What is an Actuary?
An actuary is a professional who is adept in the field of mathematics, statistics, probability, finance and economics. He works out the amount that a company needs to charge on its clients when it makes the promise of paying them a fixed amount in future when some conditions arise. An ideal example is in the form of an insurance firm that requires you to pay a regular amount for a promise that they would pay you a fixed amount when you meet some future accident.
Compound interests are the basics where the mathematics of actuarial science begin. In compound interest, the interest on the invested principal gets reinvested to the original principal every year. For example, when you invest $10,000 with a compound interest rate of 5% per year, the earning for the first year would be $500. The new interest for the second year would be derived by adding the interest with the principal amount for the first year. This would come to $10,500, which will be the principal at the start of the third year. And, when you want to calculate the amount of money that gets accumulated at the completion of twenty years, the following compound interest formula will help you.
If you want to find how much money you will have earned at the end of twenty years, then there is a formula for calculating compound interest.
A = P (1+i)a?
Here, A stands for the final amount to be received by you.
P stands for the starting principal
“I” stands for the rate of interest
“a” is the number of years for which you invested your money.
$50,000 for 20 years and final amount is $ 33,635,700
When $50,000 is invested for 20 years at a rate of compound interested of 10%, the final amount that would come into your pocket would be $33,637,500. This gives you a picture of what insurance firms are doing with your money, and how they are able to afford the huge salaries of the actuarial professionals.
Variables of Risks in the Equation
When other variables are added to the equation, the formula of compound interest can turn highly complicated. As an example, an insurance firm would always want to find out the risks they will have to face in case they have to pay their clients with entire amounts if one of the client dies before the investment period matures. There is no doubt that everyone dies, but older individuals have a higher chance of dying as compared to the younger ones. Hence, it is the job of the actuary to determine the amount of money to be charged by the insurance firm from all its clients so that they could pay the fixed amounts in future in case a condition arises.
Predicting the future about which nothing is known is a variable element, and it is this factor that makes an actuarial science course rich in the subject of mathematics. But, the job of an actuary may not always be to forecast the events of future, but it may just be limited to finding out the financial liabilities of events that have already taken place. And such liabilities are known as retrospective reinsurance. Most often, the work of the actuary may be around finding the reasons for developing new pricing of the products that the company is already selling.
Pension Fund Management
The above-mentioned example can give you a clear idea that an actuary is an expert statistician who performs duties of evaluation of risks for firms that operate in the field of banking, insurance and in other organizations that have a need to alleviate risks. A professional in actuarial science also has a huge demand in the field of pension fund management, with the major function being to predict future payouts and finding out present contributions.
Career in Actuarial Science
When you want to pursue a career in actuarial science, it would be required to do well in mathematics, which will help you to enter a university for undergoing a bachelors program in the subject. At the university, the following subjects will have to be studied in order to acquire the actuarial science degree:
1. Actuarial Mathematics
2. Actuarial Methods in Finance
3. Actuarial Mathematics – Life
4. Actuarial Theory of Pension Funds
5. Actuarial Methods in Finance
6. Analysis of Variance
7. Computational Methods
8. Applied statistics
9. Data Analysis
11. Elements of Linear Algebra
12. Elements of Accounting and Finance
13. Information systems
14. Financial Actuarial Investigations
15. Life Contingencies
16. Law in society
17. Mathematics of Demography and Graduation
18. Mathematical Methods
19. Ordinary Differential Equations
20. Methods in Calculus
21. Principles of Financial Management
22. Partial differential equations
23. Probability, Distribution Theory and Inference
24. Probability Modeling
26. Programming Methodology
27. Risk Mathematics
28. Regression analysis
29. Statistical Theory
31. Survival Methods
32. Stochastic Processes
33. Time Series analysis and Forecasting
Salaries of Actuaries
Eventually, you would be able to pass your examinations and receive a Bachelors degree in actuarial science, and then you would be able to move out and search for a job. And, there is a chance of 65% that your job would be in the field of insurance. The average annual salary of a new actuary can be something between $50,000 and $60,000. When you begin working, there are numerous certifications that would lead your to a number of examinations. And, this can range up to as many as nine exams.
And, with every exam that is passed, your salary would be increased by the employer. When you are an actuary in the field of retirement plans, insurance and investments, you need to be certified by the Society of Actuaries (SOA), and when you deal in the field of casualty, property and liability, you need to be certified by the Casualty Actuarial Society (CAS). In order to reach the peak you would need to train for at least six years, and when you reach this level, you would be among the leading decision makers in the organization. And, at this level, your average annual salary will fall between $120,000 and $150,000.
Future of Jobs of Actuaries
As per the present scenario, pursuing a career in actuarial science is highly rewarding, globally. Actuaries receive salaries that are the best among all the professions. In addition, there is a huge demand for an actuary. Similar to other markets, the price is high because of this high demand. However, with the gradual adjustment of supply, the balance will be established. And, with the advancement of new and advanced computer programs, the demand for actuaries may not remain so high forever. At this point it is worth considering the history of demand for doctors, nurses, accountants, computer scientists and consider what is available today and imagine what an actuary’s future career may appear to be.
Get an Actuarial Science Book
In case you have a keen interest in finding more about actuarial science, then you can find some reputed books at online stores. The listings should help you to find the book that would be ideal for you.
We suggest this book :
What do you think – what will be Highest Paying Job in future ?