Over the last decade or so, the Society of Actuaries (SOA) has increasingly promoted the actuary’s ability to perform in industries outside insurance. This is furthered by the July 2018 curriculum changes which, among many other updates, transformed the “Models for Financial Economics” (MFE) exam into “Investment and Financial Markets” (IFM). As someone who recently changed careers to become an actuary and finished studying for the IFM exam, I was surprised at how much of the material applied to my previous positions. The SOA has effectively expanded the actuarial skillset and positioned its credentials to be recognized in numerous other roles and industries.
Several months ago, I began my career as an actuary at Axene Health Partners. However, unlike many actuaries, I landed in this career after working in other finance positions for nearly 5 years. I started my career in Chicago working at an options trading firm and subsequently in banking. After 2 years, an opportunity to start an electric aircraft company with several engineers brought me back home to California. It had always been a dream of mine to start a business, and several years of starting and growing that company taught me many invaluable lessons. However, I found my passion for data and analysis largely unutilized in my daily responsibilities, nor did the future business path offer that potential. So, I began taking actuarial exams as a side project to satisfy those passions; although I didn’t set out with the intent of entering the actuarial field, it only took nine months of studying and passing exams to decide on a career change that included a handoff of the company to my co-founders.
Anyone who plods through the exam process understands the level of rigor required to become a credentialed actuary. Earning an FSA, or even an ASA, is at least on equal footing with any other professional designation when comparing the amount of time, effort and analytical skill required. While still a non-actuary, what stood out the most while studying for preliminary exams was how applicable the material was in my non-actuarial roles. Not only was I able to utilize the knowledge in my time as the CFO of a startup, but in each of my previous roles I performed tasks that were directly related to the material.
“Anyone who plods through the exam process understands the level of rigor required to become a credentialed actuary.”
My stint in options trading has an obvious connection with the IFM exam. Nearly every aspect of the syllabus pertaining to options was applicable: Black-Scholes, put-call parity, Greeks, portfolio risk, hedging, options strategies, etc. IFM would have served as an excellent primer before starting in options trading because the derivatives-related material for the exam needed to be second-nature in order to keep up with the fast pace of trading. Understanding payoff diagrams involving multiple options and Greek interactions was particularly important at a portfolio level. Furthermore, in addition to IFM the SOA offers a Quantitative Finance and Investment FSA track; this content was already included in the curriculum prior to the changes in July 2018. I can attest to the content’s relevance in options trading based on personal experience, but a substantial expansion of the actuary’s skillset comes from the additions in the IFM syllabus.
My specific role in banking was as an Enterprise Valuation Analyst for the risk department. Highly leveraged companies required an independent valuation prior to receiving loan approval. This position was effectively an investment banker’s counterpart in the risk department. As my job title would suggest, the vast majority of my duties included performing enterprise valuations that typically consisted of a discounted cash flow (DCF) analysis in addition to a public and private comparables valuation. A key part of this process was arriving at a weighted average cost of capital (WACC) based on the capitalization of the target company and its peers. This process requires an in-depth understanding of the capital asset pricing model (CAPM), funding sources and capital structure. The IFM syllabus includes this material which was previously excluded in the MFE exam. Furthermore, the updated IFM material is complemented by Accounting and Finance VEE requirements and a Corporate Finance & ERM track for the FSA.
Business founders typically wear many hats. Despite the variety of roles I filled managing and growing Ampaire, I found many applications for the actuarial material I studied. Background knowledge of the time value of money, investment risk and project analysis helped me determine which business models provide investors with the greatest ROI. In addition to those concepts, the IFM syllabus even includes material on funding sources and a section on venture capital. While we hired a professional accountant to handle tax-filing and answer any confusing bookkeeping issues, VEE courses required by the SOA provide sufficient background to manage basic bookkeeping for a small business. Lastly, one particularly actuarial project arose when I had difficulty budgeting for a benefit we offered employees. Using knowledge from studying for actuarial exams, I fit a distribution to historical reimbursement distributions and employed a Monte Carlo simulation to set a reserve at the VaR 95% confidence level. While the intent of the actuarial designation is not likely to prepare students for entrepreneurship, the business and financial knowledge certainly held value in a variety of situations.
The overall ASA and FSA curriculum remains focused on equipping actuarial students with the statistical, economic and risk management knowledge for insurance, which has a long history of tracking data for such use. However, as other industries incorporate more data analytics they will experience emerging needs which coincide with the actuary’s growing skillset. The SOA’s revised curriculum, particularly IFM, is making an FSA actuary specialized in Corporate Finance & ERM or Quantitative Finance & Investment more competitive with the CFA and FRM designations for investment banking and traditional corporate finance roles. It remains to be seen if those industries will begin to recognize the FSA in that manner.
About the Author
Ryan K. Bilton, is an Actuarial Assistant at Axene Health Partners, LLC and is based in AHP’s Temecula, CA office.