To understand how skills in actuarial science can be applied to investment banking we need to understand what actuarial science deals with.
So what is actuarial science?
Actuarial science can be defined as the application of mathematical skills to social science to solve important issues. Most of the time the actuaries use statistics to solve the issues by reducing risks in the insurance industry, government, business and in academic research. Actuaries use statistics and mathematical models to predict uncertain events like income from an insurance policy, payout from pension scheme and performance of stock markets.
Actuarial science deals with the technical understanding of the following areas:
Though most qualified actuaries choose to work in the insurance industry their skills are highly valued in the investment banking sector. Investment banking sector tends to be highly volatile and unpredictable. Investment banking deals with a lot of risks. Risk while investing in stock market and during mergers and acquisitions. Basically, actuarial science can be applied to any field that has an element of risk associated with it.
Becoming an actuary is a long and arduous road one which requires lots of studying and having to clear multiple actuarial exams. People who have actually pursued a degree in actuarial science rarely tend to work as investment bankers. They usually go on to be employed as actuaries mostly working in the insurance sectors. Even If you have a degree in actuarial science you will need additional skills to excel as investment bankers. An investment banker needs to be adept at the art of selling and acting as a bridge between two companies. Actuarians are mostly technically skilled in mathematical, statistical and financial knowledge to create models to analyze and minimize risk.
An actually will usually have higher pay, better work-life balance, less stress and their nature of work will be purely mathematical in nature. While the role of an investment banker requires them to work longer hours, travel more, play the role of an intermediary a la sales agent between two companies while major financial moves like meager and acquisition or find clients for huge investments in stocks and funds. This leaves little time for the investment banker to have a social life.
An investment banker can acquire some of the relevant skills of an actuary to make his/her work life easier. The valuable skills which an investment banker should aim to learn from the actuarial science skill set are:
Analyse trends to predict outcome: The ability to analyze complex data and predict the outcome by identifying the trends and patterns of the input and evaluate the various factors that can influence the outcome. Examine the factors that can lead to an undesirable outcome and ways to avoid the undesirable outcome and predict the financial cost to the company should the undesirable outcome be realized.
Quick mathematical skills: Ability to quickly and correctly do arithmetic computations. A sound knowledge of probability and statistics is a must to predict the probability of an event’s occurrence, the risk it carries and various statistical models to be used in day to day investment banking
Sound understanding of financial and business concepts: They are required to evaluate pension plans, insurance plans, the stock market. They need to access the financial risk of a possible outcome and advise their clients like the business, government, banks and other financial institutions on how to avoid exposing themselves to financial risks. They are required to also provide their clients with expert advice to maximize their profits from a variety of investment options.
Computer skills: Knowing basic computer skills along with Microsoft Office is absolutely essential and ability to program in a statistical programming knowledge is a basic necessity as they have to frequently deal with huge data in tabular format and create meaningful statistical models.