The Actuarial

Profession
An Introduction
What is an Actuary?
Is an Actuary a fortune teller?
 Is an Actuary
a professional gambler?
 Doctrine of False Cause
A false cause fallacy is a misidentification of
the cause for an observed effect.

Why do
People who have root canals get cancer more often.
People who attend the symphony live longer.
People who floss their teeth live longer.
Two Branches of Actuarial Science

Life & Health / Pension

- Society of Actuaries : SOA
- close to 20,000 worldwide ( 90% in U.S.)

Property and Casualty (or Property / Liability)

- Casualty Actuarial Society : CAS
- 3,979 in United States / 4,317 total
P&C Lines of Business
Examples
Homeowners
Earthquake
Automobile
Mortgage
General Liability
Medical Malpractice
Workers Compensation
Products Liability
Reinsurance
 Example Actuarial Problems
- Pricing New Products
- Price Classification
- Modeling Catastrophes
- Strategic Planning
- Graphing Size of Loss Distributions
- Establishing Loss Reserves
- Solvency Monitoring
- Rate Adequacy Studies
- Trending and Development of Losses
- Current Leveling of Premiums
- Credibility Measures
Pricing New Products
Body Piercing Salon Insurance

How
would
you
price
that?
Loss Development
Loss Development
Loss Development
Loss Development
 Graphing
Size of Loss
Distributions
Claim Counts by Size
Lognormal Fit
Modeling Catastrophes
 1992 Hurricane Load - Florida
1992 Florida Homeowners Premium
= $1,000,000,000 ($1 billion)

1992 Florida Homeowners Expected Loss Ratio = 65%

=> Expected Loss Costs
= 65% x $1,000,000,000
= $650,000,000 ($650 million)

Excess Wind Factor = 1.14

Expected Loss Costs = Normal Losses x Excess Wind Factor

=> Normal Losses = $650,000,000/1.14
= $570,000,000

Catastrophe Losses = Total Losses Normal Losses

= $650,000,000 - $570,000,000
= $80,000,000
1992: Hurricane Andrew

Photograph Allan Tannenbaum

Today

Simulation models are used to estimate hurricane risk,

using meteorological data.
 The Costliest Hurricanes
Adjusted to 2004 Cost, Population, and Wealth Levels
KATRINA 2005 > $125 B
Southeastern Florida/Alabama 1926 $102B
ANDREW [SE FL / LA ] 1992 $43B
Northern Texas: Galveston 1900 $37B
Northern Texas: Galveston 1915 $31B
Southwestern Florida 1944 $23B
New England 1938 $24B
SE Florida: Lake Okeechobee 1928 $19B
BETSY [SE FL / LA] 1965 $18B
DONNA [FL / Eastern U.S.] 1960 $17B
CAMILLE [MS / LA / VA ] 1969 $15B
AGNES [NW FL / NE U.S.] 1972 $15B
CHARLEY [SW FL] 2004 $15B
DIANE [NE U.S.] 1955 $14B
IVAN [NW FL / AL] 2004 $14B
HUGO [SC] 1989 $13B
Solvency Monitoring
 1906: San Francisco Earthquake

Only one regional insurance company survived,

offering company stock in place of cash to settle claims.
Today

Earthquake risk is estimated with the help of seismologists.

Losses are reinsured, spreading the risk globally.
Are all losses
predictable?
View from Liberty International Underwriters

October 2001

Photograph by Ivan Rodriguez

 2004 Prediction
National Oceanic and Atmospheric Administration

In virtually every coastal city from Texas

to Maine, the present Tropical Prediction Center Director
(Max Mayfield) former National Hurricane Center Directors
have stated that the United States is building
towards its next hurricane disaster.
The areas along the United States Gulf and Atlantic coasts
where most of this countrys hurricane related fatalities
have occurred are also now experiencing the countrys
most significant growth in population. This situation, in
combination with continued building along the coast,
will lead to serious problems for
many areas in hurricanes.
 Insurer Insolvencies
Annual Guarantee Fund Net Assessments (000s)

A few insurers go insolvent every year for different reasons.

Catastrophes are no longer the leading cause of insolvencies.
Who do actuaries work for?
Insurance companies
Consulting firms
Government insurance departments
Colleges and universities
Banks and investment firms
Large corporations
Public accounting firms
Failure Analysis firms
Reinsurers
Themselves
Who do actuaries work with?
Other Actuaries (e.g. mentors, peers, students)
Underwriting (e.g. pricing large accounts)
Sales (e.g. developing pricing strategies)
Marketing (e.g. retention analyses)
Claims (e.g. loss reserving studies)
Risk Management (e.g. response to loss trends)
Clients / Large Insureds
Reinsurers
 Advantages
to the
Actuarial Profession
High earnings potential
No cost of graduate school no loans to repay
Option to begin retirement savings early to compound it
Advance by examinations no glass ceiling
Advancement opportunities expand throughout career
Professional Interactions Front Office role
Variety of avenues to choose
Newsworthy projects
High demand less sensitive to economic cycles
Job security
Financial Savvy gain personal investing skills
Overall, a highly ranked profession
The Jobs Rated Almanac
ranks careers according to:
Environment
Income
Outlook
Physical Demands
Security
Stress
 Jobs Rated Almanac Top 10
2001

- #1 Financial Planner
- #2 Website Manager
- #3 Computer Systems Analyst

- #4 ACTUARY
- #5 Computer Programmer
- #6 Software Engineer
- #7 Meteorologist
- #8 Biologist
- #9 Astronomer
- #10 Paralegal Assistant
 Jobs Rated Almanac Top 10
2002
- #1 Biologist

- #2 ACTUARY
- #3 Financial Planner
- #4 Computer Systems Analyst
- #5 Accountant
- #6 Software Engineer
- #7 Meteorologist
- #8 Paralegal Assistant
- #9 Statistician
- #10 Astronomer
U.S. News & World Reports
2006

Actuary ranks in the top 25 careers

www.CNNMoney.com
2006

Actuary ranks in the top 50 careers

 Average Earnings
based on level of formal education

High School dropout: $19,182

High School Graduate: $28,631
Some College (no degree): $30,173
Associates Degree: $36.021
Bachelors Degree: $51,568
Masters Degree: $67,073
Doctoral Degree: $93,033
Source: U.S. Census Bureau, Statistical Abstract of the United States, 2007
Table 217 - Mean Earnings by Highest Degree Earned (2004)
 Average Earnings
comparison to the actuarial profession

All professions P&C Actuaries only

average starting salary
BA: $51,568 1 exam: $46 - $61K
MA: $67,073 ACAS: $78,000
Ph.D: $93,033 FCAS: $111,000

Without considering
average debt from student loans

Source: D.W. Simpson Salary Survey of September 2007 (lowest salary, least experience).
The Cost of Graduate School
MBA: $20,000 / year (tuition only)

M.A.: $35,000 / year (all costs)

[ Example: Syracuse Architectural program ]

Ph.D.: Graduate students may receive

a stipend for research or teaching

Without considering
delayed saving for retirement
 Retirement Planning
from age 22
Every $100/month saved for seven years
(length of Ph.D. program) at 10% interest,
by age 65 will amount to $370,714.

Saving 4% of income (increasing from

$38,000/year to $77,000/year), with 2%
employer matching for 7 years at 10%
by age 65 will total over $1 million.
(Caveat: in todays dollars, $1,000,000 = $325,775*)
*Assuming a 3% annual rate of inflation
 Disadvantages
to the
Actuarial Profession
Difficulty of the examination process
Frustrating data problems
Narrow field with high degree of specialization
Confinement to an office (non-consultant)
Required travel and long hours (consultant)
Relocation may be necessary for ACAS or FCAS
May not provide good topics of conversation
 Where do Most P&C Actuaries Live?

Illinois 472 Wisconsin 141

Connecticut 469 Texas 132
New York 412 Minnesota 127
New Jersey 349 Florida 122
California 306 D.C. (MD & VA) 110
Pennsylvania 258 Georgia 108
Massachusetts 202 Washington 78
Ohio 166 Iowa 64
 What are some other choices for
P&C Actuaries to live?

North Carolina 60 Colorado 21

Michigan 51 Indiana 21
Missouri 44 Nebraska 14
Rhode Island 36 Oregon 13
New Hampshire 34 South Carolina 12
Kansas 33 Delaware 11
Arizona 26 Nevada 8
Tennessee 25 Vermont 8
 Where might a P&C actuary be
hard pressed to find a job?

Alabama 6 Idaho 2
Kentucky 6 Montana 2
Louisiana 6 North Dakota 2
Maine 5 Arkansas 1
Hawaii 4 West Virginia 1
Mississippi 3 Oklahoma 0
New Mexico 3 South Dakota 0
Utah 3 Wyoming 0
Alaska 2
 International CAS Members
Canada 340 Germany 7

Bermuda 106 Singapore 7

United Kingdom 42 Taiwan 6

Switzerland 26 France 5

Hong Kong 23 Korea 5

China 16 Cayman Islands 5

Australia 13 Ireland 4
 International CAS Members
South Korea 3 India 1

Israel 3 Italy 1

Brazil 2 Japan 1

Mexico 2 Malaysia 1

Netherlands 2 South Africa 1

British West Indies 1 Spain 1

Egypt 1 Thailand 1
 Two Branches of Actuarial Science
REVISITED

CAS: Casualty Actuarial Society (Property & Casualty)

3,979 in United States / 4,317 total
SOA: Society of Actuaries (Life & Health / Pension)
close to 20,000 worldwide ( 90% in U.S.)

How do I choose
a path?
 In the CAS and SOA,
Exam Parts
1, 2, 3F & 4
are the same.
CAS Exam 1 = SOA Course P
CAS Exam 2 = SOA Course FM
CAS Exam 3F = SOA Course MFE
CAS Exam 4 = SOA Course M

Exam 3L is similar to SOA Exam MFE;

both deal with life contingencies.
 CAS Actuarial Examinations
Basic Education Exams
Exam Topic
1 Probability
2 Financial Mathematics
3 Actuarial Models
3F - Financial Economics
3L - Life Contingencies and Statistics
4 Construction and Evaluation of
Actuarial Models
 CAS Actuarial Examinations
Associate Level Exams (Current)

Exam Topic

5 Introduction to P&C Insurance and Ratemaking

6 Reserving, Insurance Accounting Principles,

Reinsurance, and Enterprise Risk Management

7 Law, Regulation, Government and Industry

Insurance Programs, Financial Reporting
and Taxation (U.S. or Canada)
 CAS Actuarial Examinations
Associate Level Exams (beginning in 2011)
Modules (Internet-Based Courses)
1 Introduction to P&C Insurance, Ratemaking,
and Insurance Operations
2 Law, Regulation, Insurance Accounting
Principals, and Reinsurance

Exam Topic

Basic Ratemaking and Reserving

Law, Regulation, Government and Industry
Insurance Programs, Financial Reporting
and Taxation (U.S. or Canada)
CAS Actuarial Examinations
Fellowship Level Exams
(structure beginning in 2011)

Exam Topic

Investments and Rate of Return

Advanced Reserving, Reinsurance, and
Enterprise Risk Management
Advanced Ratemaking and
Individual Risk Rating Plans
 CAS and SOA
Actuarial Examinations
Exam 1
Probability
A. General Probability
B. Univariate Probability Distributions:
binomial, negative binomial, geometric, uniform,
hypergeometric, Poisson, exponential, Pareto, normal,
chi-square, beta, lognormal, gamma, and Weibull
C. Multivariate Probability Distributions
 CAS and SOA
Actuarial Examinations

Exam 2
Financial Mathematics

A. Interest Theory
B. Finance
Validation by Educational Experience
(VEE)

1. Applied Statistical Methods

2. Corporate Finance

3. Economics
 Skills and Personality Traits
to succeed as an Actuary

Analytic thinking
Problem solving
Good common sense / business sense
Facility with Mathematics
Ability to explain complex ideas
Organized, concise writer
Determination
Independence
Disciplined study habits
Tendency to start projects early
Comfortable using computer programs
like Excel, Access, Word, SAS
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

IABAs 2002 Annual Meeting

Membership in IABA is growing.

 Advancing Diversity
Minority Students:
African American, Latino, or Native American

Scholarships for Minority Students

Individual awards of $500 - $3,000, annually
Demonstrated performance and commitment

Exam Fee Reimbursement for Minority Students

$175 exam fee reimbursed after passing Exam 1

Visit the website www.BeAnActuary.org

Minority Programs: Scholarship applications, exam
fee reimbursement forms, internships, and more.
 Write this down!
The CAS Website: www.casact.org
1. DETAIL OF EXAMS:
Admissions/Exams
20xx Syllabus of Basic Education
Complete Table of Contents
2. ABOUT THE PROFESSION:
www.BeAnActuary.org
3. INTERNSHIPS:
www.BeAnActuary.org/find/interns.cfm
4. VALIDATION BY EDUCATIONAL EXPERIENCE (VEE):
Admissions/Exams
20xx Syllabus of Basic Education
Validation by Educational Experience
5. CURRENT TOPICS:
Professional Education
Meetings and Seminar Handouts
Click Here for the Chronological Listing
The End