by Sarah Butcher

10 July 2014

Money? Or security?

If you’re mathematically gifted and are deliberating about a career in finance, you may be contemplating an actuarial career in the insurance industry. Or you may be contemplating a quant career in a bank. Both are open to you. Both have advantages, and can’t be judged on a purely quantitative basis – it’s about lifestyle as much as anything else.

If your aspiration is to earn as much as possible, you’ll want to be a quant. After five years, a ‘model validation quant’ in an investment bank can command a salary of ￡120k, plus a bonus, says James Kennedy at quant recruitment firm NJF Search. Pay can be far higher for so-called, ‘front office quants,’ who help develop trading algorithms. They typically get paid a share of their profits, which can be large. Witness the immense wealth of people working at quant hedge funds likeWinton Capital.

Actuarial pay is modest by comparison. Five years’ after qualifying you might earn ￡85k to ￡120k, says actuarial recruiter Richard Howard at recruitment firm Oliver James.

Actuarial careers have short hours in their favour, however. Oggi Nduka, a senior consultant at actuarial recruiters Acumen Resources, says days that start at 9am and end at 6pm are common. If you work as an actuary for an insurer outside London, you might even get away with less than this. Quants working on the trading floors of investment banks and in hedge funds can usually expect to get out of bed an hour or two earlier, say recruiters.

Some specific types of actuarial jobs can include bursts of intense work, followed by periods of comparative idleness. Actuaries who deal with insurance companies’ quarterly and annual reports are very busy in the run up to reporting season, says Howard. Actuaries who work in the M&A teams of large acquisitive insurance companies are equally busy when deals are afoot, as the actuaries working in the M&A advisory businesses of Big Four insurance firms, he says.

If you want to be an actuary, you’ll need to pass the actuarial exams. In the UK, you can become aCertified Actuarial Analyst(albeit not actually an actuary) over three years, or it usually takes around four years to become a qualified actuary and a Fellow of the Institute and Faculty Actuaries. In the U.S. it can takesix to ten years to pass the full actuarial exams, although you can typically start practising in year two. It’s common to study for the exams whilst you’re working. This can be tough. “You get study time, but sometimes people find they’re being worked too hard and neglecting their studies,” says Howard. Pass rates can be as low as 60% and it’s not uncommon for people to drop out. While you’re studying, you’ll only be paid around￡35k, but at least you’ll be paid.

By comparison, if you want to be a quant you’ll usually need a PhD before you start. And while you study for your PhD you’ll only get a meagre study grant. Once you’re working, however, you won’t have the stress of four years’ of additional exams.

Because actuaries have passed actuarial exams and quants have achieved PhDs, there’s not much overlap between the two. Once you’ve decided to be a quant, you’re a quant. And once you’ve decided to be an actuary, you’re an actuary. Hence the need to choose carefully.

However, it is possible to be a quant in a bank and to go off and become a quant in an insurance firm. Nduka says insurance firms want plenty of quants from banks to come and validate their risk models for Solvency II. Banks want plenty of quants to validate their risk models too, although they may want fewer if the Bank of England decidesbanks can’t use their own risk models after all….

This leads to our final point: actuarial careers are safe and stable. It’s not for nothing that actuaries are seen as a little bit boring. Aviva mightbe laying off staff, but mass culls of actuaries are rare. By comparison, quants in banks are not immune to the industry’s staffing fluctuations. Both quants and actuaries need to be good at measuring risk, but if you’re a quant you’ll need to embrace a little risk in your career choice too.