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An actuary is a professional who analyzes data to measure and predict potential financial risk. Actuaries help businesses and consumers make informed decisions and develop strategies to minimize risk and maximize profits.
Actuaries are professionals who typically work in an office environment, though some may travel to provide direct consulting services. According to the U.S. Bureau of Labor Statistics’ 2019 report, actuaries earn a median salary of $108,350, or an hourly rate of $52.09.
BLS anticipates that the number of actuary positions will increase by 18 percent between 2019 and 2029, compared with 4 percent projected growth for all occupations. Actuary positions are likely to multiply in alignment with technology advances and increased data available to companies.
What Do Actuaries Do?
Actuaries leverage their strong statistics, mathematics and business competencies to evaluate financial uncertainties and potential costs. Their work mitigates financial risk for organizations and individuals.
Most actuaries begin as trainees in entry-level positions, and they gain experience compiling data and shadowing an actuary mentor. The actuary role often serves on a team alongside colleagues in finance, accounting, product development, marketing and underwriting.
Businesses across multiple sectors, including life insurance and annuity providers, rely on actuary predictions to manage financial risk.
Health Insurance Actuaries
Actuaries in the health insurance field predict potential costs of care with health insurance and long-term policies. They factor geographic locations, family history and occupations into their analyses.
Life Insurance Actuaries
Life insurance actuaries estimate life expectancy based on individual risk factors, including age, gender and tobacco use. This evaluation helps companies make projections as they develop group and individual annuities and life insurance policies.
Property and Casualty Insurance Actuaries
Actuaries who work in the property and casualty insurance market predict automobile accident claims based on age, gender, type of vehicle, driving history and other considerations. They also develop insurance policies to protect policyholders against liability and property loss caused by accidents and natural disasters.
Pension and Retirement Benefits Actuaries
These professionals test and determine whether companies have enough funds to cover future pension plan payouts, and they report their findings to the federal government. Some pension actuaries provide counseling to consumers to help them plan for retirement. Additionally, they provide important analyses for employer-sponsored health care benefits and 401(k) plans.
Enterprise Risk Actuaries
Enterprise risk actuaries identify fiscal, economic and geopolitical risks that may impact companies’ objectives. They also help companies respond to these issues, and they provide support and risk-management advice to executives.
Some actuaries serve in the public sector, supporting the federal and state governments to assess Social Security and Medicare benefit changes and regulate insurance rates. The IRS also uses actuarial tables when calculating the exclusion ratio of nonqualified annuities for tax purposes.
Are Actuaries Trained to Analyze Risks Specific to Annuities?
Actuaries receive formal education and training prior to entering the workplace. Bachelor’s degrees in actuarial science, statistics and mathematics provide the educational foundation for actuaries.
They also learn important concepts and practices with computer science, economics and corporate finance coursework. Actuaries extensively use technology, specifically modeling software, databases and spreadsheets, to develop their forecasts.
Actuaries’ extensive training prepares them to evaluate and predict annuity-specific risks. Longevity risk refers to the possibility that a person might outlive their retirement savings and have to rely on Social Security as their sole source of income. Actuaries can make life expectancy projections using historical data and individual factors, with the intent to maximize retirement savings for consumers while reducing fiscal risk.
Actuaries can earn up to two levels of certifications — associate and fellow — after passing a series of examinations. Two societies provide the certification programs:
- Casualty Actuarial Society
- CAS specializes in casualty and property insurance sectors. Their covered, certifiable fields include automobile, homeowners, medical malpractice and workers’ compensation.
CAS offers associate certification but no specialized track for fellowship certification.
- Society of Actuaries
- SOA certifies actuaries in the areas of retirement, investments, finance, and life and health insurances.
SOA offers both associate and fellowship certification study tracks.
Both societies offer professionalism seminars and continuing education courses. Engagement outside of the workplace ensures that actuaries stay current, build professional networks and continue developing their skills.
Overview of Risk Management
Risk management refers to the process of identifying risk and developing organizational and financial problem-solving plans. By identifying uncertainties and predicting future outcomes, actuaries help organizations avoid financial crises by preventing overspending.
How Does Actuarial Data Affect Annuity Rates?
Actuaries analyze data to project risks and returns, and this informs rate decisions.
In his article “Optimizing Retirement Income by Combining Actuarial Science and Investments” Dr. Wade Pfau explains the intricacies of the diverse risks and concerns of retirees.
“Will a retired couple be able to maintain a lifestyle to which they are accustomed? How long will they live, and will they have sufficient income until the death of the survivor? Will they have sufficient liquidity for unexpected contingencies, and will they be able to leave a legacy for subsequent generations? Investment volatility, inflation, unforeseen spending needs and cognitive decline are risks that a retirement plan must take into account,” Pfau argues.
For example, an actuary can determine whether an annuity will provide enough income for the duration of one’s life — and, in some cases, enough income to provide death benefits to beneficiaries.
As actuaries analyze Treasury rates, they factor inflation and market trends with predictive analytics. They use this information along with the mortality rates according to actuarial tables to calculate interest rates for annuity products. They can also determine value and resolve annuity disputes following divorce.
The goal of the actuary is to set competitive annuity premiums for consumers while protecting the financial health of the business. This directly affects annuity holders, given that annuities are not backed by the FDIC. If the insurance company that issues an annuity becomes insolvent, the annuity owner is left with little recourse apart from their state’s guaranty association.
5 Cited Research Articles
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- All About Careers. (n.d.). The role of financial planning, actuarial and risk management. Retrieved from https://www.allaboutcareers.com/career-path/financial-planning-actuarial-risk-management/
- Pfau, W. (2017, March 6). Optimizing Retirement Income by Combining Actuarial Science and Investments. Retrieved from https://cdn2.hubspot.net/hubfs/2635471/I-28734_Optimizing%20Retirement%20Income%20by%20Combining%20Actuarial%20Science%20and%20Investments_030617.pdf
- Society of Actuaries. (n.d.). What is an Actuary? Retrieved from https://www.soa.org/future-actuaries/what-is-an-actuary/
- U.S. Bureau of Labor Statistics. (2020, September 1). Actuaries. Retrieved from https://www.bls.gov/ooh/math/actuaries.htm#tab-2
- U.S. News & World Report. (n.d.). Actuary Overview. Retrieved from https://money.usnews.com/careers/best-jobs/actuary