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The Actuary The magazine of the Institute & Faculty of Actuaries
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The good, the bad, and the ugly?

he number of university courses offering exemptions from actuarial exams has significantly increased over the last decade. This has led to employers receiving more applications from students with a head start on the exams.
Employers have different attitudes towards students with a significant number of exemptions. Attitudes range from simply being nervous about employing them to believing these students are some kind of ugly hybrid monster to be avoided at all costs. Much of this stems from employers misunderstanding the career and salary expectations held by students with actuarial science degrees and not having a plan in place to handle them.
With Morris and the profession indicating that the actuarial science degree route should be the preferred option, it’s time employers became serious about devising a career and salary system that enables them to handle what are often committed and enthusiastic students who have much to offer.

The bad
In many respects actuarial science students have the same experience as, and act very much like, any other graduate (they will have a strange obsession with study and pub-crawls), yet they already know the secret world of commutation functions and chi-square tests.
Fresh-faced students can arrive at their first employer with all but a couple of exams to go, but with no more than a few weeks’ work experience. Employers face a number of difficult questions:
– What financial credit should be given for the student’s exemptions?
– What credit should the student be given on passing the remaining exams?
– When and how should the student be promoted?
– Should the student be treated as a graduate or senior student?
The problems employers face on day one of an actuarial science student’s career are nothing compared with the problems the employer will face a few years down the line, when the student swiftly ‘qualifies’. Even if the employer has worked hard to formulate a career progression policy that seems fair to the actuarial science student, the employer needs to consider the impact on other students. Will the other students think that actuarial science students are being given preferential treatment? The employer needs not only to formulate a progression policy, but also to make the logic behind it understood.

The good
One answer is to realise that any student actuary has two strands to his or her development: acquisition of knowledge through the exams and acquisition of work-based skills (WBS). Although these are linked, they can be assessed and rewarded separately.

The standard graduate
A good standard graduate may pass exams and acquire the WBS required of a newly qualified actuary over a period of four years. Their salary will progress via increments as they pass exams, and via promotional salary increments as they acquire WBS and the responsibilities that go with them. Table 1 shows the exam and WBS elements of salary increases that such a student may receive over the four years to qualification. The student’s salary may double over the period, with the majority of the salary increases being given for exam passes.
Just as exam passes may be acquired at a faster or slower rate than shown, WBS may be acquired more or less quickly than the average shown. Although exam success is easily assessed by logging on to the Internet at 22.01 on the appropriate Thursday in December or July, assessment of WBS is more difficult ‘years’ experience’ is just as good or bad a proxy to WBS acquired as it is to exams acquired. The employer’s regular performance review system is therefore critical to providing a clear and transparent assessment of students’ WBS progression.
The profession has done good work in outlining key WBS ‘dimensions’ with the idea that employers make these a specific and measurable part of its performance review system. Most employers will have ‘exploded’ each dimension into more detailed categories. For example, communication might be split into oral and written, and management split into planning, organising, initiative and teamwork. Benchmarks then need to be set for each of these detailed categories. A student can then be assessed against the benchmarks and an overall assessment made of their WBS progress. Table 2 shows an example of how an employer may expect a student to progress on a particular WBS.

The actuarial science degree student
Table 3 shows how an employer might expect the salary of an actuarial science graduate with full core technical subject exemptions to progress with exam and WBS increments. Such a student might be expected to ‘qualify’ by passing the remaining exams within two years. They might, however, take three years to acquire the WBS expected of a newly qualified actuary. Although a standard graduate may take around four years to gain full WBS, it can be argued that actuarial science students are likely to acquire WBS at a faster pace. First, they have a head start in having basic actuarial technical knowledge, which enables them to put their work into context more quickly. Second, they are likely to become free of study after two years, enabling them to divert their energies to acquiring WBS at an accelerated pace.
The actuarial science student with full core technical subject exemptions might expect to start on a salary that is 10% higher than that of the standard graduate. Their exam increments may follow a similar pattern to that in the tail-end of the standard graduate’s progression period. The WBS increments form a greater content, and are earned at accelerate faster pace than that of a standard graduate. The final year’s increment is then solely in respect of WBS.
Similar scales can be constructed for students with further exemptions arising from postgraduate courses. I would argue that the student would still need three years to acquire full WBS, but obviously fewer potential exam increments and higher WBS increments over the three years.

The ugly
The practicalities can be ugly. The typical actuarial science student will want answers to awkward questions:
– How much is my starting salary compared to the normal graduate?
– How much will I get for each exemption once approved by the profession?
– How much will I get when I pass an exam?
A number of different approaches can be used to arrive at the required target salary for the exams and WBS acquired. One practical approach that seems to work is to give actuarial science students the standard graduate salary plus half the standard exam credit for exemptions. The standard exam credit could then be given for the remaining exams, as and when they are passed. The ‘outstanding’ salary credit for the exemptions can then be gradually fed into salary via promotional salary increases as the student acquires WBS.
Typically, the student will have passed all exams within two years, when they will cease to receive any more exam salary increments. At this point their salary will usually be lower than that of a newly qualified actuary, but will progress towards this through promotional salary increases, as the student acquires the remaining WBS over the next year or so.

Ugly monsters
There are advantages to recruiting actuarial science graduates they have a head start with technical knowledge, and they have already proved that they can absorb, learn and be successfully examined on actuarial theory and concepts. Such students have shown early commitment and hopefully more enthusiasm for the profession.
The good should far outweigh the bad, but whether some employers continue to treat actuarial science students as ugly monsters remains to be seen.
Employers need to dismiss the misconception that all actuarial science students expect and want to be treated as fully qualified actuaries as soon as they pass the exams most would dread the thought. However, actuarial science students do want employers to be open and honest with them and indicate when they should expect to be treated as fully qualified actuaries.
With over 300 actuarial science students graduating each year, employers may have no choice but to embrace these ugly monsters!

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