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Training Future Actuaries: The New Actuarial Exam Structure

by Richard W. Gorvett

What do you think of the new exam structure? While that question might elicit a strong response (either positive or negative), chances are good that the majority response from CAS members involves a shrug of uncertainty.

As CAS members are aware, as of this spring the structure and content of the actuarial exams have changed. For those still taking exams, this change has had immediate and important personal implications. For those whose exam days are behind them, the change may seem to have little relevance. The new exam structure will have a far-reaching impact throughout the actuarial profession, however. For example, how will universities respond to the new exam requirements? What are the implications for recruiting future graduates of actuarial programs? These issues are critical for the profession.

While a number of changes occurred with respect to the upper-level Associateship and Fellowship exams, this article concentrates on the first four jointly sponsored exams. First, a review of the facts with respect to these new exams:

Currently, Course 1 is planned as a three-hour exam and Courses 2-4 are scheduled to be four hours in length. All four exams are sponsored by the CAS and the Society of Actuaries.

This overhaul of our examination system has a huge potential to affect the education and recruitment of future students and actuaries. It raises a number of issues:

What courses will colleges and universities offer?

The new format of the early exams provides a significant challenge to those of us in academia. Should we offer courses sufficient to cover the material on all of the first four exams? For many schools, this could be a strain on their resources, especially for schools with smaller actuarial programs that do not have enough students to permit efficient delivery of the more advanced courses. Even if schools do offer courses covering all of this material, a question arises regarding how many of these can or should realistically be required—especially if a broad-based education is desirable from a long-run life and career perspective. For example, preparing for Exam 2 could conceivably require five or more semester-long courses all by itself including some basic prerequisites).

At the University of Illinois, where I am a professor of actuarial science, our goal is to offer courses sufficient to cover essentially all of the material on the first four exams—but we do not and cannot require all such courses as part of the actuarial science curriculum. Our course requirements involve the material on the first exam, much of the material on the second, and some of the material on the third and fourth exams. Elective courses cover the remaining basic actuarial material. In addition, we have separate weekly review and problem-solving sessions that help students prepare for each of the first two exams.

How many exams will students complete prior to graduation?

Given the volume of material on the four basic exams, it will be much tougher for students to graduate with numerous exams completed. Four exams passed will be, I suspect, extremely rare, and three exams passed could be somewhat infrequent. It is entirely possible that the mode, especially initially, will be just one exam passed!

How will recruiting be affected?

This means that one signal employed by companies to evaluate actuarial graduates—number of exams passed—might be more difficult to use. It could be helpful for companies to become more involved with local college and university programs on a regular basis. This would be mutually beneficial: the students would appreciate the real-world insights provided by practicing actuaries and companies would get greater exposure to the students (allowing both parties a better chance to appreciate each other). Such contacts could take a variety of forms: presentations to actuarial science classes, case studies applying classroom theory to real-world situations, an actuarial advisory committee, mentor relationships, and increased internship and work-study arrangements.

How will students pay exam costs?

The registration fees for the new Exams 1 and 2 are $75 and $100, respectively. The fee for Exams 3 and 4 are $275 each (although full-time students receive a 20 percent deduction, to $220). These fees, especially for Exams 3 and 4, are significant and could impose a hardship on some students. And the exam registration fees are not the end of it. For example, the study note for Part 2 costs $75, and additional textbook purchases will be necessary for those students who have not taken college courses specifically aimed at the exam material. Companies and consulting firms can really help here and some already are, by providing monies to help support students with these expenses. Such support is appreciated and more would be welcomed.

What impact will the exam structure have on graduate actuarial science programs?

Frequently, graduate-level programs in actuarial science focus on the training of people who did not study actuarial science as undergraduates. It is often more appropriate for students, after finishing an undergraduate program, to enter the profession, rather than to continue on for graduate study. The new exam structure might change that, however. Additional academic course work, especially in the areas covered by Exams 2, 3, and 4, and the potential for additional exam successes might prove beneficial for some students.

Does the new exam system meet the needs of the CAS?

Any professional course of study should be constantly monitored and, if necessary, adjusted. As the new exam system matures, we will gain additional insights into its appropriateness for training property/casualty actuaries. There are certainly many favorable aspects of the new system and there are naturally some questions. Is the life contingencies and survival analysis material beneficial? Are the readings appropriate? Should we have material on policy forms and coverages earlier in the exam process?

Answers to some of these questions may come as familiarity with the new material increases. On a personal note, when I first looked at the new Loss Models book, which comprises a big part of the reading list for Exams 3 and 4, I had some concerns, in part, because I thought the prior CAS readings on loss distributions and credibility theory were good and appropriate. Having now taught a full semester course from the Loss Models book, I rather like and admire the text. So we might want to avoid jumping to early conclusions.

How can we attract good students to the profession?

This is a question that goes beyond the new exam structure. How do we attract good people who, especially in the current economy, have excellent alternative career paths, many of which do not involve a lengthy and time-consuming series of exams? The new exam structure attempts to address this issue by introducing some important subjects—economics and finance—earlier in the exam process. But there is a lot more that can be done, and academics and practicing actuaries need to work together to attract good people to our worthy profession.

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As we all gain some experience under the new exam system, the answers to many of these questions will become clearer. One thing that will serve us all well as we go forward is a closer and more conscientious relationship between practicing actuaries and academics. Discussion of the mutual issues regarding the new exam structure is a great opportunity to enhance that relationship.