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About an Actuarial Career

Be An Actuary A Career Without

Boundaries

Presented By:

Overview What is an Actuary? What skills are needed to be an Actuary? Where do Actuaries work? What do Actuaries do? How do I become an Actuary? What is the career outlook for Actuaries? Overview of Kemper Questions

What is an Actuary? An Actuary is a person who:

Analyzes, manages and measures the financial implications of future risk.

Works to maximize profit while managing volatility.

Develops and validates financial models to guide decision making.

What Skills are Needed to be an Actuary?

Keen analytical, project management and problem solving skills

Good business sense Solid communication skills (oral &

written) Strong computer skills Knowledge of math and finance

What Talents are Needed to be an Actuary?

Motivation

Creativity

Independence

Ability to work with others

Most Common Industries Where Actuaries Work

Insurance Industry Property (home) and casualty (car) Life and annuities

Employee Benefit Industry Retirement benefits Health benefits Social Security

Financial Services Industry Banks, investing, risk management Mergers & Acquisitions

Where do Actuaries Work? Consulting firms Insurance companies Government insurance departments Banks and investment firms Large corporations Public accounting firms Colleges and universities Anywhere else

Typical Actuarial Projects

Life Insurance: Designing and pricing life Life Insurance: Designing and pricing life insurance products.insurance products.

Property & Casualty: Estimating the amount Property & Casualty: Estimating the amount of money to be set aside for insurance of money to be set aside for insurance claims that have not been paid.claims that have not been paid.

Health Benefits: Setting HMO premium Health Benefits: Setting HMO premium rates.rates.

Retirement Systems: Pricing the cost of Retirement Systems: Pricing the cost of increasing retirement benefits.increasing retirement benefits.

Finance & Investments: Portfolio Finance & Investments: Portfolio diversification studies.diversification studies.

Contrast SoA & CAS

Two learned bodiesTwo learned bodies Society of Actuaries (SoA), focus on life, Society of Actuaries (SoA), focus on life,

health, & pensionshealth, & pensions Casualty Actuarial Society, focus on Casualty Actuarial Society, focus on

non-lifenon-life Very different theoretical focusVery different theoretical focus

Life – generally loss producing Life – generally loss producing phenomenon reasonably knownphenomenon reasonably known

P&C – loss generation much less certainP&C – loss generation much less certain

Simple Coverage - Life

Single premium life policySingle premium life policy Pay fixed amount now to receive Pay fixed amount now to receive

specified benefit at time of deathspecified benefit at time of death KnowKnow

Whether there will be a paymentWhether there will be a payment How many paymentsHow many payments The amount of paymentThe amount of payment

Do not know whenDo not know when

Simple Policy – P&C

Automobile collision insuranceAutomobile collision insurance Pays to repair damage if car is damaged in Pays to repair damage if car is damaged in

collision in next yearcollision in next year KnownKnown

Not muchNot much UnknownUnknown

Whether there will be a claimWhether there will be a claim If so, how manyIf so, how many If so, how much will it costIf so, how much will it cost If so, when will it happenIf so, when will it happen

CAS Statistics (2007)

AssociateAssociatess

FellowsFellows TotalTotal

P&C P&C InsurerInsurer

692692 1,3761,376 2,0682,068

ConsultantConsultant 244244 571571 815815

RetiredRetired 9999 216216 315315

OtherOther 470470 890890 1,3601,360

TotalTotal 1,5051,505 3,0533,053 4,5584,558

Where do Most P&C Actuaries Live?

Illinois 433 Wisconsin 127

Connecticut 421 Texas 124

New York 390 Minnesota 121

New Jersey 328 Georgia 105

California 285 Florida 100

Pennsylvania 241 DC, MD, VA 99

Massachusetts 190 Washington 67

Ohio 160 Iowa 62

What are some other choices for P&C Actuaries to live?

Michigan 49 Arizona 19

N. Carolina 48 Colorado 18

Missouri 43 Indiana 17

Rhode Island 32 Nebraska 13

Kansas 31 S. Carolina 12

New Hampshire 30 Delaware 10

Tennessee 25 Oregon 8

Where might a P&C actuary be hard pressed to find a job?

Nevada 7 Utah 3

Vermont 7 Alaska 2

Alabama 6 Mississippi 2

Kentucky 6 North Dakota 2

Louisiana 5 Arkansas 1

Hawaii 4 Idaho 1

Maine 4 Montana 1

New Mexico 3 Oklahoma 1

International CAS Members

Canada 333 France 3

Bermuda 100 Ireland 3

United Kingdom 39 Israel 3

Hong Kong 24 Brazil 1

Switzerland 24 British West Indies 1

China 13 India 1

Australia 9 Malaysia 1

Taiwan 6 Mexico 1

Cayman Islands 5 South Africa 1

Germany 5 Spain 1

Republic of Korea 5 The Netherlands 1

Singapore 5

Some Typical P&C Jobs

Conducting studies of insurance rates.Conducting studies of insurance rates. Estimating the amount of money to be set Estimating the amount of money to be set

aside for insurance claims that have not been aside for insurance claims that have not been paid.paid.

Participating in various aspects of corporate Participating in various aspects of corporate planning.planning.

Calculating a fair price for a new insurance Calculating a fair price for a new insurance product.product.

Forecasting the impact of catastrophes.Forecasting the impact of catastrophes. Implementing and monitoring investment Implementing and monitoring investment

programs.programs.

Traditional Ratemaking (or simply, Pricing)

Auto Pricing 101

ABC Insurance Company insures 1,000 ABC Insurance Company insures 1,000 eighteen year old drivers.eighteen year old drivers.

Assume 300 of the 1,000 have accidents Assume 300 of the 1,000 have accidents within a year.within a year.

Assume the average repair cost for each Assume the average repair cost for each accident is $500.accident is $500.

How much should ABC charge each of the How much should ABC charge each of the eighteen year olds for a one year car eighteen year olds for a one year car insurance policy?insurance policy?

Auto Pricing 101

Total premiums paid should equal the Total premiums paid should equal the total estimated cost of the accidents.total estimated cost of the accidents.

Total estimated cost of the accidents = Total estimated cost of the accidents = 300 x $500 = $150,000300 x $500 = $150,000

Total premium paid = total cost of Total premium paid = total cost of accidentsaccidents

Total premium paid = $150,000Total premium paid = $150,000 $ amount of premium for each driver = $ amount of premium for each driver =

$150,000/1,000= $150$150,000/1,000= $150

Actuarial ProjectCar Insurance

Assume 400 of the drivers are males Assume 400 of the drivers are males and 200 of the accidents involve males. and 200 of the accidents involve males. The remaining 100 accidents involve The remaining 100 accidents involve females.females.

Should the females be charged the Should the females be charged the same premium as the males?same premium as the males?

What premium should be charged the What premium should be charged the males? the females?males? the females?

Actuarial ProjectCar Insurance

Total males’ premium = Total males’ premium =

200 accidents x $500 per accident = 200 accidents x $500 per accident =

$100,000$100,000

Each male’s premium = Each male’s premium =

$100,000 / 400 males = $250$100,000 / 400 males = $250

Total females’ premium = Total females’ premium =

100 accidents x $500 per accident = $50,000100 accidents x $500 per accident = $50,000

Each female’s premium = Each female’s premium =

$50,000 / 600 females = $83.33 $50,000 / 600 females = $83.33

Other Considerations in the Car Insurance Project

Other factors?Other factors?

Socially acceptable?Socially acceptable?

Competition?Competition?

Enough data?Enough data?

Simplified example.Simplified example.

Actuarial Research

Claim Counts by Size10,000

250005000075000

100000125000150000175000200000225000250000275000300000325000350000375000400000425000450000475000500000525000550000575000600000625000650000675000

0

200

400

600

800

1000

1200

1400

1600

1800

Lognormal Fit

0

200

400

600

800

1000

1200

1400

1600

1800

Actual Fitted

Modeling Catastrophes

1992: Hurricane Andrew

Photograph © Allan Tannenbaum

Today

Simulation models are used to estimate hurricane risk,using meteorological data.

The Costliest HurricanesAdjusted to 2004 Cost, Population, and Wealth Levels

KATRINAKATRINA 20052005 > $125 > $125 BB

Southeastern Florida/Alabama Southeastern Florida/Alabama 1926 1926 $102B$102B ANDREW [SE FL / LA ] ANDREW [SE FL / LA ] 19921992 $43B$43B Northern Texas: Galveston Northern Texas: Galveston 19001900 $37B$37B Northern Texas: GalvestonNorthern Texas: Galveston 19151915 $31B$31B Southwestern Florida Southwestern Florida 19441944 $23B$23B New England New England 19381938 $24B$24B SE Florida: Lake Okeechobee SE Florida: Lake Okeechobee 19281928 $19B$19B BETSY [SE FL / LA] BETSY [SE FL / LA] 19651965 $18B$18B DONNA [FL / Eastern U.S.]DONNA [FL / Eastern U.S.] 19601960 $17B$17B CAMILLE [MS / LA / VA ]CAMILLE [MS / LA / VA ] 19691969 $15B$15B AGNES [NW FL / NE U.S.]AGNES [NW FL / NE U.S.] 19721972 $15B$15B CHARLEY [SW FL]CHARLEY [SW FL] 20042004 $15B$15B DIANE [NE U.S.]DIANE [NE U.S.] 19551955 $14B$14B IVAN [NW FL / AL]IVAN [NW FL / AL] 20042004 $14B$14B HUGO [SC]HUGO [SC] 19891989 $13B$13B

Solvency Monitoring

1906: San Francisco Earthquake

Only one regional insurance company survived, offering company stock in place of cash to settle

claims.

Earthquake risk is estimated with the help of seismologists.Losses are reinsured, spreading the risk globally.

Today

Insurer InsolvenciesNumber of Insurer Insolvencies

0

10

20

30

40

50

60

7019

72

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Year

Nu

mber

of In

solv

enci

es

A few insurers go insolvent every year for different reasons. Catastrophes are no longer the leading cause of insolvencies.

Are all losses predictable?

View from Liberty International Underwriters October 2001

Photograph by Ivan Rodriguez

Advantages to the

Actuarial Profession

High earnings potentialHigh earnings potential Graduate school not required – no loans to repayGraduate school not required – no loans to repay Advance by examinations – no “glass ceiling”Advance by examinations – no “glass ceiling” Advancement opportunities expand throughout Advancement opportunities expand throughout

careercareer Professional Interactions – “Front Office” roleProfessional Interactions – “Front Office” role Variety of avenues to chooseVariety of avenues to choose Newsworthy projectsNewsworthy projects High demand – less sensitive to economic cyclesHigh demand – less sensitive to economic cycles Job securityJob security Overall, a highly ranked professionOverall, a highly ranked profession

Jobs Rated Almanac Ranking is based on six

criteria: IncomeOutlookStress

Environment Physical Demands

Security

Jobs Rated Almanac Actuary was rated the #2

job in America, according to the 2002 Jobs Rated Almanac.

Actuary has been rated as one of the top five jobs in each of the six editions published since 1988.

Actuary has received the #1 job rating twice!

Actuarial Skills are Highly Transferable

To multiple industries Energy industry Transportation industry Military/government

To multiple responsibilities/jobs Marketing Operations & Logistics Becoming an entrepreneur Sports analysis

Career Outlook for Actuaries

Employment growth for consulting actuaries.

Development of new financial tools. Growing ability to model risks. Growth in the health services

industry. Growth in risk management.

How to Become an Actuary

Like a doctor or lawyer, an actuary achieves professional status by passing examinations to prove a certain level of knowledge.

Actuarial examinations are administered by the Casualty Actuarial Society (CAS) and Society of Actuaries (SOA). Three of the first four exams are administered jointly.

Examinations are held twice a year. Two professional designations exist for each

organization: Associate (either ASA or ACAS) Fellow (either FSA or FCAS)

You can earn while you learn -- employers support actuarial trainees taking exams by providing exam study time on the job.

Preliminary Education Structure

PrerequisitesPrerequisites CalculusCalculus Linear AlgebraLinear Algebra

Validation by Educational Experience Validation by Educational Experience VEE credits are obtained through college VEE credits are obtained through college

courses, standardized exams, approved courses, standardized exams, approved educational experiences, and transitional educational experiences, and transitional exams for:exams for:VEE - Applied Statistical MethodsVEE - Applied Statistical MethodsVEE - Corporate FinanceVEE - Corporate FinanceVEE - EconomicsVEE - Economics

Preliminary Education Structure Cont’d.

Preliminary ExaminationsPreliminary Examinations Exam 1/P: ProbabilityExam 1/P: Probability Exam 2/FM: Financial MathematicsExam 2/FM: Financial Mathematics Exam 3: Statistics and Actuarial Models (or Exam 3: Statistics and Actuarial Models (or

SOA Courses MFE and MFC)SOA Courses MFE and MFC) Exam 4/C: Construction and Evaluation of Exam 4/C: Construction and Evaluation of

Actuarial ModelsActuarial ModelsIn addition to the preliminary education, each In addition to the preliminary education, each

society has additional requirements to society has additional requirements to become an associatebecome an associate

CAS Associateship Exams

Part 5 – Introduction to P&C Part 5 – Introduction to P&C RatemakingRatemaking

Part 6 – Reserving, Accounting, Part 6 – Reserving, Accounting, Reinsurance and Enterprise Risk Reinsurance and Enterprise Risk ManagementManagement

Part 7 – Nation-specific, financial Part 7 – Nation-specific, financial statements, taxation, regulationstatements, taxation, regulation

Professionalism CourseProfessionalism Course

CAS Fellowship Exams

Part 8 – Investments & Financial Part 8 – Investments & Financial AnalysisAnalysis

Part 9 – Advanced Ratemaking, Part 9 – Advanced Ratemaking, Individual Risk Rating, Rate of Individual Risk Rating, Rate of ReturnReturn

Salary Information

Starting salaries of

$38,000-$52,000 (with one

exam and no experience)

Merit increases

Examination increases

Increases for professional

designations

Earning Potential

$0

$50,000

$100,000

$150,000

$200,000

$250,000

0.0 - 4.5 4.6 - 9.5 9.6 - 14.5 14.6 +

1 Exam4 Exams7 ExamsFellow

Note: Compensation may vary significantly according to years of experience, geographic region and responsibilities.Source: D.W. Simpson & Company, Inc., 2006 Salary Survey

Average Actuarial Salaries

Years of Experience

Advice to Students Who Want to be Actuaries

Develop disciplined study habits.

Take a well-rounded curriculum.

Sharpen your communication and

general business skills.

Take actuarial exams while in school -

the sooner you start, the sooner you will

finish.

The Changing Face of Actuaries

In 2003, women held the presidency in three of the five professional organizations governing the field of actuarial science. Pictured are: - Barbara Lautzenheiser, president of the American Academy of Actuaries (FSA 1969); - Mary Frances Miller, president of the Casualty Actuarial Society (FCAS 1988); and - Margaret Tiller Sherwood, president of the Conference of Consulting Actuaries (FCAS 1982, ASA 1984).

The International Association of Black Actuaries

IABA’s 2002 Annual MeetingIABA’s 2002 Annual Meeting

Membership in IABA is growing.

Advancing Diversity Minority Students:Minority Students:

African American, Latino, or Native American African American, Latino, or Native American

Scholarships for Minority StudentsScholarships for Minority Students Individual awards of $500 - $3,000, annuallyIndividual awards of $500 - $3,000, annually Demonstrated performance and commitmentDemonstrated performance and commitment

Exam Fee Reimbursement for Minority StudentsExam Fee Reimbursement for Minority Students Reimbursed for successfully passing Exam 1Reimbursed for successfully passing Exam 1 $175 exam fee reimbursed, up to two times ($350)$175 exam fee reimbursed, up to two times ($350)

Visit the website Visit the website www.BeAnActuary.orgwww.BeAnActuary.orgMinority Programs: Scholarship applications, exam Minority Programs: Scholarship applications, exam

fee reimbursement forms, internships, and fee reimbursement forms, internships, and more.more.

Actuarial Web Resources

To learn more about the actuarial profession, visit www.BeAnActuary.org.

Visit the Casualty Actuarial Society on the Web - www.casact.org

or the Society of Actuaries on the Web - www.soa.org