuarial Exams to Pass: How to Become an Actuary?

According to Canadian Business, becoming an actuary is one of the best decisions you can make. The actuary job title ranks among the first 20 on a list of 100 best career paths for 2019. As a stand-alone, it may look like a vanity measure.

The sauce is in considering other tidbits tied to it.

The actuarial and statistics scene has seen an employee growth rate of a whopping 87% in the last 5 years alone. And there will be an available vacancy for every job seeker in the next 3+ years. That means you have a high chance of securing a job.

What other push do you need to pursue the actuarial profession?

Since you are here, it’s only natural to assume you’ve already made up your mind. You want to become an actuary and, therefore, wish to know how to go about it.

Dive right in and drink from the most complete guide you’ll ever read.

A refresher

Before going full throttle into the whole process of becoming an actuary, a refresher about the profession is essential. You may have heard a few things here and there – not comprehensive information.

Here’s an in-depth look – who an actuary is, the responsibilities and the accompanying remuneration.

Who’s an actuary?

An actuary is a professional with a knack for handling risk and all things unknown. Simply put, an actuary is someone who assesses and manages risk. In addition to this, they predict the likely financial outcome in the event of a risk.

What an actuary does?

Actuaries depend on a wide pool of skills in their work

  • Economics
  • Computer science
  • Calculus-based probability
  • Business
  • Statistics

And they can work in a variety of positions across different industries. The most common beneficiaries of the actuarial manpower are insurance and reinsurance companies. Others include government agencies and a good deal of companies with the responsibility of taking care of retirement pensions.

In all these spheres, an actuary can be brought onboard either as an employee or a consultant.

As both consultants and employees, actuaries have the responsibility to forecast the likelihood of occurrence of certain events like death, illness, loss of property and injury. Basically, insurable events.

Of course, the occurrence of these events has an accompanying financial cost which, also, is evaluated by an actuary.

Aside from that, an actuary has the responsibility of

  • Determining the amount of contributions in a pension plan ideal for a given retirement income
  • Advising companies on the best route to take in terms of resource allocation in case of a risk. This is done to profit exhaustively.

Armed with data and analytical capabilities, actuaries play a major role in formulating and pricing financial plans – pension plans, policies, etc. – in a way that makes financial sense.

An Actuary’s Salary

It’s a safe bet to say that the actuarial profession is a lucrative one. And that is thanks to the forces of demand and supply.

The number of actuaries available isn’t just enough to completely satisfy the need for their services. As a result, companies are willing to pay more. CNN Business cites $50,000 as the starting salary for someone who’s done just the preliminary exams.

A fully certified actuary has an earning potential of $100,000 and can rake in an upwards of $250,000 according to Be An Actuary.

As with any other profession, there is a wide variation due to

  • Years of experience
  • The industry one is working in
  • The specific responsibilities
  • And, most importantly, the geographical location one is practicing in.

The good thing about being an actuary is that you don’t need to be through the whole certification process to enjoy the remuneration. The first professional examination will open immense opportunities – in terms of getting hired and earning.

Besides that, once you land a job with one actuarial exam passed, your employer is likely to foot the bill for your subsequent ones – either in part or full. Most employers, also, offer paid study time.

So, technically, the caveat is in passing that first exam and land employment; things get a bit easier from that point. For the exam fees, that is.

Categories of Actuarial Disciplines

In becoming an actuary, you have two routes to choose from:

  1. You can be a life actuary or
  2. A non-life actuary

Life Actuaries

This category also comprises of pension and health actuaries.

Life actuaries have a prime focus on three classes of risk:-

  • Morbidity risk – they help in determining the likelihood of an individual to contract a disease(s). This is crucial in setting premiums.
  • Investment risk – as the name suggests, actuaries here evaluate the uncertainty in meeting particular returns in line with the wishes of investors. Or, in simple terms, the probability of incurring a loss.
  • Mortality risk – how many of an insurer’s life insurance policyholders will die before the expected time? Will they be too many to plunge the company into losses or the number will be manageable? These are some of the questions actuaries handling mortality risk try to answer.

The above classes of risk have diverse insurance products. Here are a few of them and what their purposes

  1. Long term care insurance – covers the costs of long-term care for people who unable to take care of themselves due to an illness or a disability.
  2. Annuities – an annuity is an agreement between an insurer and the insured, requiring the insurer to make payments to the insured at a later date; either at once or spread over some defined period.
  3. Disability insurance – available for both short and long terms. It guards against loss of income due to a disability.
  4. Life insurance – an assurer agrees to pay a certain amount of money to a beneficiary (named by the assured) upon the death of the assured. Of course, the assured will have to remit premiums periodically.
  5. Health savings account – this is an account set up with the sole purpose of off-setting medical expenses. To be eligible to open one you must be enrolled in a high-deductible health plan (HDHP).
  6. Pensions – a pension is a pool into which one (or rather the employer) contributes money to and is accessible periodically only upon retirement.
  7. Health insurance – this covers the cost of future medical expenses either in part or full.

That’s all about health actuaries. Now over to the second category…

Non-life Actuaries

You can also call them general insurance actuaries or property and casualty actuaries.

Their specialty is both in legal and physical risk with affecting people and property.

So what exactly is a legal risk or a physical risk? Here’s a look at each one of them:-

  • Legal risk – are possible losses incurred due to a contract being in contravention of a particular law or regulation.
  • Physical risk – any potential loss stemming from things like fires, explosions, and exposure to harmful material such as toxic fumes and liquid waste.

And just like with the life actuaries category, non-life actuaries deal with a range of products as outlined below.

  1. Workers’ compensation – is a cover that provides benefits for workers who become injured in the course of doing their job. The cover also protects the employer from a possible lawsuit by the injured employee.
  2. Terrorism insurance – as per the name, the plan covers liability and loss stemming from terrorist activities. That said, it’s a very challenging product owing to the highly unpredictable nature of terrorist attacks. Also, the resultant loss due to terrorism is usually huge and may take an insurer south real fast.
  3. Homeowners insurance – covers damages to both one’s house and any other included possession at home.
  4. Malpractice insurance – it caters specifically to those in the medical profession. The cover protects them against claims of negligence by patients.
  5. Auto insurance – protects vehicle owners from incurring a loss due to either an accident or their automobiles getting stolen.
  6. Commercial property insurance – it is a cover for business premises and any other assets from a variety of risks such as fire, theft and natural disasters like floods, earthquakes.
  7. Marine insurance – the marine insurance plan protects against any losses arising due to transportation of property over water.
  8. Product liability insurance – also known as general liability insurance. It protects a company against a loss caused by claims of injury, property damage or even death – due to defective products.

Those are the routes you can follow as an actuary. Each one has its strong points and shortcomings – so it is a matter of you weighing what you can handle.

But there isn’t much difference in terms of the things that matter – remuneration, job opportunities, etc.

That said, your journey will follow the following path.

How to Become an Actuary

Becoming an actuary is just like a good deal of professions out there – academics take center stage. But the difference is brought about by…can you take a guess?

The actuarial exams.

Let’s have a look at the steps you’ll need on your way up to actuary status – and more cash in your account.

Undergraduate degree

A degree isn’t that necessary for an actuary. But you may want to get it just to stay on the safe side as far as qualifications go – some employers may include it as part of their recruitment criteria.

That means pretty much any degree will do – just for “have a bachelor’s in X” requirement on that job advert. But if you haven’t kicked off your undergraduate yet, some specific majors can boost your bottom line in grasping actuarial concepts.

  1. ACTUARIAL SCIENCE

Probably the only natural option for someone willing to go all-in from the very beginning. And for a good reason.

It’s an all-in-one package for everything about the actuarial profession. Heck, you get a gist of what’s covered in all the remaining majors on this list – plus a few others like insurance and computer science.

Aside from that, you’re exposed to key concepts of the first two professional exams. And that means you won’t have much in preparing for the tests.

  1. STATISTICS

Remember the role of an actuary? Yeah, to assess and manage risk.

To do this, you’ll need sound knowledge and an unwavering command in probability and statistical methods. And that’s what a major in statistics instills in you.

It builds up your skills in collecting and analyzing data – two important aspects in making predictions and pricing of policies.

  1. MATHEMATICS

A major in mathematics will expose you to a wide variety of concepts – naturally to do with numbers. You’ll about number theory, algebra, etc.

But the most important ones to you as an actuary (or a prospective one) are calculus, statistics, and probability. Granted the focus won’t be as laser as say in a statistics major, the opportunity to brush up on these concepts will still be beneficial down the line.

  1. ECONOMICS

In economics, you’ll learn about financial markets instruments, market forces of demand and supply, interest and opportunity cost.

These are all very important concepts in your actuarial career. They’re pivotal in assessing both risk and uncertainty. And you won’t have to wait long before putting what you gained about these areas to the test.

Exams FM and FMI demand a grasp in these areas.

  1. FINANCE

As per the name, this major is all about money – a deep dive. Stocks, swaps, bonds, put options – name it. All the financial market instruments are unmasked.

And since actuaries have the responsibility of assessing and managing risk, an understanding of these instruments is important. The knowledge helps in predicting the outcome of the company’s assets for dealing with the said instruments.

As it is, these majors will be limited in some concepts. You can fill in the gaps by going for particular elective options depending on the major you’re going with.

For instance, if you are majoring in finance, you can pick electives to do with economics, statistics and so on. An elective you can go for no matter the major is one covering any of the following computer skills

  • VBA
  • Excel
  • Access
  • SAS
  • SQL

But what if you developed an interest later when you’re through with your undergraduate? Like, say, you haven’t majored any of the above fields?

Well, you can go for a graduate degree in any of the above fields – a good idea but not necessarily a must. Your degree is a good enough qualifier for the reason stated above.

Pummeling the professional exams is the biggest piece you need to worry about in your quest.

Pass Actuarial Exams

Actuarial exams are a series of tests outside of college or university curriculum, aimed at aspiring actuaries. As an actuary, these exams bring you to speed with your expected role in the profession – remember it?

And just so you know – these tests are the toughest you’ll ever meet. The percentage of people who pass is usually less than 50%. So, buckle up.

But there is absolutely no reason why you shouldn’t among those that excel, right?

In case you fail, you still have a chance of attempting a particular exam over and over until you attain the required pass mark.

You can start attempting these exams when still in college – especially if you’re majoring in actuarial science. You’ll have a higher likelihood of landing an internship that way.

Enough talk about passing the exams. Do you even know them? How many are they? What’s the period ideal for tackling all of them?

Get the entire scoop later on.

Validation by Educational Experience

Validation by educational experience (VEE) is essential for topics that, though important, are not core to the actuarial field. These topics include applied statistics, economics, and corporate finance.

The above are considered to be a bit challenging to be tested in the four preliminary exams. As a result, you’ll have to show that you did them in your degree program.

Otherwise, you’ll have to sign up for online courses on the same.

To be eligible for VEE credit, you must first of all you’ve passed Exams P and FM – and they should appear on your online script.

On top of this, you must show that you attained a grade of not less than B- in VEE-approved university courses. Check out the approved courses (and alternative options) here.

Or to get even more detailed information, check out this page on the SOA website.

Hands-on Experience

It’s true – you will spend a good chunk of the estimated 10 years preparing for and writing exams. But to become accredited, a little time in the trenches is a must. That’s if you want to have an easy time landing a position later on.

Because, as with any other profession, employers are always on the lookout for that guy with some experience.

But how do you gain this experience? Answer: the good old internship. Volunteering is also an option. Ideally, you shouldn’t go beyond the 3 exams mark without at least getting your hands dirty in the field.

So that’s all about the requirements for becoming an actuary – and as indicated, the professional exams are end-all-be-all of the whole process.

Let’s have a more detailed look at them.

Actuarial Exams

You can take your actuarial exams under any of the two bodies – the Society of Actuaries (SOA) or the Casualty Actuarial Society (CAS). Your decision on the body to go with depends on the type of actuary you wish to become.

As a life actuary, you’ll have to write your exams under SOA and CAS if you go the non-life route.

This implies there are different you’ll encounter if you decide to go with any of the above routes. But for a start, you don’t need to choose since the preliminary exams are jointly-administered. And those are the ones we will look at first.

Preliminary Exams

EXAM P: PROBABILITY

Referred to as Exam 1 under CAS. Its sole purpose is to spruce up your knowledge on the probability tools you’ll need down the line when assessing risk.

For further information on SOA exam P (Probabilities): https://analystprep.com/actuarial-exams/soa/exam-p-probability/

EXAM FM: FINANCIAL MATHEMATICS

The CAS equivalent is Exam 2. It exposes you to the nits and grits of financial mathematics – the concepts and their application in determining present and accumulated values for different streams of cash flows.

All these will prove essential later on in your career in asset/liability management, capital budgeting, reserving, etc.

For more information on SOA exam FM (financial mathematics): https://analystprep.com/fm-financial-mathematics-exam/

EXAM IFM: INVESTMENT AND FINANCIAL MARKETS

You’ll find it as Exam 3F under CAS. Here’s where you sharpen your knowledge on corporate finance and financial models – the theoretical basis to be exact. You also get to be conversant with the application of the said financial models in financial risks.

All the other exams are distinct to each professional body. Here’s a breakdown of each.

SOA Exams

EXAM SRM: STATISTICS FOR RISK MODELLING

The exam introduces you to data analysis methods and models. You’ll get to learn about time series models, cluster analysis, regression models and so on. Additionally, you’ll be in a position to apply methods for selecting and validating models.

EXAM STAM: SHORT TERM ACTUARIAL MATHEMATICS

The course work for Exam STAM is all about modeling – the introduction bit and all the actuarial methods essential in modeling.

You’ll be taught about severity and frequency models that are a must-have in understanding the modeling process.

EXAM LTAM: LONG TERM ACTUARIAL MATHEMATICS

This exam aims to build up your knowledge about the theoretical basis of contingent payment models. The application of these models to insurance as well as other financial risks are also explored.

EXAM PA: PREDICTIVE ANALYSIS

For Exam PA, you get equipped with skills on how to apply several analytic techniques to solve business problems and put across the solution in a precise manner.

For CAS exams, here are the options

  • Exam MAS-I: Modern Actuarial Statistics-I
  • Exam MAS-II: Modern Actuarial Statistics-II
  • Exam 5: Basic Techniques for ratemaking and estimating claim liabilities
  • Exam 6: Regulation and financial reporting
  • Exam 7: Estimation of policy liabilities, insurance company valuation, and enterprise risk management
  • Exam 8: Advanced ratemaking
  • Exam 9: Financial risk and rate of return

Get Ready to Jump in

Ready for a career as an actuary? You should be.

The future is bright, there is no denying that. Not to mention the immense potential of getting rewarded handsomely – at least above most professions. But before that, knowing the whole process of getting there is essential.

And all the information you need is up there – including how to become an actuary. What are you waiting for?

For study materials and practice questions for actuarial exams, register at https://analystprep.com/actuarial-exams/.

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