There’s considerable overlap between applied mathematics – a graduate degree in which happens to be among the highest-paying master’s degrees – and actuarial science. Don’t let the distinction between math and science fool you. Actuarial science is the field concerned with analyzing, modeling and predicting risk and its financial consequences, and it involves a great deal of knowledge of math and statistics. When you decide to get into the actuarial science field, you’re setting yourself up for a role in the rapidly growing, lucrative business of using mathematical calculations to help insurance companies and other organizations predict risk and prepare for the financial consequences of uncertainty.
Applying Mathematics to the Financial Aspects of Risk
Risk undoubtedly plays a part in business, especially in the finance and insurance industry. Insurance carriers decide how to price their policies based on the risk of paying out claims, and underestimating that risk could leave them insolvent and unable to pay the claims filed with them or keep the company in operation.
Insurance companies and other businesses can benefit by planning for risk, but how do you prepare for something that is, by definition, uncertain? The answer is through mathematical and statistical analysis of data. Although mathematical calculations can’t predict every individual risk outcome, like freak accidents, they can be used to identify patterns of data that point to a higher or lower level of risk.
By analyzing data that encompasses demographic information, human behavior patterns and more, actuaries can determine the level of risk for a given scenario. For example, age, gender and marital status are factors associated with different levels of risks of being in a motor vehicle accident. Insurance companies use the calculations performed by actuaries to determine how much to charge for an automobile insurance policy based on the likelihood of the applicant getting into an accident.
A lot of mathematics work uses computers nowadays, and actuarial science is no exception. Actuaries use statistical analysis software like IBM SPSS Statistics and financial analysis software like Oak Mountain Software’s AnnuityValue application, O*NET reported. They also need some knowledge of programming languages, such as R, C++, Python and Java, according to O*NET.
A lot of mathematical knowledge goes into this work of calculating the financial cost of risk. To succeed in the career field of actuarial science, you should have a strong background in linear algebra, multivariate calculus and financial mathematics, as well as business and economics.
What to Expect From an Actuarial Science Career
Most actuaries – more than 70 percent – work in the finance and insurance industry, according to the United States Bureau of Labor Statistics. Within this industry, actuaries may work in areas like life insurance, auto insurance, homeowners insurance, health insurance and pensions. Outside of the insurance industry, actuaries may work for financial services firms, accounting firms, banks and the government.
For actuaries, employment prospects are bright. The BLS expects actuary jobs to increase by 18 percent from 2019 to 2029, growing at a much faster rate than the four percent job growth predicted for all occupations. Actuaries also earn a good living, enjoying a median annual salary of $108,350, the BLS reported.
If you do want to be an actuary, the reality is that a master’s degree in applied mathematics may not be the right choice for you. Actuaries don’t need a master’s degree, and few professionals in the field choose to acquire one. More than 60 percent of actuaries have only a bachelor’s degree as their highest level of education, according to O*NET. One in four actuaries has a post-baccalaureate certificate, a shorter, specialized program of study that’s perfect for career changers. A post-baccalaureate certificate in actuarial science builds on the general education coursework you took as an undergraduate with a curriculum that’s specially tailored to meet the needs of aspiring actuaries.
You might not need a graduate degree to be an actuary, but it’s far from an easy career to get into. Aside from taking high-level classes in math, you also have to complete a number of professional certification exams. All in all, actuaries may take up to seven years to pass the exams necessary to attain associate-level certification and an additional two or three years to acquire fellowship certification status, according to the BLS.
Unsurprisingly, mathematics is – by a long shot – the single most important area of knowledge required of actuaries, according to O*NET.