Assessing the financial impact of future events… a peep into the rarefied world of actuaries
If one were to ask students as to what they want to do after 10+2, most would say they want to take up medicine, engineering or chartered accountancy. However, students have a wide range of options to choose from which are not only equally rewarding but also have a far better career scope. One such field, Actuaries, opens the door for a rewarding career as a financial mathematician.
Who are actuaries?
Actuaries are experts in assessing the financial impact of future events. They enable financial decisions to be made with more confidence by analysing the past, modelling the future, assessing the risks involved, and communicating what the results mean in financial terms.
They add value by enabling businesses and individuals to make better-informed decisions, with a clear view of the likely range of financial outcomes from different future events.
How to become an actuary?
Anyone with an aptitude for mathematics and statistics can take up this course and become an actuary. To qualify, a candidate has to pass the Actuarial Common Entrance Test (ACET) conducted by the Institute of Actuaries of India (IAI), Mumbai (www.actuariesindia.org).
A candidate must have passed 10+2 examination or an equivalent with English as one of the subjects. Even those who have a higher educational qualification and those who are working and having qualifications in mathematical subjects have to take up the examination. For example, engineering students or professionals, chartered and cost accountants, company secretaries, management graduates, graduates in mathematical and statistical sciences, etc. are eligible to take up ACET.
After clearing the ACET, a candidate needs to clear a series of 15 papers prescribed by the IAI to be awarded the Fellowship in Actuary (FIAI) to be designated as a Qualified Actuary. It could take anywhere between four and six years to clear all the 15 papers depending on the time devoted. It is a completely distance learning programme and there is no fixed duration to complete the course. However, there are a few institutions awarding Master's and postgraduate programmes in Actuarial Sciences such as Bishop Heber College, Tiruchi; Narsee Monjee Institute of Management Studies (NIMS); and Mount Carmel Institute of Management, Bangalore.
Where do they work?
Traditionally actuaries were involved in insurance companies, building financial models of the future, estimating necessary parameters and drawing conclusions of likely outcome about solvency and profitability of the firm. Also, an actuary's important activity included product pricing, reserving for liabilities, monitoring financial stability of the organisation and managing the risk of a life insurance company. However, today, there are wider applications of actuarial skills and they are employed in various sectors beyond the traditional fields such as insurance and pensions.
“Actuaries fall in the category of both finance professionals and risk professionals. Currently, they work in the traditional area of life insurance, non-life insurance and pensions in the Indian context. However, at the global level, this is changing significantly,” said R. Arunachalam, FIAI, a consulting actuary, who also pointed out that actuaries are much sought after in non-traditional areas such as enterprise risk management, and social and infrastructure investments.
Investment management is a field where actuarial expertise is used in investment strategy, performance measurements, portfolio management, and economic and investment analysis. Here actuaries are employed as advisors, analysts and portfolio managers. Actuary also has a role to play in corporate finance which involves raising and management of capital.
With the expertise of investment management and long-term liability management, actuaries are in demand in the area of retirement benefits as consultants and advisors. They design retirement benefit plans for employees of organisations, making provision for the same through appropriate funding strategies, and advise on fund management for self-administered schemes.
Actuaries are required to value and certify accrued gratuity liability and leave encashment benefit liability of the employees of companies for making appropriate provision in the corporate accounts as per applicable accounting standards.
Just a handful
In India, currently there are only 238 fully qualified actuaries, including a few from foreign countries, who have been given permission by the IAI to practice in the country. Mr. Arunachalam pointed out that the sheer size of the Indian business would easily absorb a few thousand actuaries.
“The opportunity is really huge – and hence it would be prudent to pursue this profession and get higher pay and benefits,” he said.
Presently, around 12,000 students have enrolled themselves with IAI as student members, pursuing the actuarial course. This is in contrast to the barely 400 in the year 2000. The opening up of the insurance sector in India is believed to be the reason for the increased interest in pursuing actuaries.
Mr. Arunachalam pointed out that actuaries are in high demand and rank among the top in the western world in terms of pay, benefits and work environment for the services they render. “The day is not far off for the Indian businesses to start discovering the true value of the finance and risk advice these professionals provide,” he said.
Risk Analysis and Management of Projects (RAMP) is an area where an actuarial role is increasingly being associated to bring about greater sophistication into the entire process of project planning and management, more particularly with financial risks having to be coped with.
The demand here could be for application of skills right across the range of actuarial study and should interest the emerging generation of actuaries.
In a different focus, Enterprise Risk Management (ERM) is developing into a relatively new area for actuaries to be involved in and bring into wider play concepts developed in relation to issues of capital adequacy. ERM actuaries can take the roles of Chief Risk Officers within organisations, spearheading the corporate governance and risk management across all sectors.
Actuaries having knowledge and skills of software can enter niche areas of providing IT solutions to financial services companies. They can also work in government organisations and regulatory bodies in areas of demography, perspective planning and socio-economic research which involves validating the assumptions about future trends, statistical and mathematical modelling and estimating the financial implications for the future.