The Actuarial The Actuarial ProfessionProfession

An IntroductionAn Introduction

Two Branches of Actuarial ScienceTwo Branches of Actuarial Science

Life & Health / PensionLife & Health / Pension

-- Society of Actuaries : SOASociety of Actuaries : SOA

-- around 17,000 in United Statesaround 17,000 in United States

Property and Casualty Property and Casualty (or Property / Liability)(or Property / Liability)

-- Casualty Actuarial Society : CASCasualty Actuarial Society : CAS

- - 3,425 in United States / 3,857 total3,425 in United States / 3,857 total

P&C Lines of BusinessP&C Lines of BusinessExamplesExamples

HomeownersHomeowners EarthquakeEarthquake AutomobileAutomobile MortgageMortgage

General LiabilityGeneral Liability Medical MalpracticeMedical Malpractice

Workers’ CompensationWorkers’ Compensation Products LiabilityProducts Liability

ReinsuranceReinsurance

Example Actuarial ProblemsExample Actuarial Problems

-- Pricing New ProductsPricing New Products- Risk ClassificationRisk Classification-- Modeling CatastrophesModeling Catastrophes-- Graphing Size of Loss DistributionsGraphing Size of Loss Distributions-- Establishing Loss ReservesEstablishing Loss Reserves-- Solvency MonitoringSolvency Monitoring-- Rate Adequacy StudiesRate Adequacy Studies-- Trending and Development of LossesTrending and Development of Losses-- Current Leveling of PremiumsCurrent Leveling of Premiums-- Credibility MeasuresCredibility Measures

Pricing New ProductsPricing New Products

Body Piercing Salon InsuranceBody Piercing Salon Insurance

How would you

price that?

Loss DevelopmentLoss Development

12 months 24 months 36 months 48 months 60 months

1999 8,802,882 9,620,159 9,390,546 9,539,089 9,574,213

2000 9,948,091 11,042,381 10,490,262 10,595,165

2001 11,751,813 12,767,774 12,257,063

2002 13,046,926 14,351,619

2003 14,612,557

12 - 24 24-36 36-48 48-60

1999 1.09 0.98 1.02 1.00

2000 1.11 0.95 1.01

2001 1.09 0.96

2002 1.10

12 - 24 24-36 36-48 48-60

Average 1.10 0.96 1.01 1.00

Loss Development

Loss Development

12 - 24 24-36 36-48 48-60

Average 1.10 0.96 1.01 1.00

"Squaring the Triangle"

12 months 24 months 36 months 48 months 60 months

1999 8,802,882 9,620,159 9,390,546 9,539,089 9,574,213

2000 9,948,091 11,042,381 10,490,262 10,595,165 10,634,177

2001 11,751,813 12,767,774 12,257,063 12,415,292 12,461,006

2002 13,046,926 14,351,619 13,806,889 13,985,125 14,036,619

2003 14,612,557 16,034,700 15,426,088 15,625,226 15,682,760

GraphingGraphingSize of LossSize of LossDistributionsDistributions

Claim Counts by SizeClaim Counts by Size10,000

250005000075000

100000125000150000175000200000225000250000275000300000325000350000375000400000425000450000475000500000525000550000575000600000625000650000675000

0

200

400

600

800

1000

1200

1400

1600

1800

Lognormal FitLognormal Fit

0

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400

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1000

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1400

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Actual Fitted

Modeling CatastrophesModeling Catastrophes

1992: Hurricane Andrew1992: Hurricane Andrew

Photograph © Allan Tannenbaum

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

KATRINAKATRINA 20052005 > $125 B> $125 B 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

2004 Prediction2004 PredictionNational Oceanic and Atmospheric AdministrationNational Oceanic and Atmospheric Administration

““In virtually every coastal city from Texas In virtually every coastal city from Texas to Maineto Maine, the present Tropical Prediction Center Director , the present Tropical Prediction Center Director (Max Mayfield) former National Hurricane Center Directors (Max Mayfield) former National Hurricane Center Directors

have stated that have stated that the United States is building the United States is building towards its next hurricane disaster. towards its next hurricane disaster. … …

The areas along the United States Gulf and Atlantic coasts The areas along the United States Gulf and Atlantic coasts where most of this country’s hurricane related fatalities where most of this country’s hurricane related fatalities have occurred are also now experiencing the country’s have occurred are also now experiencing the country’s most significant growth in population. This situation, in most significant growth in population. This situation, in combination with continued building along the coast, combination with continued building along the coast,

will lead to serious problems for will lead to serious problems for many areas in hurricanesmany areas in hurricanes.” .”

Solvency MonitoringSolvency Monitoring

1906: San Francisco Earthquake1906: San Francisco Earthquake

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

Are all losses Are all losses predictable?predictable?

View from Liberty International View from Liberty International Underwriters Underwriters October 2001October 2001

Photograph by Ivan Rodriguez

Who do actuaries work for?Who do actuaries work for? Insurance companiesInsurance companies Consulting firmsConsulting firms Government insurance departmentsGovernment insurance departments Colleges and universitiesColleges and universities Banks and investment firmsBanks and investment firms Large corporationsLarge corporations Public accounting firmsPublic accounting firms Failure Analysis firmsFailure Analysis firms ReinsurersReinsurers ThemselvesThemselves

Who do actuaries work Who do actuaries work with?with?

Other Actuaries Other Actuaries (e.g. mentors, peers, students)(e.g. mentors, peers, students) Underwriting Underwriting (e.g. pricing large accounts)(e.g. pricing large accounts) Sales Sales (e.g. developing pricing strategies)(e.g. developing pricing strategies) Marketing Marketing (e.g. retention analyses)(e.g. retention analyses) Claims Claims (e.g. loss reserving studies)(e.g. loss reserving studies) Risk ManagementRisk Management (e.g. response to loss trends) (e.g. response to loss trends)

Clients / Large InsuredsClients / Large Insureds ReinsurersReinsurers

Advantages Advantages to the to the

Actuarial ProfessionActuarial Profession High earnings potentialHigh earnings potential No cost of graduate school – no loans to repayNo cost of graduate school – no loans to repay Option to begin retirement savings early to compound Option to begin retirement savings early to compound

itit Advance by examinations – no “glass ceiling”Advance by examinations – no “glass ceiling” Advancement opportunities expand throughout careerAdvancement opportunities expand throughout career 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 Financial Savvy – gain personal investing skillsFinancial Savvy – gain personal investing skills Overall, a highly ranked professionOverall, a highly ranked profession

The Jobs Rated Almanac The Jobs Rated Almanac ranks careers according to:ranks careers according to:

EnvironmentEnvironment IncomeIncome OutlookOutlook Physical DemandsPhysical Demands SecuritySecurity StressStress

Jobs Rated Almanac Top 10 Jobs Rated Almanac Top 10 20012001

- #1 Financial Planner- #1 Financial Planner - #2 Website Manager- #2 Website Manager - #3 Computer Systems Analyst- #3 Computer Systems Analyst - #4- #4 ACTUARYACTUARY - #5 Computer Programmer- #5 Computer Programmer - #6 Software Engineer- #6 Software Engineer - #7 Meteorologist- #7 Meteorologist - #8 Biologist- #8 Biologist - #9 Astronomer- #9 Astronomer - #10 Paralegal Assistant- #10 Paralegal Assistant

Jobs Rated Almanac Top 10 Jobs Rated Almanac Top 10 20022002

- #1 Biologist- #1 Biologist - #2- #2 ACTUARYACTUARY - #3 Financial Planner- #3 Financial Planner - #4 Computer Systems Analyst- #4 Computer Systems Analyst - #5 Accountant- #5 Accountant - #6 Software Engineer- #6 Software Engineer - #7 Meteorologist- #7 Meteorologist - #8 Paralegal Assistant- #8 Paralegal Assistant - #9 Statistician- #9 Statistician - #10 Astronomer- #10 Astronomer

Disadvantages Disadvantages to the to the

Actuarial ProfessionActuarial Profession

Difficulty of the examination processDifficulty of the examination process Frustrating data problemsFrustrating data problems Narrow field with high degree of specializationNarrow field with high degree of specialization Confinement to an office (non-consultant) Confinement to an office (non-consultant) Required travel and long hours (consultant)Required travel and long hours (consultant) Relocation may be necessary for ACAS or FCASRelocation may be necessary for ACAS or FCAS May not provide good topics of conversationMay not provide good topics of conversation

Where do Most P&C Actuaries Live?Where do Most P&C Actuaries Live?

Illinois 414 Wisconsin 112

Connecticut 397 Minnesota 109

New York 366 D.C. (MD & VA) 107

New Jersey 317 Texas 102

California 266 Florida 97

Pennsylvania 233 Georgia 94

Massachusetts 166 Washington 64

Ohio 130 North Carolina 46

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

Michigan 44 Arizona 21

Iowa 42 Indiana 19

Missouri 41 Colorado 18

Kansas 40 Oregon 12

Rhode Island 35 Delaware 10

New Hampshire 31 South Carolina 9

Tennessee 22 Nebraska 8

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

Alabama 7 Idaho 2

Louisiana 6 Montana 2

Maine 6 Oklahoma 2

Nevada 6 West Virginia 2

Kentucky 4 Arkansas 1

Vermont 4 Hawaii 1

Mississippi 3 North Dakota 1

New Mexico 3 Utah 1

Alaska 2 Wyoming 0

International CAS MembersInternational CAS Members

Canada 246 China 3

Bermuda 73 Mexico 3

United Kingdom 31 South Korea 3

Switzerland 22 Brazil 2

Singapore 7 Israel 2

Taiwan 7 Barbados (W.I.) 1

Australia 6 Cayman Islands 1

France 6 Italy 1

Germany 6 Japan 1

Hong Kong 6 South Africa 1

Ireland 4

Two Branches of Actuarial ScienceTwo Branches of Actuarial ScienceREVISITEDREVISITED

CASCAS: Casualty Actuarial Society : Casualty Actuarial Society (Property & Casualty)(Property & Casualty)

3,425 in United States / 3,857 total3,425 in United States / 3,857 totalSOASOA: Society of Actuaries : Society of Actuaries (Life & Health / Pension)(Life & Health / Pension)

around 17,000 in United Statesaround 17,000 in United States

How do I choosea path?

In the CAS and SOA,

Exam Parts 1, 2, & 4

are the same.CAS Exam 1 = SOA Exam P

CAS Exam 2 = SOA Exam FMCAS Exam 4 = SOA Exam C

CAS Actuarial ExaminationsCAS Actuarial Examinations

Associate Level ExamsAssociate Level Exams

ExamExam TopicTopic 1 1 ProbabilityProbability 2 2 Financial MathematicsFinancial Mathematics 3 3 Statistics and Actuarial Models Statistics and Actuarial Models 4 4 Construction and Evaluation of Actuarial Construction and Evaluation of Actuarial

ModelsModels 5 5 Introduction to P&C Insurance and Ratemaking Introduction to P&C Insurance and Ratemaking 6 6 Reserving, Insurance Accounting Principles, Reserving, Insurance Accounting Principles,

and Reinsurance and Reinsurance 7 7 Annual Statement, Taxation, RegulationAnnual Statement, Taxation, Regulation

(U.S. or Canada)(U.S. or Canada)

CAS Actuarial ExaminationsCAS Actuarial Examinations

Fellowship Level ExamsFellowship Level Exams

ExamExam TopicTopic

8 8 Investments and Financial AnalysisInvestments and Financial Analysis

9 9 Advanced Ratemaking, Rate of Return, and Advanced Ratemaking, Rate of Return, and

Individual Risk Rating PlansIndividual Risk Rating Plans

Validation by Educational ExperienceValidation by Educational Experience(“VEE”)(“VEE”)

1.1. Applied Statistical MethodsApplied Statistical Methods

2. Corporate Finance2. Corporate Finance

3. Economics3. Economics

Skills and Personality TraitsSkills and Personality Traitsto succeed as an Actuaryto succeed as an Actuary

• Analytic thinking• Problem solving • Good common sense / “business” sense• Facility with Mathematics• Ability to communicate complex ideas simply• Organized, concise writer • Determination• Independence• Disciplined study habits• Tendency to start projects early• Comfortable using computer programs

like Excel, Access, Word, SAS

Write this down!Write this down!

The CAS Website: The CAS Website: www.casact.orgwww.casact.org

1. DETAIL OF EXAMS:1. DETAIL OF EXAMS:Admissions/ExamsAdmissions/Exams2007 Syllabus of Basic Education2007 Syllabus of Basic Education

Syllabus Summary Syllabus Summary 2. ABOUT THE PROFESSION:2. ABOUT THE PROFESSION:

www.BeAnActuary.orgwww.BeAnActuary.org3. INTERNSHIPS:3. INTERNSHIPS:

www.BeAnActuary.org/find/atp.cfmwww.BeAnActuary.org/find/atp.cfm4. VALIDATION BY EDUCATIONAL EXPERIENCE (VEE):4. VALIDATION BY EDUCATIONAL EXPERIENCE (VEE):

Admissions/ExamsAdmissions/Exams2007 Syllabus of Basic Education2007 Syllabus of Basic EducationValidation by Educational ExperienceValidation by Educational Experience

5. CURRENT TOPICS:5. CURRENT TOPICS: Professional EducationProfessional Education Meetings and Seminar HandoutsMeetings and Seminar Handouts

““Click Here for the Chronological Listing”Click Here for the Chronological Listing”

The EndThe End