Actuary accounting, or actuarial accounting, is the use of statistical analysis based on accounting systems. Because it's primarily used in the insurance business actuary accounting is often called insurance accounting. Actuary accounting is also used in the assessment of risks in financial investments, management of government regulated pension plans, and the creation of various financial products.

What is an Actuary Accountant

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An actuary accountant is a statistician who uses accounting principles, financial theories, and mathematical formulas to generate the probability of a specific risk or event within a specific time frame. Actuaries analyze data and other factors such as social and financial data and use the statistics they glean to recommend solid financial decisions and minimize the cost of risks to an insurance company, private or public corporation, or government entity.

Besides having excellent math skills including statistics you should have a strong background in business, accounting, and computer science to prepare for your actuary career.

Actuary accountants typically work in an office environment as part of a team that may include accounting managers, underwriters, market research analysts, and financial analysts. Actuaries employed by consulting firms may have more flexible schedules that include traveling to client locations. In 2016 around one-third of actuaries reported working over 40 hours a week so there's a good chance overtime will be part of the job.

Depending on the industry an actuary may be responsible for a wide range of duties. Here are some examples of the position might entail:

  • Compiling statistical data
  • Estimating probabilities of a major event
  • Estimating likely cost of a major event
  • Designing, testing, and integrating business strategies in order to maximize profit and minimize risks
  • Create tables, reports, and charts in order to explain how they reached conclusions
  • Clearly present and explain conclusions to government representatives as well as corporate executives, clients, and shareholders

Because the field uses specialized modeling and statistics software actuaries are required to be adept with computers. In addition, because actuaries must be able to present their findings to their employer or clients they should be able to speak to both large and small groups. Training in both areas should be included in an actuary's formal education in order for them to be effective in their profession.

Actuarial Accounting by Industry

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The majority of actuaries are employed in the insurance industry, followed by financial, private companies or corporations, and government. Here's a look at each industry that employs actuarial accountants and what the typical job duties are:

Insurance: most actuaries work for insurance carriers and specialize in one field of insurance. Here are the most common insurance fields where actuaries are employed:

  • Life insurance: analyze risk factors such as gender, age, and health habits in order to generate life expectancy tables used to develop life insurance and annuity policies for groups and individuals.
  • Property and casualty insurance: determine the projected number of claims by analyzing driving history, vehicle, age, gender, and other factors in order to develop insurance policies. Actuaries can specialize within the field by focusing on natural disasters, fires, home accidents, and vehicular accidents.
  • Health insurance: actuaries develop both health insurance and long-term care policies and costs by analyzing factors such as occupation, location of residence, and family history as well as age, gender, and health habits.

Financial: in the financial sector actuaries may also specialize in one area of work. Here are some common areas actuarial accountants might focus on in the financial field:

  • Investment strategy projections
  • Risk management

Private companies or corporations: actuaries employed by private companies or corporations may also be tasked with investment strategy and risk management projections but are usually focused on one of the three following areas.

  • Retirement and pension benefits projections: evaluate, design, and test pension plans to determine what funds must be on hand in the future to ensure payments.
  • Retirement plans and healthcare plans for retired employees; retirement planning for individuals.
  • Enterprise risk actuaries: identify risks that may affect a company's long-term or short-term goals, such as financial, geopolitical, or economic factors. Analyze the statistical risks and help management develop strategies to counter the risks involved.

Government employed actuaries may work in the following specialized areas:

  • Conduct demographic or economic studies to determine future benefit obligations for Medicare or Social Security.
  • Analyze proposed changes to Medicare or Social Security
  • Analyze rates and fees charged by insurance carriers.

Some actuaries work for consulting firms and are contracted out to clients such as insurance companies and other businesses that aren't large enough to employ an actuary full-time. These positions may frequently require travel to various client locations.

Education Needed

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To become an actuary, you'll need to earn at least a bachelor's degree. Actuary science, statistics, mathematics, and similar analytic fields are typical but not required. You'll need to pass a series of strident exams to become certified, so you should plan your education with this in mind. You'll need courses in economics, corporate finance, and applied statistics as well as a strong knowledge base in computer science. Here are the core courses you should plan on taking:

  • macroeconomics
  • microeconomics
  • finance
  • two semesters of corporate finance
  • three semesters of calculus
  • two semesters of calculus-based probability and statistics
  • one semester of linear algebra
  • two semesters economics
  • computer science
  • actuarial science courses
  • business courses
  • marketing
  • speech
  • business writing
  • technical writing

In the computer science sector, you should focus on programming languages as well as learning how to use and develop databases, spreadsheets, and statistical analysis programs. Because part of your job will be to present your findings to management and clients you should develop clear public speaking tools as well as report writing and the ability to simplify and present charts, graphs, and other data you develop.

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Validation by Educational Experience (VEE):

the two major certifications for actuaries both require you to have education credits in the following subjects; once you pass the preliminary certification exams you may apply to have the VEE credits added to your record. Here are the courses you're required to take before certification:

  • Applied Statistical Methods
  • Corporate Finance
  • Economics
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Internships:

although an internship is not required for certification or guarantee future employment it does give you advantages in your field of choice. Here are some of the benefits of actuary internships:

  • Building hands-on skills
  • Relevant work experience
  • Sharpening actuary skills and communication skills
  • Increased exposure to potential employers
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Financial assistance:

there are quite a few scholarships and grants available for actuarial accountant students both on the undergraduate and graduate levels. Career counselors and colleges can help you find financial assistance as can actuarial companies, clubs, and professional organizations.

Certification

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While you don't need a degree in actuarial sciences to work as an actuary you are required to be certified. There are two major actuary certifications in the U.S. and depending on your chosen specialty you should plan your coursework with the end goal of earning at least one of these certificates: The Casualty Actuarial Society (CAS) or the Society of Actuaries (SOA). If your goal is to work for the government, the IRS awards the IRS Enrolled Actuary designation, but it is based on experience rather than exams. Here's a look at each certificate:

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Casualty Actuarial Society (CAS):

The CAS is a professional society specializing in property and casualty insurance. CAS has two steps in the certification process: associate and fellowship. Once you earn your associate certification you must have a few years of working experience before you can earn your fellowship certification through the CAS.

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ACAS

Here are the preliminary exams you'll need to pass to become a certified Associate (ACAS):

  • Probability Exam
  • Financial Mathematics Exam
  • Models for Financial Mathematics Exam
  • Constructing and Evaluation of Actuarial Models Exam
  • Statistics and Probabilistic Models Exam
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FCAS

To become a fully certified Fellow (FCAS) you'll need to pass the following exam subjects:

  • Statistics and Probabilistic Models
  • Basic Techniques for Ratemaking and Estimating Claim Liabilities
  • Nation-Specific Examination: Regulation and Financial Reporting
  • Estimation of Policy Liabilities, Insurance Company Valuation, and Enterprise Risk Management
  • Advanced Ratemaking
  • Financial Risk and Rate of Return
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SOA

Society of Actuaries (SOA): the SOA is the certification organization for actuaries from all major areas of practice except property and casualty insurance. If you plan to become an actuary specializing in pensions, finance, life, health, or investments this is the certification you will work for.

Society of Actuaries (SOA) requirements: the SOA also certifies with a two-level exams process and also calls the levels Associate and Fellow.

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ASA

Here are the preliminary exam subjects you'll need to master to become a certified Associate (ASA):

  • Statistics
  • Probability
  • Life contingencies
  • Interest theory
  • Risk models
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FAP

After you pass the preliminary exams you'll be required to take the Fundamentals of Actuarial Practice (FAP) which is a series of online learning modules that cover insurance and professionalism case studies, projects, and readings. Once you've finished the FAP requirement you will receive the ASA designation.

  • Upper-level (Fellowship) exam topics to earn the FSA certification:
  • Plan design
  • Risk classification
  • Enterprise risk management
  • Ratemaking
  • Valuation

There are six specializations to choose from on the Fellowship track and you must pass three exams of your choice:

  • Finance & Enterprise Risk Management
  • Investments
  • Individual Life Insurance & Annuities
  • Retirement Benefits
  • Group & Health Insurance
  • General Insurance

If you choose (and pass) the Finance & Enterprise Risk Management, you will also earn the CERA designation.

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IRS Enrolled Actuary

To be designated an IRS Enrolled Actuary you must have an actuary or statistics bachelor's degree and at least 36 months of pension plan experience, or 60 months of total actuarial experience including at least 18 months of pension plan experience.

Job and Salary Outlook

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The job outlook for actuaries is excellent with a projected growth of 22 percent between now and the year 2026. That being said, it is a specialized field, so the actual job openings are projected to be approximately 5,300. The following states project the highest need for future actuaries:

  • New York
  • California
  • Pennsylvania
  • Texas
  • Illinois

Actuaries will be needed in the growing area of enterprise risk management as companies begin to analyze and manage their own financial risks in various areas of business operations in response to new economic requirements and regulations.

Health insurance companies will be hiring actuaries in response to changing healthcare guidelines and regulations and to address new products and markets as the baby boomer generation retires.

Other insurance industries will also be hiring actuaries to analyze consumer information in the property and medical data fields. As available data increases insurance companies can use it to predict consumer trends, keep their prices competitive, develop new products, and project future costs and risks.

According to the Bureau of Labor Statistics (BLS) in May 2017 the median annual wage for actuaries was $101,560. The highest 10 percent in the field earned $184,770 and the lowest 10 percent earned $59,950. The large discrepancy between the lowest and highest paid is most likely due to the difference in education as well as experience as well as the metropolitan area where the actuary is employed. A full 25 percent of actuaries hold master's degrees and an additional 10 percent hold a Doctorate or professional degree while 62 percent hold the minimum required bachelor's degree. Learn more about accounting related salaries here.

Because the number of applicants sitting for actuary exams has increased job opportunities will remain competitive. Those who hold a master's degree or higher and have passed a minimum of two actuary exams will be the most sought-after employees, and those with experience will be posed to earn a much higher salary than those just beginning in the field. Although passing the CPA exam is not a requirement for actuaries many do hold the credential as it is the most respected and recognized in the field of actuarial accounting. Students should plan to work an actuary internship and excel in business and analytical skills in order to have the best entry-level positions.