Actuary: Momentum generator for financial risks
Wednesday, 23 February 2011
Mahfuz Ibn Mannan
The profession of actuary was introduced in the United Kingdom (UK) more than one and a half century ago. Japan kept itself nearly abreast with the UK. In Japan, this profession had burgeoned more than one hundred and ten years ago. India started the glorious journey of their actuarial culture more than half a century ago. Since its genesis, it has successfully secured its position as the topmost discipline over the globe. As per the website, www.careercast.com, an international survey organization, carries out research on the contemporary professional ranking, on the basis of different weights given for measuring elements all over the world; in 2010, the best job on the earth was the actuary. In this context, it would not be an overstatement to say that Bangladesh is here again late. Lately there is some response to the demand of the time. This is appreciable and it is, however, always better than the never.
Anyone who has some prior conceptual clarity on mathematics, logical understanding and analytical capability with little reaction time, and has aptitude for probabilistic approach can easily embrace actuarial science as a professional career. In fact, skill in mathematical aptitude is very likely to help anyone easily become an actuary. But what really set actuaries apart, are their natural mathematical, economic and statistical awareness. Basically, they apply ability to the real situations in the financial world, understanding how businesses operate, and how legislation may affect them. And also the ability to communicate such difficult topics to the non-specialists is also important in their actuarial practice.
To qualify as an actuary, one has to take up and then pass, a series of rigorous professional examinations which are prescribed under the syllabus under the auspicious of an institution. A continuous professional development as per the scheme of the institute and/or faculty and/ or society of actuary/actuaries has to be acquired. Along with some theoretical courses, the students need to attain a satisfactory level of work-based skills. It means gaining experience that is required for attending a professional course, prescribed for the purpose. The theoretical examinations cover topics such as probabilistic approach, statistical modeling and methods, business economics and financial and actuarial mathematics.
As far as the duration of such courses is concerned, there is no fixed period to complete the same. For the fellowship to be awarded upon, one has to obtain the qualifying marks, in all the 15 subjects that are prescribed for. Continued and sustained efforts are necessary to complete such courses. Single-minded devotion, total dedication and a systematic approach to problems and problem-solving efforts, are the qualities that enables a person to qualify as an actuary within a reasonable period of time. It takes on average between three and six years to qualify as an actuary, but the rewards are well worth the effort.
Those who want to qualify as an actuary do start the course after obtaining a graduation degree. However, a high school certificate holder with a minimum age of 18 years with a high degree of aptitude for mathematics and statistics, along with at least 85% marks in his/her mathematics or statistics subjects at both O-level/ equivalent and A-level/ equivalent examinations, can apply for student membership to any actuarial society or institution, offering the facilities for the completing the course. A good B.Sc.(Hon's) degree in mathematics, statistics, and engineering discipline, basic sciences like physics, chemistry, economics, finance, with at least 55% marks in his/her graduation degree, can also apply for studentship to the society or institution. Usually, those graduates or postgraduates in mathematics, statistics or econometrics, after having obtained a first class degree, are in a better position than others to study actuary.
In most countries around the world, the actuarial profession is highly valued as one of the highest paid one as its members do sensible analytical work rigorously. The actuarial work is, however, less stressful.
There is an actuarial educational model. The subjects for the examinations can be categorized into three levels or stages.
The first level (core level) comprises of the CT series; these involve development of theory of actuarial science and applications of mathematics and statistics to actuarial applications such as investment, life insurance, general insurance, employee benefits, and other areas. The total number of courses is nine, including business awareness modules. An introduction to economics, financial economics and financial reporting, and demography are also included at this stage. Although the most part of the course is somewhat theoretical, the exercise and the question papers in the examination are practical in nature as they reflect real-life situations in the area of work to which the subject is applicable.
The second-level comprises of CA and ST series subjects. CA3 subject is meant to help develop skills on communication of technical aspects that are related to it, in simple language to non-technical persons; here again, the stress in question papers is meant for demonstration of the skills of communications in real-life environment. There are three courses to be encountered at the CA level. The subjects under ST series are entirely tuned to development of the practices and related principles in the respective areas of work while some part of the CT series could be learnt either through a distance education approach or through a classroom one. However, subjects under the ST series can be fully understood only in a practical work environment.
The subjects under SA series involve application of knowledge and understanding of principles as well as demonstration of professional skills and judgment in an essentially practical situation.
The actuarial education model is ingrained with work and application. It goes beyond substantially beyond the CT series, subject to a substantial extent, to the realities of work environment. The success through examinations is linked to corresponding work experience and insight gained. The examinations, conducted at CT series level, take place in the case of most of the students in their work environment.
The career progress is linked to progress in examinations and it is very likely that by the time a student completes ST series, he/she would be occupying management-level of responsibilities.
Some people have some misconceptions about the practice of actuary. They consider that actuary is such a profession where professionals do work only in life insurance companies. But, actuaries are rather professionals, dealing with mundane activities of various financial organizations and institutions, and insurance is just a domain of financial activities all over the world. It is the actuary who is the only professional in life insurance companies to serve there as the key person as he/she has long and sufficient background in demographic analysis, research and practice. This is why that insurance companies are considered an important area as an existing actuarial practice-field.
The actuary's skills in analysis and modeling of problems in finance, risk management and product design are used extensively in the areas of insurance, pensions, investment and more recently in wider fields such as project management, banking and health care. Within these industries, actuaries perform a wide variety of roles such as design and pricing of financial products, financial management, corporate planning, financial forecasting etc. They are invariably involved in the overall management of insurance companies and pension, gratuity and other employee benefit fund schemes as well; they have statutory roles in insurance and employee benefit valuations and to some extent, in social insurance schemes sponsored by a government.
Actuaries' skills are in great demand throughout the financial sector, particularly in matters relating to investment. Actuaries are also increasingly employed in risk management for large companies. Their skills are valuable for any business, managing long-term financial projects in public, private, and public-private partnership sectors. Actuaries apply their professional rigour, combined with a commercial approach to the decision -making process, by balancing the interests of all concerned.
Actuarial study deals with the financial future. Actuaries are the experts in assessing the financial impact of any future uncertain event. The actuary, first of all, defines the proper scope of work and then he/she applies financial and statistical theories to solve real business problems. In effect, actuaries start working with some assumptions for subsequent mathematical models. They use their skills in mathematics and statistics to create theoretical models of the world around them. They make it easier to take financial decisions, with more confidence, by analyzing the past, modeling the future, assessing the risks involved, and communicating what the results mean in financial terms.
Actuaries facilitate more informed decisions. They add value by enabling businesses and individuals to take better-informed decisions, with a transparent and clear view of the very resembling range of financial outcomes from different future events. They evaluate all issues in terms of the points of business. Actuaries balance their role in business management with the responsibility for safeguarding the financial interests of the public.
The duty of actuaries to uphold public interest is illustrated by their legal responsibility for protecting the benefits promised by financial organizations like banks, insurance companies, and pension schemes. The profession's code of conduct demands the highest standards of personal integrity from its members.
Actuaries work in every financial sector where transaction of money is involved, both directly and indirectly. As a risk is associated from timing of any transaction and the amount involved, an actuary helps to measure the likeliness and probability of transactions, prior to their taking place. A typical business problem might involve analyzing future financial events, especially when the amount or timing of a payment is uncertain. But it can also involve understanding something like weather: by assessing when and where devastating storms may hit, an actuary can help predict risks, and their associated costs, for investments or for insurance. So a lot of work that the actuary does might be thought of, as risk management.
Risk management is the basic field of actuaries to work. This is a fast evolving field in modern time. For any massive project that entails a lot of uncertainties, actuaries can provide valuable professional inputs. They can identify the various stages of the project when its execution takes place. At each stage, a proper identification of all the risks involved may result in not meeting the expected outcome or estimated time. Here, actuaries assess a probability parameter for each of the identified risks. Then they find out suitable measure to avoid or transfer those risks. Finally, they process all the stages and steps by suggesting relevant risk measures.
Actuaries quantify the risk and the expected amount of returns on investment in the market. They project the expected investment returns by using scientific methods and judgment to assess the inflation rates, returns in various market segments -- manufacturing, technology, operation etc. They help to decide an investment strategy which strikes an appropriate balance between risks and returns, by analyzing and identifying the opportunities for increasing the returns. They define risks as an opportunity; managing risks properly with the did of the actuaries can ensure getting more income. They further advise on the investment patterns to match the cash inflow and the liability outgo for insurance companies, pensions funds, banks, mutual funds, etc.
Being involved in research and the pricing and management of investments, particularly for mitigating the risks of investments, actuaries often use their understanding of insurance or pension liabilities to manage the corresponding assets.
Actuaries' traditional work-field has been the life insurance companies. But their importance is now considered equally important for general and health insurance companies. The areas of their concern include: product design which includes designing new policies as per the changing requirements of the customers, pricing the policy that implies that setting the suitable premiums for the benefits and services offered by the company, profit testing and distribution of profits among shareholders and policyholders and providing a service to companies which need a large range of numerical information to be investigated, analyzed and explained.
Actuaries help the management of a company in running the business at a sound pace and for taking strategic decisions from time to time. The appointed actuary of a company has the responsibility of demonstrating its financial stability to the state regulatory authorities at all times. Actuaries also work as consultants. They offer advice on issues such as acquisitions, mergers and financing capital projects, and also on occupational pension schemes. They provide investment advice to individuals that would best suit their needs, considering the specific circumstances of their families. Consultants can act as appointed actuaries for general insurance companies. They also provide actuarial advice and give their opinion on actuarial matters for insurance companies, pension funds, the government agencies, etc. They calculate the reversionary interests of members of trusts.
Designing a scheme of benefits to the members of a pension scheme is a vital area of work for the actuaries. As professionals, actuaries are also meant for calculating the past and future service cost of benefits, especially for placing a value on accumulated pension commitments. They certify to the regulator that the fund assets are sufficient to meet the liabilities and that the assets are invested as per the investment pattern prescribed. They also calculate and certify the pension cost on acquisitions and mergers of companies.
Furthermore, actuaries do work on demography. Population projection is one of their important works. They help to manage state pension schemes, identifying the regional differences based on geographical location, life style, income level, disease prevalence, common occupation, etc. They can also play regulatory roles and discharge supervisory responsibilities in a wide array of areas like the banks or investment companies, stock exchanges, contract/derivative exchanges, insurance and reinsurance companies, pension funds etc. As social security comprises pension fund, and insurance, the role of actuaries is increasing in designing social security schemes, and also in matters of allocating funds for development projects as well.
To sum up, the actuarial science has integrated a couple of inter-related subjects like statistics, mathematics, probability, economics, finance and computational programming. It is meant for creating skilled human resources for becoming financial architects and social mathematicians in areas where financial modelling frameworks are required to suit particular circumstances. The profession embraces works for evaluating the likelihood of future events, defining the impact of undesirable events and designing creative ways to reduce the likelihood of undesirable events in the domain of economics and finance.
Actuaries are multi-skilled strategic think-tanks in the matters and issues having socio-economic implications. Their analytical skills are used to address a growing variety of financial and social challenges, existing and upcoming, worldwide. They are the professionals devoted to the work of providing financial advice to all concerned in order to facilitate stable and realistic long-term decisions for the betterment of an economy.
The writer can be reached at
e-mail:mhfzmannan@gmail.com
The profession of actuary was introduced in the United Kingdom (UK) more than one and a half century ago. Japan kept itself nearly abreast with the UK. In Japan, this profession had burgeoned more than one hundred and ten years ago. India started the glorious journey of their actuarial culture more than half a century ago. Since its genesis, it has successfully secured its position as the topmost discipline over the globe. As per the website, www.careercast.com, an international survey organization, carries out research on the contemporary professional ranking, on the basis of different weights given for measuring elements all over the world; in 2010, the best job on the earth was the actuary. In this context, it would not be an overstatement to say that Bangladesh is here again late. Lately there is some response to the demand of the time. This is appreciable and it is, however, always better than the never.
Anyone who has some prior conceptual clarity on mathematics, logical understanding and analytical capability with little reaction time, and has aptitude for probabilistic approach can easily embrace actuarial science as a professional career. In fact, skill in mathematical aptitude is very likely to help anyone easily become an actuary. But what really set actuaries apart, are their natural mathematical, economic and statistical awareness. Basically, they apply ability to the real situations in the financial world, understanding how businesses operate, and how legislation may affect them. And also the ability to communicate such difficult topics to the non-specialists is also important in their actuarial practice.
To qualify as an actuary, one has to take up and then pass, a series of rigorous professional examinations which are prescribed under the syllabus under the auspicious of an institution. A continuous professional development as per the scheme of the institute and/or faculty and/ or society of actuary/actuaries has to be acquired. Along with some theoretical courses, the students need to attain a satisfactory level of work-based skills. It means gaining experience that is required for attending a professional course, prescribed for the purpose. The theoretical examinations cover topics such as probabilistic approach, statistical modeling and methods, business economics and financial and actuarial mathematics.
As far as the duration of such courses is concerned, there is no fixed period to complete the same. For the fellowship to be awarded upon, one has to obtain the qualifying marks, in all the 15 subjects that are prescribed for. Continued and sustained efforts are necessary to complete such courses. Single-minded devotion, total dedication and a systematic approach to problems and problem-solving efforts, are the qualities that enables a person to qualify as an actuary within a reasonable period of time. It takes on average between three and six years to qualify as an actuary, but the rewards are well worth the effort.
Those who want to qualify as an actuary do start the course after obtaining a graduation degree. However, a high school certificate holder with a minimum age of 18 years with a high degree of aptitude for mathematics and statistics, along with at least 85% marks in his/her mathematics or statistics subjects at both O-level/ equivalent and A-level/ equivalent examinations, can apply for student membership to any actuarial society or institution, offering the facilities for the completing the course. A good B.Sc.(Hon's) degree in mathematics, statistics, and engineering discipline, basic sciences like physics, chemistry, economics, finance, with at least 55% marks in his/her graduation degree, can also apply for studentship to the society or institution. Usually, those graduates or postgraduates in mathematics, statistics or econometrics, after having obtained a first class degree, are in a better position than others to study actuary.
In most countries around the world, the actuarial profession is highly valued as one of the highest paid one as its members do sensible analytical work rigorously. The actuarial work is, however, less stressful.
There is an actuarial educational model. The subjects for the examinations can be categorized into three levels or stages.
The first level (core level) comprises of the CT series; these involve development of theory of actuarial science and applications of mathematics and statistics to actuarial applications such as investment, life insurance, general insurance, employee benefits, and other areas. The total number of courses is nine, including business awareness modules. An introduction to economics, financial economics and financial reporting, and demography are also included at this stage. Although the most part of the course is somewhat theoretical, the exercise and the question papers in the examination are practical in nature as they reflect real-life situations in the area of work to which the subject is applicable.
The second-level comprises of CA and ST series subjects. CA3 subject is meant to help develop skills on communication of technical aspects that are related to it, in simple language to non-technical persons; here again, the stress in question papers is meant for demonstration of the skills of communications in real-life environment. There are three courses to be encountered at the CA level. The subjects under ST series are entirely tuned to development of the practices and related principles in the respective areas of work while some part of the CT series could be learnt either through a distance education approach or through a classroom one. However, subjects under the ST series can be fully understood only in a practical work environment.
The subjects under SA series involve application of knowledge and understanding of principles as well as demonstration of professional skills and judgment in an essentially practical situation.
The actuarial education model is ingrained with work and application. It goes beyond substantially beyond the CT series, subject to a substantial extent, to the realities of work environment. The success through examinations is linked to corresponding work experience and insight gained. The examinations, conducted at CT series level, take place in the case of most of the students in their work environment.
The career progress is linked to progress in examinations and it is very likely that by the time a student completes ST series, he/she would be occupying management-level of responsibilities.
Some people have some misconceptions about the practice of actuary. They consider that actuary is such a profession where professionals do work only in life insurance companies. But, actuaries are rather professionals, dealing with mundane activities of various financial organizations and institutions, and insurance is just a domain of financial activities all over the world. It is the actuary who is the only professional in life insurance companies to serve there as the key person as he/she has long and sufficient background in demographic analysis, research and practice. This is why that insurance companies are considered an important area as an existing actuarial practice-field.
The actuary's skills in analysis and modeling of problems in finance, risk management and product design are used extensively in the areas of insurance, pensions, investment and more recently in wider fields such as project management, banking and health care. Within these industries, actuaries perform a wide variety of roles such as design and pricing of financial products, financial management, corporate planning, financial forecasting etc. They are invariably involved in the overall management of insurance companies and pension, gratuity and other employee benefit fund schemes as well; they have statutory roles in insurance and employee benefit valuations and to some extent, in social insurance schemes sponsored by a government.
Actuaries' skills are in great demand throughout the financial sector, particularly in matters relating to investment. Actuaries are also increasingly employed in risk management for large companies. Their skills are valuable for any business, managing long-term financial projects in public, private, and public-private partnership sectors. Actuaries apply their professional rigour, combined with a commercial approach to the decision -making process, by balancing the interests of all concerned.
Actuarial study deals with the financial future. Actuaries are the experts in assessing the financial impact of any future uncertain event. The actuary, first of all, defines the proper scope of work and then he/she applies financial and statistical theories to solve real business problems. In effect, actuaries start working with some assumptions for subsequent mathematical models. They use their skills in mathematics and statistics to create theoretical models of the world around them. They make it easier to take financial decisions, with more confidence, by analyzing the past, modeling the future, assessing the risks involved, and communicating what the results mean in financial terms.
Actuaries facilitate more informed decisions. They add value by enabling businesses and individuals to take better-informed decisions, with a transparent and clear view of the very resembling range of financial outcomes from different future events. They evaluate all issues in terms of the points of business. Actuaries balance their role in business management with the responsibility for safeguarding the financial interests of the public.
The duty of actuaries to uphold public interest is illustrated by their legal responsibility for protecting the benefits promised by financial organizations like banks, insurance companies, and pension schemes. The profession's code of conduct demands the highest standards of personal integrity from its members.
Actuaries work in every financial sector where transaction of money is involved, both directly and indirectly. As a risk is associated from timing of any transaction and the amount involved, an actuary helps to measure the likeliness and probability of transactions, prior to their taking place. A typical business problem might involve analyzing future financial events, especially when the amount or timing of a payment is uncertain. But it can also involve understanding something like weather: by assessing when and where devastating storms may hit, an actuary can help predict risks, and their associated costs, for investments or for insurance. So a lot of work that the actuary does might be thought of, as risk management.
Risk management is the basic field of actuaries to work. This is a fast evolving field in modern time. For any massive project that entails a lot of uncertainties, actuaries can provide valuable professional inputs. They can identify the various stages of the project when its execution takes place. At each stage, a proper identification of all the risks involved may result in not meeting the expected outcome or estimated time. Here, actuaries assess a probability parameter for each of the identified risks. Then they find out suitable measure to avoid or transfer those risks. Finally, they process all the stages and steps by suggesting relevant risk measures.
Actuaries quantify the risk and the expected amount of returns on investment in the market. They project the expected investment returns by using scientific methods and judgment to assess the inflation rates, returns in various market segments -- manufacturing, technology, operation etc. They help to decide an investment strategy which strikes an appropriate balance between risks and returns, by analyzing and identifying the opportunities for increasing the returns. They define risks as an opportunity; managing risks properly with the did of the actuaries can ensure getting more income. They further advise on the investment patterns to match the cash inflow and the liability outgo for insurance companies, pensions funds, banks, mutual funds, etc.
Being involved in research and the pricing and management of investments, particularly for mitigating the risks of investments, actuaries often use their understanding of insurance or pension liabilities to manage the corresponding assets.
Actuaries' traditional work-field has been the life insurance companies. But their importance is now considered equally important for general and health insurance companies. The areas of their concern include: product design which includes designing new policies as per the changing requirements of the customers, pricing the policy that implies that setting the suitable premiums for the benefits and services offered by the company, profit testing and distribution of profits among shareholders and policyholders and providing a service to companies which need a large range of numerical information to be investigated, analyzed and explained.
Actuaries help the management of a company in running the business at a sound pace and for taking strategic decisions from time to time. The appointed actuary of a company has the responsibility of demonstrating its financial stability to the state regulatory authorities at all times. Actuaries also work as consultants. They offer advice on issues such as acquisitions, mergers and financing capital projects, and also on occupational pension schemes. They provide investment advice to individuals that would best suit their needs, considering the specific circumstances of their families. Consultants can act as appointed actuaries for general insurance companies. They also provide actuarial advice and give their opinion on actuarial matters for insurance companies, pension funds, the government agencies, etc. They calculate the reversionary interests of members of trusts.
Designing a scheme of benefits to the members of a pension scheme is a vital area of work for the actuaries. As professionals, actuaries are also meant for calculating the past and future service cost of benefits, especially for placing a value on accumulated pension commitments. They certify to the regulator that the fund assets are sufficient to meet the liabilities and that the assets are invested as per the investment pattern prescribed. They also calculate and certify the pension cost on acquisitions and mergers of companies.
Furthermore, actuaries do work on demography. Population projection is one of their important works. They help to manage state pension schemes, identifying the regional differences based on geographical location, life style, income level, disease prevalence, common occupation, etc. They can also play regulatory roles and discharge supervisory responsibilities in a wide array of areas like the banks or investment companies, stock exchanges, contract/derivative exchanges, insurance and reinsurance companies, pension funds etc. As social security comprises pension fund, and insurance, the role of actuaries is increasing in designing social security schemes, and also in matters of allocating funds for development projects as well.
To sum up, the actuarial science has integrated a couple of inter-related subjects like statistics, mathematics, probability, economics, finance and computational programming. It is meant for creating skilled human resources for becoming financial architects and social mathematicians in areas where financial modelling frameworks are required to suit particular circumstances. The profession embraces works for evaluating the likelihood of future events, defining the impact of undesirable events and designing creative ways to reduce the likelihood of undesirable events in the domain of economics and finance.
Actuaries are multi-skilled strategic think-tanks in the matters and issues having socio-economic implications. Their analytical skills are used to address a growing variety of financial and social challenges, existing and upcoming, worldwide. They are the professionals devoted to the work of providing financial advice to all concerned in order to facilitate stable and realistic long-term decisions for the betterment of an economy.
The writer can be reached at
e-mail:mhfzmannan@gmail.com