# Resources

## Preparing to be an Actuary

### Jeff Klanderman, FSA, MAAA, *Consulting Actuary*, KMPG Peat Marwick

Let me preface by saying that there is no specific major or degree required for an actuarial certification. It does not even require a high school diploma. What is required is to successfully pass the actuarial exams, whatever it takes to accomplish that feat. The formulas used by actuaries for success in this endeavor are as varied as the number of actuaries. However, before I create the impression that one shouldn't bother attending college to work in this field, I think there are some areas of study that a person can focus on to improve their chances of passing exams. Further, there are some areas of study that as an interviewer and prospective hirer of students I like to see exposure to.

I have reviewed the catalog you sent me. I was pleased to see that many courses I remembered are still available. I would suggest the following courses/areas of study for a budding actuary:

**Major:**Mathematics or Statistics. These programs address the most basic skills and thought processes used by actuaries. People have also had Economics, Accounting, Finance, Computer Science and Engineering majors. However, Math and Statistics majors tend to dominate the profession.**Math Courses:**Aside from the basic math majors program, I would recommend a concentration on the applied (vs. theoretical) course work. Courses like 3144 (Linear Algebra) and 3414 (Numerical Methods) are directly applicable to the work done by actuaries. Courses like 3034 (Introduction to Proofs), 3214 (Calculus of Several Variables) and 3224 (Advanced Calculus) are helpful for forming a thought process. Advanced math courses have some benefit but are probably not necessary. After the first few exams, higher level math is not directly used in professional work, although the theory may underlie the methods used. Differential equations tend to be more applicable to engineering functions than business.**Statistics Courses:**Aside from the basic statistics majors program, I would recommend as much course work in statistics as one could stand. Specific courses I noted included 3005-3006 (Statistical Methods) or 4105-4106 (Theoretical Statistics), whichever the majors take is probably better. Also 4004 (Methods of Statistical Computing), 4514 (Contingency Table Analysis) and 4724 (Statistical Theory for Economists) all appear beneficial from their description. Personal prejudice aside, I would say that higher-level statistics courses are probably more beneficial than higher-level math courses in the actuarial profession. Theoretical statistical theory underlies much of the methodology used in the actuarial profession. Much of the work can be reduced to risk theory and basic probabilities. Background in these areas is helpful at all levels of work and the exam process.**Economics Courses:**The actuarial profession has a lot of theory rooted in business and economics concepts. Economics was the major focus of the old Part 8 exam. I am not sure to what degree these concepts will be tested on the new exam syllabus however the concepts are applicable in everyday work. The basic coursework 2115-2116 (Principles of Economics) is probably a must. A few additional courses like 3214 (Money and Banking) and 3304 (Introduction to Econometric Methods) are also beneficial. Further coursework in economics after that would probably be beneficial, but not necessary. Enough economics to provide some background would be recommended.**Accounting/Finance:**The actuarial profession is basically a business profession. While not technically required, some background in business is helpful to give an actuary a frame of reference when doing his or her work. Because many actuaries lack this perspective, an actuary with this type of background can find his or herself in an advantageous position, especially as one progresses in oneâs career towards management level positions. Courses 2004 (Survey of Accounting) and 3104 (Introduction to Finance) are useful for developing background. 3204 (Risk and Insurance) offered by the finance department is a great introduction to the insurance industry. I found the background from this course specifically helpful to me during the exam process. Other business courses in management or management science may be helpful as well in terms of professional development, although they are probably not applicable to the exam process.**Computer Science:**Computers are playing a larger and larger role in actuarial science. I believe it is now necessary that a person have some level of programming and computer manipulation skills. The exam syllabus is placing a greater emphasis on computer modeling. I rarely see a strong student candidate without good computer skills. Because a large amount of the actuarial profession is learned through on the job experience, the computer function is an area where a younger person can contribute right away if they have the skills. Many prospective employers realize this. Potential actuaries do not need to take the computer major's sequences, however the CS department offers a number of introductory programming and computer courses. Any of these (1014, 1024, 1034) might serve to provide the basic computer skills needed at the profession's entry level. The programming in the numerical analysis class may be sufficient as well.**Other:**The courses/areas listed above address many of the basic skill areas that an actuary will need when approaching the exams and initial employment. I have always been a fan of the thought process and problem solving skills I learned in the math program. Because of this, I like to recommend a logic course from the Philosophy department. 1504 (Language and Logic) may provide good background. I took a course called symbolic logic when I was in school. At that time, it counted as a math related elective. If an equivalent course were offered, I would recommend that.

I have attached the conversion rules and outline for the new exams for the year 2000 and later. I will attempt to note which coursework may be helpful to which exam. It should be noted that with the exception of Part 1, a student would likely have to use the recommended text for the exact material tested. The VA Tech coursework would be supplemental, although hopefully very helpful, instruction.

**Part 1: Mathematical Foundations of Actuarial Science**-- Calculus and statistics course are directly applicable here. This exam also covers some linear algebra and very little differential equations (The only 2nd semester sophomore class (2214) would be more than sufficient background in this area.)**Part 2: Interest Theory, Economics and Finance**-- Despite the title, this should be a math exam. There may be some management science and pseudo-finance topics here. The first year calculus sequence provides some background. A student would likely need to study the recommended text for specific skills in compound interest applications which are addressed on this exam. Further, this subject matter has been expanded since I took the exam and I believe it now covers some basic programming to solve some problems.**Part 3: Actuarial Models**-- Virginia Tech has no equivalent. Student needs to study the recommended text.**Part 4: Actuarial Modeling**-- This exam will cover a lot of advanced statistics. This will encompass risk theory, the development of contingency tables (a statistics course is offered in this area) and graduation of estimates. Numerical analysis is probably addressed on this exam as well (either here or part 2).**Parts 5-8**-- The material on these exams is more applied actuarial science. It is generally learned by a combination of study of the recommended texts and on the job experience. Study in general business areas, (finance, economics, accounting and basic insurance) is good background. Programming skills may be helpful here too. I am not sure how these will be tested on the new syllabus.

I think many courses offered at Virginia Tech are helpful in supplementing the actuarial exam process. There are some courses that would have been helpful to me had I structured my own program of study differently. (However, the physics courses I took are occasionally helpful in Trivial Pursuit.) Given the preparation time that the actuarial exams take, I recommend that any student with an interest start sooner rather than later. In addition to being more in a studying frame of mind, I think it would be advantageous to use the appropriate coursework as a study aid if applicable.

I hope this helps you in providing some advice to prospective actuarial students. The students may also look for additional information on the Society of Actuaries web page.