ActuarialProfession0 607

40 %
60 %
Information about ActuarialProfession0 607
Education

Published on March 14, 2008

Author: Maurizio

Source: authorstream.com

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? 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 of Actuarial Problems:  Example of 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 Modeling Catastrophes:  Modeling Catastrophes Slide8:  Exposure is increasing in risk prone areas Climatological influences - frequency and severity of storms Rating agency models Need for quick action Growing Reliance on Risk Transfer What Changed? Exposure Is Increasing in Risk Prone Areas:  Exposure Is Increasing in Risk Prone Areas Percent Change in U.S. Population: 1990 - 2004 Cumulative Home Price Changes Since January 2000 by Region +45% +104% +74% +37% +25% +33% +31% +57% +68% +27% Slide10:  1975-1989 Storm Tracks Slide11:  1990-2005 Storm Tracks 1992: Hurricane Andrew:  1992: Hurricane Andrew Photograph © Allan Tannenbaum Slide13:  Today Simulation models are used to estimate hurricane risk, using meteorological data. Slide14:  Components of the Model “The whole is greater than the sum of its parts.” Science Module: Physical characteristics about the catastrophe (factors include: wind speeds, landfall location, magnitude, location of fault, liquefaction potential). Engineering Module: Estimates the effect of catastrophic events on different types of structures (factors include: age of structure, construction type, attachment anchoring). Slide15:  Components of the Model (continued) “The whole is greater than the sum of its parts.” Insurance Module: Estimates the insured damage at a location (factors include: guaranteed replacement cost multiplier, deductible, reinsurance limits). Slide16:  Considerations of Model Inputs “Whatever goes in...” Models use estimates of current costs of expected future exposures instead of historical data. Originally, exposure data was not collected specifically to be used in catastrophe modeling which can significantly impact a model’s results. Slide17:  Model Output “…must come out.” Average Annual Losses: An estimate of the amount a company needs to collect from policyholders each year to fund long-run catastrophe losses. Loss Costs: Roughly, how much of an individual homeowner’s premium is earmarked for catastrophic loss. Slide18:  Model Output (continued) “…must come out.” Distribution of Losses: The probability distribution that a company will experience losses less than or equal to a specified amount used either to estimate parameters when the form of the distribution has been assumed, or to create an empirical loss distribution. Exceeding Probability Distribution: Represents the probability that a client company’s portfolio of risks will experience losses greater than a given amount. Slide19:  Model Output (continued) “…must come out.” Individual Event Losses: Shows the event characteristics as well as detailed estimates on the losses for a specific simulated catastrophic event for a specified portfolio or risks. Historical Event Losses: Characteristics of a particular historical event are used to simulate the loss experience for a specific exposure distribution, typically the client’s current distribution. Slide20:  Model Validation and Evaluation “Because you can never be too sure.” Accuracy and Comparison to Historical Data: Compare modeled results to actual results for a historic event. Convergence: Confirm the model was calculated using sufficient iterations. Slide21:  Model Validation and Evaluation (continued) “Because you can never be too sure.” Expert Opinion/Peer Review: Confirm that modelers disclose the extent to which the model has been verified or substantiated by independent expert opinion. Input Data Provided by Company: Modelers should perform validation checks on provided data and disclose how invalid data is treated in their model. Slide22:  Model Validation and Evaluation (continued) “Because you can never be too sure.” Logical Relationship to Risk: Verify that modeled loss costs increase as exposure to potential loss is assumed to increase and should decrease as exposures decrease. Model Updates: Verify that modelers update zip code databases on a regular basis. Slide23:  Model Validation and Evaluation (continued) “Because you can never be too sure.” Probabilistic Range: Verify that models produce results over ranges that can be reasonable expected. Sensitivity: Test to see how a change in input or in a model parameter affects the outputs. Stability: Verify that sampling and aggregation have a negligible contribution to error. 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.” And in 2005…:  And in 2005… Katrina, Rita, and Wilma (along with several other named storms that made landfall) Loss Development:  Loss Development Loss Development:  Loss Development Loss Development:  Loss Development Loss Development:  Loss Development 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 A Word From My Boss:  A Word From My Boss ''Insurance is one of the greatest modern inventions of humankind,'' said Eric Dinallo, New York’s Insurance Superintendent. ''Insurance companies make modern risk-taking, which is what capitalism is based in, possible.'' New York Times, 6/1/07 Auto Insurance – Where Do Those Rates Come From?:  Auto Insurance – Where Do Those Rates Come From? Should my credit score determine how much I pay for Automobile Insurance? Slide34:  What is “Insurance Scoring?” Why Do Insurers Use Credit Info? The Science Behind Scoring Review of the Evidence Relationship Between Credit & Income Insurance Scoring:  Insurance Scoring What is “Insurance Scoring”? Insurance scores are HIGHLY accurate predictors of future loss in auto and homeowners insurance Insurance scores provide an objective, accurate and consistent tool that insurers use with other applicant information to better anticipate claims Why Do Insurers Use Credit Information?:  Why Do Insurers Use Credit Information? Why Insurers Use Credit Information :  Why Insurers Use Credit Information There is a strong correlation between credit standing and loss ratios in both auto and homeowners insurance. There is a distinct and consistent decline in relative loss ratios (which are a function of both claim frequency and cost) as credit standing improves. The relationship between credit standing and relative loss ratios is statistically irrefutable. Source: Insurance Information Institute. Why Does It Work?:  Why Does It Work? Personal Responsibility Responsibility is a personality trait that carries over into many aspects of a person’s life It is reasonable to believe that the responsibility required to prudently manage one’s finances is associated with other types of responsible and prudent behaviors, for example: Proper maintenance of homes and automobiles Safe operation of cars Stability It is reasonable to believe that financially stable individuals are likely to exhibit stability in many other aspects of their lives. Stress/Distraction Financial stress could lead to stress, distractions or other behaviors that produce more losses Risk & Loss Accounting for Differences in Losses by Risk Characteristics Makes Insurance Pricing More Equitable:  Risk & Loss Accounting for Differences in Losses by Risk Characteristics Makes Insurance Pricing More Equitable Gender of Drivers Involved in Fatal Auto Accidents, 2000:  Gender of Drivers Involved in Fatal Auto Accidents, 2000 Source: National Safety Council Interpretation: Males are 69% more likely to be driving in fatal auto accidents. Should this be ignored and females be forced to subsidize males? OF COURSE NOT! Age of Drivers Involved in Auto Accidents, 2000:  Age of Drivers Involved in Auto Accidents, 2000 Source: National Highway Traffic Safety Administration, Traffic Safety Facts 2000. Interpretation: Drivers age 16-20 are 2 to 3 times more likely to be involved in auto accidents. Should this be ignored with better, more experienced drivers subsidizing teenagers? OF COURSE NOT! Credit Quality & Auto Insurance*:  Credit Quality & Auto Insurance* Interpretation Individuals with the lowest scores have losses that are 32.4% above average; those with the best scores have losses that are 33.3% below average. Should those who impose less cost on the system be forced to subsidize those who impose more? Source: Tillinghast Towers-Perrin *Actual data from sampled company. More examples are given later in this presentation. Review of the Evidence: History, Studies, Data & Analyses:  Review of the Evidence: History, Studies, Data & Analyses Casualty Actuarial Society Credit Study:  Casualty Actuarial Society Credit Study Source: Casualty Actuarial Society Major Auto Company Analysis of Credit and Loss Ratio*:  Major Auto Company Analysis of Credit and Loss Ratio* *Average loss ratios for new auto policies written over a 3-year period. Interpretation: Those with poorest credit scores generated losses more than double that of those with the best scores Homeowners Company A:  Homeowners Company A Probability that Correlation Exists: 99.32% Source: Tillinghast Towers-Perrin Homeowners Company C:  Homeowners Company C Probability that Correlation Exists: 99.62% Source: Tillinghast Towers-Perrin Homeowners Insurance: Statistical Correlation:  Homeowners Insurance: Statistical Correlation Homeowners univariate analyses Number of adverse public records Months since most recent adverse public record Number of trade lines 60+ days delinquent in last 24 months Number of collections Number of trade lines opened in the last 12 months Data Used in Fair, Isaac Homeowners Analysis 1.23 Million policies in data base 1,000,000 policies without claims 230,000 with claims 11 Archives Statistical Correlation Homeowners HO - 3:  Statistical Correlation Homeowners HO - 3 Source: Fair, Isaac Interpretation: Existence of adverse public records correlated with higher loss ratios Statistical Correlation Homeowners HO - 3:  Statistical Correlation Homeowners HO - 3 Source: Fair, Isaac Interpretation: Higher number of delinquencies correlated with higher loss ratios Personal Auto Insurance: Statistical Correlation:  Personal Auto Insurance: Statistical Correlation Personal Auto Univariate Analyses Number of adverse public records Months since most recent adverse public record Number of trade lines 60+ days delinquent in last 24 months Number of collections Number of trade lines opened in the last 12 months Data Used in Fair, Isaac Personal Auto Analysis 1.35 Million policies in data base 1,000,000 policies without claims 350,000 with claims 6 Archives Statistical Correlation Personal Auto:  Statistical Correlation Personal Auto Source: Fair, Isaac Interpretation: Higher number of trade credit lines opened correlated with higher loss ratios EPIC Study (June 2003 NAIC Meeting):  EPIC Study (June 2003 NAIC Meeting) Analyzed random sample of claim records totaling 2.7 million earned car years from all 50 states for period from 7/1/00 through 6/30/01 3 MAJOR FINDINGS: 1. Insurance scores were found to be correlated with the propensity of loss (primarily due to frequency) 2. Insurance scores significantly increase accuracy of the risk assessment process, even after fully accounting for interrelationships with other variables. 3. Insurance scores are among the 3 most important risk factors for each of the 6 coverage types studied Indicated Relative Pure Premium by Insurance Score (PD Liability)*:  Indicated Relative Pure Premium by Insurance Score (PD Liability)* Interpretation: Those with poorest credit scores had loss experience 33% above average while those with the best scores had loss experience that was 19% below average Source: EPIC Actuaries, June 2003 Importance of Rating Factors by Coverage Type:  Importance of Rating Factors by Coverage Type Source: The Relationship of Credit-Based Insurance Scores to Private Passenger Automobile Insurance Loss Propensity Michael Miller, FCAS and Richard Smith, FCAS (EPIC Actuaries), June 2003 (Presented at June 2003 NAIC meeting). The Relationship Between Income and Credit Score:  The Relationship Between Income and Credit Score Wealthy Americans Have the Highest Debt as a % of Disposable Income:  Wealthy Americans Have the Highest Debt as a % of Disposable Income Source: Federal Reserve; Wall Street Journal, “Debt Problems Hit Even the Wealthy,” Oct. 9, 2002, p. D1. It is a myth that only lower-income people have problems managing their debt Link Between Income & Score Not Readily Apparent:  Link Between Income & Score Not Readily Apparent Note: Range of possible scores is 300 to 900. Source: Experian; Insurance Information Institute. Score Rank = 1 Income Rank = 41 Score Rank = 2 Income Rank = 10 Score Rank = 3 Income Rank = 42 Score Rank = 4 Income Rank = 19 Score Rank = 5 Income Rank = 6 Nevada ranks last (51st) in credit score but 18th in income Now That You Know What Actuaries Do….:  Now That You Know What Actuaries Do…. A little more about who they are. 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 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 Financial Savvy – gain personal investing skills Overall, a highly ranked profession 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) May not provide good topics of conversation Subject of unflattering jokes 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 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/Exams 2007 Syllabus of Basic Education Syllabus Summary 2. ABOUT THE PROFESSION: www.BeAnActuary.org 3. INTERNSHIPS: www.BeAnActuary.org/find/atp.cfm 4. VALIDATION BY EDUCATIONAL EXPERIENCE (VEE): Admissions/Exams 2007 Syllabus of Basic Education Validation by Educational Experience 5. CURRENT TOPICS: Professional Education Meetings and Seminar Handouts “Click Here for the Chronological Listing” Slide76:  The End

Add a comment

Related presentations