Anyone who wants to become an actuary must successfully pass the preliminary actuarial exams. Most students plan on passing at least one test before they graduate because almost all companies will not consider job candidates who haven’t passed any of the tests. Below introduces the test content and syllabus for each section.
Probability and Financial Mathematics
The probability test, which is also called the SOA “P” test, consists of multiple-choice questions that students must complete within a three hour time frame. The goal of this test is to examine the candidate’s knowledge of probability through the application of standard actuary tools. Candidates must have thorough knowledge of calculus, probability and insurance and risk management. The financial mathematics test, which is called the SOA “FM” test, covers derivative securities basics and discrete and continuous interest theories. The student must have knowledge of calculus and probability.
Models for Financial Economics and Life Contingencies
The Models for Financial Economics (MFE) test is administered by the Society of Actuaries (SOA) because the Casualty Actuarial Society (CAS) does not offer a test on the models for financial economics. The SOA test covers derivative securities, rational valuations, financial simulations, interest rate models and risk management techniques. The actuary model for life contingencies (MLC) part is a written-answer and multiple-choice test that takes up to four hours to complete. The content tests the candidate’s knowledge of how to apply contingent payment models and theories to assess financial and insurance risks. Students must know interest theories and risk management.
Construction, Evaluation and Probabilistic Models
The Construction and Evaluation Models test, referred to as the “C” test, takes three and a half hours to complete. The questions cover calculus and probability-based models and methods that actuaries use to analyze risk levels of things like severity and frequency. The statistics and probabilistic model test, called the “S” test, is an Associate-level test of multiple-choice questions that takes four hours to complete. The test covers statistics, time series, stochastic processes, survival models, life contingencies concepts and general linear models. This test involves reading, knowledge statements and understanding of interest theories.
Who Administers the Test?
Previously, both the Casualty Actuary Society and Society of Actuaries jointly offered the test. Now, the latter offers most of the tests, which the former accepts. The Casualty Actuary Society is a professional organization of actuaries. Casualty Actuary Society requires that all members pass the tests and have strong understandings of finance, economics, insurance, mathematics, actuary sciences and enterprise risk management. The Society of Actuaries is a world organization that advocates for actuaries through research, education and training.
How to Prepare for the Tests
Because the tests are very demanding, most students will take as many courses possible in calculus, linear algebra, differential equations and multivariate calculus. They also study economics, writing and computer science, such as programming classes in C and Python. Advanced Excel and statistics classes are recommended. To prepare for the first exam, review the syllabus to understand what is covered. Download and practice previous exam questions and analyze the solutions. For those who are employed, most insurance and consulting companies have established programs that pay the exam fees for their actuary employees. These employers usually provide protected time during the workday to study and offer raises after tests are passed.
Students should note that the preliminary actuarial exams can be taken in any order, but the four advanced tests rely heavily on the probability and financial mathematics tests.