Does the material in FRM emulate what an Actuary is suppose to know (i.e. there is significat overlap with the Society of Actuary exams and the FRM),
and does Actuary = Risk Professional ? And if not, then what does an Actuary do….
I am currently an ASA (Associate of the Society of Actuaries) and a CERA (Chartered Enterprise Risk Analyst), which is a risk management credential bestowed upon me by the SOA for taking and passing a series of exams related to Enterprise Risk Management.
The actuarial field is certainly paying attention to the importance, both now and in the future, of ERM and its core principles. The Society of Actuaries (SOA) has already developed a risk management credential of its own (CERA), which includes 5 exams and a few other educational requirements, like seminars and online modules.
The actuarial profession certainly deals with risk assessment and risk management, but the primary focus of actuaries is to understand and interpret mathematical models used to analyze and project certain aspects of risk that can reasonably be projected.
There are two “levels” of actuarial credentials - associateship and fellowship. An associate of the SOA will generally possess a general knowledge of actuarial practice, including a strong foundation in probability, financial mathematics, actuarial models and the validation of such models via statistical analysis and testing. They will also have had studied practical aspects of the profession, such as control cycles, data analysis and introductions to risk management.
A fellow of the FSA will have all the knowledge of an associate, plus the advanced knowledge of a specific track/field of knowledge. Indiviudal Life/Annuities, Group Life & Health, Pension and Investments are examples of such tracks. ERM/Finance is another track (one I plan to specialize in), and the exams in this track fall somewhat in line with the FRM exam. I have taken and passed Exam AFE (Advanced Finance/ERM), which covered a LOT of the topics found in what will be known as FRM Level II in 2010. There were several topics in Exam AFE also found in FRM Level I, such as the discussion of VaR calculations.
The other component of the fellowship in ERM/Finance is a topic on Financial Economic Theory, which I believe covers futures, forwards, etc in more depth.
Getting back to the original question, it certainly depends on the level of examinations and experience the actuary in question has had. A pension actuary and a life actuary, for the most part, will have a different knowledge base - pension actuaries are responsible for knowing the calculations and laws specific to the pension filed, while life actuaries are responsible for other balances, calculations and regulations. The skill set will approximately be the same, however.
I do think that actuaries have the ability to comprehend and understand ERM, though. In a very general sense, using the definition of both terms fairly liberally, I believe that actuaries “manage risk”.
If you decide to specialize in ERM/Finance, there will be a significant overlap of topics covered as you take the actuarial exams, but do note that the depth of the material for actuarial exams goes well beyond the FRM exam.
Wow, thanks for your detailed response.
I kind of understand now when I ask my actuary friends if their jobs consist of “calculating risk” and they say “yes, but not really, and we do a lot of other things too”
No problem. Thank you for reading it all the way through! (I’m assuming)
It’s hard to fit what we do in a nutshell, especially because there are different actuaries working on all sorts of different things.
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