I Have to Take How Many Tests?!

A guide to passing the SEVEN exams needed to become an associate of the SOA
Calling all future actuaries! Are you ready to study for at least five-hundred hours to pursue this
career? Are you prepared to invest thousands of dollars in yourself in hopes that you have what it
takes to even find a job let alone succeed there? Are you willing to watch your friends go party
after party while you sit in your dorm scouring through the first of four prep books sitting on
your desk? If your answer is no to any of these, don’t bother reading. However, if you answered
enthusiastically in the affirmative each and every prospect I have mentioned, then let’s get
started!
In the next 7 posts I will discuss, the content, format, recommended study plan and materials,
and, for Penn State attendees, all relevant courses, such that you can attack the following (I’m
going to say it again) SEVEN exams: Exam P, Exam FM, Exam IFM, Exam SRM, Exam
STAM, Exam LTAM, and Exam PA.
The final longer post will pertain to what being recognized as an SOA associate actually means
and how it can help you in the future.

Exam P
I’m happy to see you all made it through the intro and are joining for a brief discussion of Exam
P! I short, Exam P likes probability … a lot. In fact, it’s the only thing it likes, hence its name,
“Probability Exam.” Most people choose to take Exam P first because the breadth and difficulty
of the material runs far below that of even the nearest exam. Furthermore, most people have
access to a probability course before anything relating to financial math or any of the even more
complex topics covered in future exams.
How does the SOA structure the exam?
Exam P consists of 30 multiple choice questions and a total of 180 minutes to complete them.
Almost everybody chooses to take the exam online with the SOA’s CBT (Computer Based
Testing) option, meaning you will simply go to a testing center, sit down at a computer, and take
the test. Immediately after finishing the test, you will receive a message indicating that you have
most likely passed or failed. As the SOA standardizes the exams, this message can report
incorrectly, but the vast majority of the time it predicts correctly. A while after you leave the
testing facility (~2 months), you will receive your actual score, which will range from 1 to 10.
While it looks very pretty getting a 10, sometimes literally nobody can achieve it (as in the SOA
could standardize a perfect 30/30 to a 9). Therefore, only passing the exam, meaning achieving a
score of 6 or better, matters to employers, and to anyone else for that matter.
So, what exactly does the exam cover?
The SOA’s current layout states that, with some occasional error, “general probability,” which
contains most of the fundamental topics in introductory probability such as set theory,
conditional probability, and Bayes’ Theorem, constitute only 10-17% of the exam. Meanwhile,
univariate random variables, including probability density functions (PDF) and cumulative
distribution functions (CDF), probability and moment generating functions, and independent
random variable calculations and transformations, make-up 40-47%. Equally important (also
taking up 40-47% of exam space), remain multivariate random variables, which primarily
include joint and conditional PDF/CDF calculations, joint moments and random variable
distributions, and applications of the Central Limit Theorem.
How should I study?
The best ways to study for Exam P completely depend on your preferences and finances.
ACTEX and ASM both make study manuals and have produced consistently positive results,
especially when paired with the concurrent online study packages (that you can typically
purchase with the book). For more tailored practice, ACTEX and Coaching Actuaries offer
online courses with discussion-based assistance. These cover the exam more comprehensively,
but also run four to five times more expensive than the books alone. Lastly, everyone should take
advantage the FREE exam provided by the SOA which best simulates the real exam from
content to timing.
At Penn State, STAT 414: Introduction to Probability Theory and RM 214: Applications of
Probability Theory to Actuarial Science, should be enough in-class preparation for P. MATH
140, 141, and ideally 230 (which are prereqs of STAT 414 anyway) are also crucial for P’s
computational aspects.

Exam FM
Welcome back! Time to discuss the second exam on the path to your ASA: The Financial
Mathematics Exam. Like Exam P, Exam FM also has relatively little material compared to later
tests, but it still covers quite a bit more than P. Most people are also exposed to financial math
courses fairly soon in the college careers, but they are typically seen after basic probability
courses which means FM comes right after P.
How does the SOA structure the exam?
With 35 questions and three hours to complete them, the format of FM resembles that of P;
likewise, most people also choose to use CBT (outlined in the previous post) for FM as well.
Everything regarding the scoring and receiving of scores exactly mirrors the process outlined in
last weeks post, so take a look if you want some more info on your scores.
What exactly does the exam cover?
Around twelve percent of FM covers the “Time Value of Money”, which includes various
interest and discount calculations including variable force of interest and general cash flows. The
next eighteen percent typically contains non-contingent annuity and cash-flow calculations,
which basically builds upon the time value section by adding perpetuities and
arithmetic/geometric calculations. Basic loan knowledge and calculations, including interest,
principals, and amortization among other similar concepts, comprise around 15% of FM.
Likewise, basic bond knowledge also makes up 15%, most of which focuses on pricing,
premiums, terms, and current/non-current values.
Thought we were done because P only had three major sections and we’re already at four for
FM? Hah, nope. As I alluded to earlier, P is big, but FM is to P as a teen is to a toddler. And, so
you have an idea of what’s coming next, SRM is to FM as a watermelon is to a grape (don’t
worry, I’ll keep coming up with these labored analogies!).
So let’s continue! Approximately eighteen percent of the exam pertains to cash flow and
portfolio, specifically rates of return and their associated behaviors (graphical) and calculations.
Twelve percent covers cash-flow immunization (≠ vaccine) calculations regarding the
mitigation of interest rates’ effects on a company’s worth. And the last (that’s right, we’re finally
here), five percent contains “Interest Rate Swaps,” which focuses on calculating time and value
changes. And we’re done!
How Should I study?
Again, like Exam P, ACTEX manuals typically yield success but are a bit more superficial, while
many passers prefer ASM’s manual for a more comprehensive guide. Also, a more focused and
individualized study plan will almost always help, especially if you do not feel as confident with
the level and amount of material. Etched (monthly service), ACTEX, and Coaching Actuaries
have received significant praise from passing students. Lastly, the SOA offers another replica of
the real exam on their website, so take advantage of this just like you did/should with P!
At Penn State, RM 410: Financial Math for Actuaries, along with some knowledge from ACCTG
211, FIN 301, and ECON 102/104 will best prepare you for FM.

Exam IFM
Time for some Investments and Financial Markets! This is where the testing really starts to kick
up a notch; that’s right we’re at that point where the past tests look like toddlers, as IFM covers
about the same amount of material as P and FM combined. Let’s get into it!
How does the SOA structure the exam?
IFM has 30 questions, so a slight drop from FM, with the same amount of time to complete (3
hours). The format remains primarily CBT, and as before, questions consist of five multiple
choice answers. Scoring and receiving scores still does not change.
What exactly does the exam cover?
Ten to fifteen percent of IFM pertains to Mean-Variance Portfolio Theory, including quantitative
risk-return analysis, correlation and volatility functions, and applications of portfolio
diversification and the capital market line. Fifteen percent typically covers portfolio evaluations
with the Capital Asset Pricing Model alongside other factor models, as well as derivative
analysis and marginal accounting as they relate to forward/future contracts. Market efficiency
and rationality analyses comprise five to ten percent of IFM and cover the efficient market
hypothesis and basic behavioral finance.
6 more to go!
Capital management applications of investment risk and risk analysis encompass another ten to
fifteen percent. Capital structuring analysis of equity and debt along with their effects in overall
valuations and taxing make up ten percent. Twenty percent of the exam covers general options
and option Greeks, including option style and consequent cash-flow, option properties and
pricing, calculus-based option analysis, and option-based risk management. Binomial models
cover ten percent and contain risk assessment of stocks, various options, and various calls. The
last, and most specific, area of coverage is the Black-Scholes Model, which constitutes ten to
fifteen percent of the exam; characteristic topics include various lognormal calculations relating
to option pricing, and the general Black-Scholes Formula.
How should I study?
ACTEX typically falls off around this point, and most people tend to stick to ASM manuals.
While I’ve mentioned Coaching Actuaries in the past, IFM is the first time they really capture a
large portion of exam takers with their IFM Adapt program, which serves as an online practice
portal with tailored feedback and increasingly difficult questions as you get better. While SOA
no longer offers a full free exam, they do offer a small database of past questions (with
solutions), so you can get a feel of how a typical question may feel/look. For Penn State
Students, RM 415 will help you prepare for IFM as it is our primary modeling specific class.

Exam SRM
So one can typically exchange IFM and SRM in the timeline as it really depends on which
classes you choose to take when. Unlike the progression thus far, little difference exists in the
pure quantity of material between IFM and SRM, but the materials covered differ drastically.
While FM and IFM really focused on business math and general financial/business knowledge,
Exam SRM, the Statistics for Risk Modeling Exam, shifts back to the pure statistical analysis
that we looked at in Exam P (and actually assumes knowledge of all Exam P concepts as well).
How does the SOA structure the exam?
SRM fails to deviate too much from the protocol seen in the last few exams in that it still uses
CBT and contains 35 questions (like FM). However, the SOA graciously gives an extra thirty
minutes for SRM, meaning they provide three-and-a-half hours in total. Scoring and receiving
scores still does not change.
What exactly does the exam cover?
Ten percent of SRM consists of “Statistical Learning,” which effectively contains testing models,
correcting data where needed, and being able to ex plain basic modeling procedures and
applications. Time Series, specifically regarding regression with secondary focuses on stochastic
modeling and general time series modeling, covers fifteen percent of the exam. Principal
components make-up only five percent of SRM, definitions and interpretations comprising most
of this topic. Decision trees and Cluster Analysis cover twenty-five percent of the exam,
specifically regarding definitions and interpretations of different types of decision trees and
clustering.
Here comes the fun part: Linear models comprise between forty and fifty percent of SRM!
That’s right, they are so important they get their own section. The key components of the linear
models tested are least-squares regression, exponential and link distributions, and the key
differences between model functions and applications. Subpoints of the aforementioned points
include checking the model qualitatively and quantitatively, interpreting models in context, and
choosing the correct model for the presented situation.
How should I study?
As mentioned in the Exam IFM overview, ACTEX still sells manuals for the higher-level exams,
but typically ASM yields greater success. Coaching Actuaries is in the process of creating their
first SRM tutoring program, so widely used coaching programs do not really exist at the
moment. Similar to IFM, the SOA provides sample questions and answers from old test banks on
its website, so these will remain a great resource for getting practice from the people who made
the test. At Penn State, Stat 462 and Stat 463, the applied regression and time-series classes, will
best prepare you for SRM, but unlike before, no formal study for the exam exists in these classes
so plan on spending a lot more time outside of class.

Exam STAM
The Short- and Long-Term Actuarial Modeling exams (STAM and LTAM respectively) almost
always directly follow SRM and IFM simply because of the typical sequence of courses taken by
the student, but the order of STAM and LTAM can vary based on whether you take a modelling
or contingencies specific course first. We will see another content spike, however, between
IFM/SRM and STAM in that STAM has about 1.5 times that of SRM/IFM. STAM differs from
its modeling counterpart (SRM) in that SRM focuses more on the quantitative statistical analyses
necessary for creating and examining models, while STAM focuses more on the actual
construction (STAM is a superset of the old SOA Exam C which stands for construction) and
more complex evaluation.
How does the SOA structure the exam?
STAM mirrors all of the exams we have seen thus far, including 35 questions and 3.5 hours via.
CBT (sound familiar?). Scoring does, however, change a bit in that the SOA standardizes
(curves) the scores a bit to make all exams equally passable, just as the College Board does with
the SAT. Since STAM has not had many trial runs yet (it came out on July 1 of this year), the
SOA wants to ensure fairness if possible.
What exactly does the exam cover?
Onto the fun part! STAM is a bit different from the other exams we have seen so far, primarily in
that it focuses very heavily on three topics and to a much lesser extent on six others. The primary
three, which cover about 25 percent each, are parametric models, credibility, and topics in short-
term insurance. The parametrics section focuses on using the correct model and parameter
estimation with the maximum likelihood estimation and Bayesian methods. Credibility consists
of loss estimation through limited fluctuation analysis, Bayesian methods, and Buhlmann-Straub
models. Short-term insurance includes the chain ladder and Bornhuetter Ferguson techniques for
loss and premium calculations.
The next twenty five percent of STAM covers approximately 2.5% to 7.5% of each of the six
topics mentioned below. Since they each constitute such a small piece of the exam, rather than
the broader overview of each, an uncategorized overview of potential topics will be given as
follows: Reinsurance and its types and operations, coverage adjustments including inflation,
value at risk and tail value, severity, frequency, and aggregate models with basic moment and
function calculations and applications.
How should I study?
Since STAM is relatively new, very few study materials have been experimentally tested and
therefore I cannot speak to the success of them. Coaching Actuaries offers an individualized
program for STAM, and these programs’ success with other exams may carry over to STAM.
Coaching Actuaries, ACTEX, ASM, along with a few newcomers all offer manuals, but the
success rate has not yet been defined. The SOA does offer a small question bank so that will be
useful as always. At Penn State, RM 420: Property, Casualty, and Life Insurance is the STAM
focused course as it covers insurance methods and credibility theory.

Exam LTAM
As previously mentioned, STAM and LTAM are effectively interchangeable, and the amount of
material covered on each are about equivalent. The primary difference between the two lies in
LTAM’s long-term coverage and contingencies modeling as opposed to STAM’s shorter sighted
modeling.
How does the SOA structure the exam?
We see the first structure discrepancy in LTAM, as this exam takes four hours with a fifteen
minute reading period, and it contains a written portion in addition to the typical multiple choice.
Scoring also changes a bit in that the SOA takes 9-11 weeks for score return 1.
What exactly does the exam cover?
With LTAM, we’re back a more even distribution in material coverage compared to STAM. Five
percent of LTAM covers modeling and understanding life, health, and general long-term
insurance, along with retirement programs and annuities. About twenty percent of the exam
contains parametric and non-parametric survival models, which consists of variable life and
decremental analysis. Present random variables comprise of approximately fifteen percent of the
exam and consist of extrapolation of survival models to a company’s income statement, as well
as assumption analysis. Pension plans and benefits make up between ten and fifteen percent of
LTAM, and this section focuses on employee plans based upon various data and assumptions
(which ties in the present random variables section) relevant to valuating a person’s retirement
fund.
The final two categories consume nearly fifty percent of the expected space on LTAM, and justly
so as premium and reserve calculations often play a key role in insurance-based actuarial
professions. The SOA only tests the fundamental premium calculation techniques, being
equivalence principle, portfolio percentile premium principle, and random variable and
assumption analysis. Reserves pertains to actuarial liabilities, specifically in the context of gross
and net premium, modified, and expense reserves for LTAM. The reserve section also ties in
future-loss, overall profit, and balance sheet analyses.
How should I study?
While LTAM also only recently came out, the ASM and Coaching Actuaries manuals and study
programs have quickly established themselves as the primary tools among passers from Penn
State specifically. As usual, the SOA also offers practice multiple choice questions and solutions,
as well as a guide for the essay questions. At Penn State, RM 411 and RM 412, the final two
courses in PSU’s actuarial mathematics sequence, best prepare us for LTAM as they cover
contingencies, life insurance, annuities, and retirement and the relevant modeling techniques.

Exam PA
I’m excited: we’re about to take a massive U-turn here.
To this point, all of the prior posts have had some personal touch from a to-be-actuary regarding
preparation, material, or generalities. Unlike those, however, the predictive analytics exam has
not even had a formal sitting yet and is only included in this series for continuity in the testing
sequence for the ASA. So, keep in mind that everything in this post will be theoretical and
speculative in nature, meaning the “how should I study section” will especially take a hit as
neither I, nor anybody else as of the writing of this post, has any idea what the best methods to
study are. With that, let’s get to it!
How does the SOA structure the exam?
Remember how I said we saw a structure discrepancy in LTAM? Well PA makes that
discrepancy look like a grain of salt. Firstly, its five hours, so I hope you enjoy that.
Additionally, Exam PA completely foregoes multiple choice questions. That’s right, the SOA
gives you a real-world business problem, to which you must prepare and defend a solution in a
“deliverable” report. You will write the report in Microsoft Word, and you will have Excel and R
as mechanisms for creating and expressing support for your solution. The SOA specifically states
that approximately half your grade will come from your model’s support for your idea(s), about a
third comprises the effectiveness of the written report, and the remaining sixth will cover your
preliminary data analysis and selection of your model’s features.
Two other massive differences come in the form of grading and mandatory preparation. The
SOA grades PA on an FSA standard, meaning the work you do for PA should rival the level of
the work done by candidates looking to attain their Fellowship in the SOA. Keep in mind, most
of these candidates have full-time jobs and are expected to produce high-level results on a
consistent basis. More succinctly: the grading is subjective and will most-likely be brutally
difficult. The SOA also requires that you complete Exam SRM prior to registering for PA, and
once registered, you will complete seemingly mandatory modules from the SOA specific to PA.
What exactly does the exam cover?
Since we have left behind the multiple-choice format, I cannot provide any relative percentages
as presented previously because you will need all of the following skills in capacities throughout
the process. The most important topics to focus on are modeling, exploration, and visualization
in R. These skills will be integral to the creation and presentation of your solution, so a firm basis
in all types of data analysis and visualization techniques (regression especially) will help
dramatically. Your ability to synthesize the problem and assess any initial data provided will be
critical in developing a general approach as well as specific support. Two other specific concepts
the SOA mentions are decision trees and cluster analyses, so you should most likely have
sufficient expertise to apply these in your analysis. Effective written communication will also
play into your success on PA, as poor articulation and presentation of your ideas will not go over
well with judges accustomed to excellence.
How Should I study?
The SOA’s modules should prepare you to some extent, as will formal training in R and general
modeling. ACTEX provides some additional practice in R and several textbooks are available for
further preparation. Otherwise, I have not found any formal study manuals or online training, but
I will post updates if I see anything. At Penn State, no formal Exam PA prep courses have been
established yet, but the closest we have comes in the form of Stat 184, an overview in R.

The Meaning of an ASA

Thank you for sticking with me this far! I hope the last seven posts have given you a bit of
insight into the exam process for attaining your ASA. In this post, I will briefly discuss
Validation through Educational Experience (VEE) and wrap-up the ASA process, then speak to
what the ASA means for you professionally.
In addition to the exams, the SOA also requires three VEEs, namely economics, accounting and
finance, and mathematical statistics. You can pursue these requirements in any order and through
various pathways, but at some point, you need to take a course (or courses) to satisfy the SOA’s
demands. The SOA requires VEE because it believes that these skills are so fundamental to an
actuarial career that you must take related courses; however, they are either too broad, narrow, or
basic (depending on the topic) to create a full exam around the topics. At Penn State, you can
fulfill all three necessary VEE’s most simply by taking Economics 102 and 104, Accounting
211, Finance 301, and Math/Stat 415. To gain VEE credit for these courses, you simply fill out a
form on the SOA’s website and pay the fee (but keep in mind that you will not need VEE to get
hired somewhere, and your company will often pay for your VEE so you can attain your ASA,
meaning you should not pay these fees on your own). Keep in mind that you must also pass two
exams before you can apply for VEE credit.
The last two requirements for the ASA are the Associateship Professionalism Course, and e-
learning modules. The former consists of a six-hour in-person program focusing on ethics and
behavior in the business world. The Fundamentals of Actuarial Practice modules cover real-
world application of actuarial acumen and problem solving, including two written and graded
assignments necessary for competition of the course.

All actuaries have their ASA. Period. As a qualifier: you may have friends in actuarial science
professions who have yet to achieve their associateship, but technically analysts are not yet
actuaries. The ASA is ultimately the first major step in your career, as this designation often
comes with significant pay raises and defines you as a candidate for long-term success within a
company. The Fellowship of the Society of Actuaries (FSA) is the most coveted actuarial
credential, but a blog series covering that may be for another day. For now, appreciate this
process and get excited for what should be an exciting future!
Thank you for exploring the first seven actuarial exams with me! I hope you were able to glean
something from these writings, and I hope this can serve as a resource in the future if you ever
need some quick info on an exam. L look out for a Fellowship of the Society of Actuaries blog
series in the spring! Thank you again, and all the best throughout your journey. --Tyler