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Published on March 12, 2008

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The Actuarial Profession:  The Actuarial Profession An Introduction What is an Actuary?:  What is an Actuary? Is an Actuary a fortune teller?:  Is an Actuary a fortune teller? Is an Actuary a professional gambler?:  Is an Actuary a professional gambler? Doctrine of False Cause:  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:  Two Branches of Actuarial Science Life & Health / Pension - Society of Actuaries : SOA - around 17,000 in United States Property and Casualty (or Property / Liability) - Casualty Actuarial Society : CAS - 3,425 in United States / 3,857 total P&C Lines of Business Examples:  P&C Lines of Business Examples Homeowners Earthquake Automobile Mortgage General Liability Medical Malpractice Workers’ Compensation Products Liability Reinsurance Example Actuarial Problems:  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:  Pricing New Products Body Piercing Salon Insurance:  Body Piercing Salon Insurance How would you price that? Loss Development:  Loss Development Loss Development:  Loss Development Loss Development:  Loss Development Loss Development:  Loss Development Graphing Size of Loss Distributions:  Graphing Size of Loss Distributions Claim Counts by Size:  Claim Counts by Size Lognormal Fit:  Lognormal Fit Modeling Catastrophes:  Modeling Catastrophes 1992 Hurricane Load - Florida:  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:  1992: Hurricane Andrew Photograph © Allan Tannenbaum Slide21:  Today Simulation models are used to estimate hurricane risk, using meteorological data. The Costliest Hurricanes Adjusted to 2004 Cost, Population, and Wealth Levels:  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:  Solvency Monitoring 1906: San Francisco Earthquake:  1906: San Francisco Earthquake Only one regional insurance company survived, offering company stock in place of cash to settle claims. Slide25:  Earthquake risk is estimated with the help of seismologists. Losses are reinsured, spreading the risk globally. Today Are all losses predictable?:  Are all losses predictable? View from Liberty International Underwriters October 2001:  View from Liberty International Underwriters October 2001 Photograph by Ivan Rodriguez 2004 Prediction National Oceanic and Atmospheric Administration:  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 country’s hurricane related fatalities have occurred are also now experiencing the country’s 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:  Insurer Insolvencies A few insurers go insolvent every year for different reasons. Catastrophes are no longer the leading cause of insolvencies. Who do actuaries work for?:  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?:  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:  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::  The Jobs Rated Almanac ranks careers according to: Environment Income Outlook Physical Demands Security Stress Jobs Rated Almanac Top 10 2001:  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:  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 Average Earnings based on level of formal education:  Average Earnings based on level of formal education High School: $12,900 Bachelor’s: $49,700 Master’s: $61,000 Ph.D: $80,000 Average Earnings comparison to the actuarial profession:  Average Earnings comparison to the actuarial profession All professions P&C Actuaries only starting salary BA: $49,700 1 exam: $41 - $53K MA: $61,000 ACAS: $77,000 Ph.D: $80,000 FCAS: $145,000 Without considering… average debt from student loans The Cost of Graduate School:  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:  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 today’s dollars, $1,000,000 = $325,775*) *Assuming a 3% annual rate of inflation Disadvantages to the Actuarial Profession:  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?:  Where do Most P&C Actuaries Live? What are some other choices for P&C Actuaries to live?:  What are some other choices for P&C Actuaries to live? Where might a P&C actuary be hard pressed to find a job?:  Where might a P&C actuary be hard pressed to find a job? International CAS Members:  International CAS Members Two Branches of Actuarial Science REVISITED:  Two Branches of Actuarial Science REVISITED CAS: Casualty Actuarial Society (Property & Casualty) 3,425 in United States / 3,857 total SOA: Society of Actuaries (Life & Health / Pension) around 17,000 in United States How do I choose a path? Slide46:  In the CAS and SOA, Exam Parts 1, 2, & 4 are the same. CAS Exam 1 = SOA Exam P CAS Exam 2 = SOA Exam FM CAS Exam 4 = SOA Exam C CAS Actuarial Examinations:  CAS Actuarial Examinations Associate Level Exams Exam Topic 1 Probability 2 Financial Mathematics 3 Statistics and Actuarial Models 4 Construction and Evaluation of Actuarial Models 5 Introduction to P&C Insurance and Ratemaking 6 Reserving, Insurance Accounting Principles, and Reinsurance 7 Annual Statement, Taxation, Regulation (U.S. or Canada) CAS Actuarial Examinations:  CAS Actuarial Examinations Fellowship Level Exams Exam Topic 8 Investments and Financial Analysis 9 Advanced Ratemaking, Rate of Return, and Individual Risk Rating Plans CAS and SOA Actuarial Examinations:  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:  CAS and SOA Actuarial Examinations Exam 2 “Financial Mathematics” A. Interest Theory B. Finance Validation by Educational Experience (“VEE”):  Validation by Educational Experience (“VEE”) Applied Statistical Methods 2. Corporate Finance 3. Economics Skills and Personality Traits to succeed as an Actuary:  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:  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 :  The International Association of Black Actuaries IABA’s 2002 Annual Meeting Membership in IABA is growing. Advancing Diversity:  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 Reimbursed for successfully passing Exam 1 $175 exam fee reimbursed, up to two times ($350) Visit the website www.BeAnActuary.org Minority Programs: Scholarship applications, exam fee reimbursement forms, internships, and more. Write this down!:  Write this down! The CAS Website: www.casact.org 1. DETAIL OF EXAMS: Admissions 2006 Syllabus of Basic Education CAS Basic Education Summary 2. ABOUT THE PROFESSION: www.BeAnActuary.org 3. INTERNSHIPS: www.BeAnActuary.org/find/atp.cfm 4. VALIDATION BY EDUCATIONAL EXPERIENCE (VEE): Admissions 2006 Syllabus of Basic Education Validation by Educational Experience 5. CURRENT TOPICS: Continuing Education Meeting and Seminar Handouts View the Chronological List Slide57:  The End

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