By Mark Colton, President of the Channel Islands’ Actuarial Society

A few questions for you:

- What are the chances you will die before you get to the end of this article?

- If I pay you a penny for reading the first word, 2p for the second, 4p for the third, doubling each payment as we go, do you end up with beer money for a day, or enough to retire on?

- You’ve got the sniffles. You take a SARS (severe acute respiratory syndrome) test. 99% of people who have SARS show positive on the test, 99% of people who don’t have SARS show negative. You test positive. What are your chances?

- A company’s share price indicates it is worth £100m. Your Board wants it. How much should you pay?

If you’re interested in the answers to these questions then that’s a sign of natural curiosity. If you’re interested in trying to work out the answers yourself, then you’ve entered a place where the worlds of mathematics and business overlap, and this is where the Actuary operates. I’ll give you the answers later.

Actuarial work developed with the early co-operative and friendly societies. It called for highly numerate, mathematical people who also understood business. The conundrums were: "What do you charge someone if they want a large lump sum paid to help their families if they die?" and "How much should I save if I want to give my employees a pension in retirement?" The business issues included the investment of the money, raising capital, providing the right service and making a profit.

Over the years, the role defined itself more clearly into a profession, where a series of exams must be completed to qualify as an Actuary. The process is rigorous, taking around 5 years to qualify with only a third making it to the chequered flag. That’s more demanding than most other professions, and it’ss a big chunk of anybody’s time, so why bother? Apart from having a rewarding career, actuaries are generally well paid for their efforts and are widely respected as financial professionals. Plus they have a role recognized under law. In the UK every life assurance company must have an Appointed Actuary, whose responsibility it is to ensure the company remains solvent and the policyholder is protected. Guernsey uses the Appointed Actuary system too. (In the Channel Islands, Guernsey is the centre of insurance operations and is where most actuaries are based).

Opportunities for actuaries have never been so good. In a world of increasingly complex contracts, technological advances, investment choice and regulatory expansion, the horizons keep expanding. In addition to the traditional roles of pension scheme advisors and running life companies, actuaries are involved in investment, consultancy, reinsurance and general insurance, including Lloyds of London.

Although good ’A’ levels are acceptable, generally the first step on the career ladder is a good degree. Of course, this should be in a relevant subject, and for those who know what they want early on, there are actuarial degrees available. These give valuable exemptions from many of the professional exams. As in most technical jobs these days, good computer skills are also essential.

Relevant working experience is a crucial part of becoming an actuary and so most students are employed, rather than being on full-time study. The support packages offered by employers are generally attractive and an important part of the recruitment process.

The ultimate target for the career actuary will be a senior position in his or her chosen sphere, be that consultancy, investment, life assurance, general insurance, reinsurance, bancassurance, regulation or in government (yes, the Government has its own Actuary’s Department). Other actuaries have used their skills to launch broader careers, in one case as managing director of British Telecom.

Further information on the profession can be found at the Institute and Faculty’s website, which is well set out and easy to navigate: www.actuaries.org.uk and at the website of the Actuary magazine: www.the-actuary.org.uk.

And finally the answers to those questions....

The answer to the first question has to be an average: if you’re 95 you will have to read faster than a 25-year-old to even things up. But on average, the answer is 0.00000005, or 1 chance in 20 million. Which is tiny, as you’d hope.

But do you do the UK lottery? You have 1 chance in 14 million of winning that. But if you bet on Monday, the chance you die before the balls are drawn is 1 in 6 thousand: you’re more than 2000 times more likely to die than win. So leave your bet to the last minute!

Question two, you may have seen before. This is the awesome power of compounding. Before editing, there were just over 1000 words in this article. The payment on the 34th word alone would be nearly £100 million! There isn’t enough wealth on the planet for me to make good my payment promise.

Question three has caused problems in the real world, with a person being ill-advised in relation to a terminal illness. You are interested in knowing, if, as random Joe Soap, you have SARS. Look at that 99% figure for the test’s accuracy. Turn it on its head: it means that 1% of people who are uninfected actually produce a positive test result. Take a group of, say 10,000 people from the UK. 9,999 don’t have SARS. So how many positive test results do we get?

Answer: 1% of 9,999 which is 100, (as near as makes no difference), plus the one person who has SARS, who almost certainly tests positive.

So for every 101 positive test results, only one person has SARS. The chances you don’t have it are excellent. Because the disease is spread so thinly throughout the population, the chance of a false positive is incredibly high. (If you’ve just returned from China, though, you might need to think again).

Question four has no perfect answer. Always consider the alternatives. Your decision has to look good against these. At bottom you need to work out what you think you will get for your money. Time may be your friend (sliding share prices) or enemy (competitor interest). If you’re going to pay more than the market price you’ll need to show how you can extract more value from the company once you’ve bought it.