Brought to You By: 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 insurance products. Life Insurance: Designing and pricing life insurance products. Property & Casualty: Estimating the amount of money to be set aside for insurance claims that have not been paid. Property & Casualty: Estimating the amount of money to be set aside for insurance claims that have not been paid. Health Benefits: Setting HMO premium rates. Health Benefits: Setting HMO premium rates. Retirement Systems: Pricing the cost of increasing retirement benefits. Retirement Systems: Pricing the cost of increasing retirement benefits. Finance & Investments: Portfolio diversification studies. Finance & Investments: Portfolio diversification studies.

Contrast SoA & CAS Two learned bodies Two learned bodies  Society of Actuaries (SoA), focus on life, health, & pensions  Casualty Actuarial Society, focus on non- life Very different theoretical focus Very different theoretical focus  Life – generally loss producing phenomenon reasonably known  P&C – loss generation much less certain

Simple Coverage - Life Single premium life policy Single premium life policy  Pay fixed amount now to receive specified benefit at time of death Know Know  Whether there will be a payment  How many payments  The amount of payment Do not know when Do not know when

Simple Policy – P&C Automobile collision insurance Automobile collision insurance  Pays to repair damage if car is damaged in collision in next year Known Known  Not much Unknown Unknown  Whether there will be a claim  If so, how many  If so, how much will it cost  If so, when will it happen

P&C Methods Underlying processes often not well understood (or understandable) Underlying processes often not well understood (or understandable) Methods historically have been ad-hoc Methods historically have been ad-hoc Average as well as distribution of outcomes important Average as well as distribution of outcomes important Need to communicate uncertainty Need to communicate uncertainty Modern approaches beginning to incorporate stochastic approaches Modern approaches beginning to incorporate stochastic approaches

CAS Statistics (2007) AssociatesFellowsTotal P&C Insurer 6921,3762,068 Consultant Retired Other ,360 Total1,5053,0534,558

Where do Most P&C Actuaries Live? Illinois433Wisconsin127 Connecticut421Texas124 New York390Minnesota121 New Jersey328Georgia105 California285Florida100 Pennsylvania241DC, MD, VA99 Massachusetts190Washington67 Ohio160Iowa62

What are some other choices for P&C Actuaries to live? Michigan49Arizona19 N. Carolina48Colorado18 Missouri43Indiana17 Rhode Island32Nebraska13 Kansas31S. Carolina12 New Hampshire30Delaware10 Tennessee25Oregon8

Where might a P&C actuary be hard pressed to find a job ? Nevada7Utah3 Vermont7Alaska2 Alabama6Mississippi2 Kentucky6North Dakota2 Louisiana5Arkansas1 Hawaii4Idaho1 Maine4Montana1 New Mexico3Oklahoma1

International CAS Members Canada333France3 Bermuda100Ireland3 United Kingdom39Israel3 Hong Kong24Brazil1 Switzerland24British West Indies1 China13India1 Australia9Malaysia1 Taiwan6Mexico1 Cayman Islands5South Africa1 Germany5Spain1 Republic of Korea5The Netherlands1 Singapore5

Some Typical P&C Jobs Conducting studies of insurance rates. Conducting studies of insurance rates. Estimating the amount of money to be set aside for insurance claims that have not been paid. Estimating the amount of money to be set aside for insurance claims that have not been paid. Participating in various aspects of corporate planning. Participating in various aspects of corporate planning. Calculating a fair price for a new insurance product. Calculating a fair price for a new insurance product. Forecasting the impact of catastrophes. Forecasting the impact of catastrophes. Implementing and monitoring investment programs. Implementing and monitoring investment programs.

Traditional Ratemaking (or simply, Pricing)

Auto Pricing 101 ABC Insurance Company insures 1,000 eighteen year old drivers. ABC Insurance Company insures 1,000 eighteen year old drivers. Assume 300 of the 1,000 have accidents within a year. Assume 300 of the 1,000 have accidents within a year. Assume the average repair cost for each accident is $500. Assume the average repair cost for each accident is $500. How much should ABC charge each of the eighteen year olds for a one year car insurance policy? How much should ABC charge each of the eighteen year olds for a one year car insurance policy?

Auto Pricing 101 Total premiums paid should equal the total estimated cost of the accidents. Total premiums paid should equal the total estimated cost of the accidents. Total estimated cost of the accidents = 300 x $500 = $150,000 Total estimated cost of the accidents = 300 x $500 = $150,000 Total premium paid = total cost of accidents Total premium paid = total cost of accidents Total premium paid = $150,000 Total premium paid = $150,000 $ amount of premium for each driver = $150,000/1,000= $150 $ amount of premium for each driver = $150,000/1,000= $150

Actuarial Project Car Insurance Assume 400 of the drivers are males and 200 of the accidents involve males. The remaining 100 accidents involve females. Assume 400 of the drivers are males and 200 of the accidents involve males. The remaining 100 accidents involve females. Should the females be charged the same premium as the males? Should the females be charged the same premium as the males? What premium should be charged the males? the females? What premium should be charged the males? the females?

Actuarial Project Car Insurance Total males’ premium = 200 accidents x $500 per accident = $100,000 Each male’s premium = $100,000 / 400 males = $250 Total males’ premium = 200 accidents x $500 per accident = $100,000 Each male’s premium = $100,000 / 400 males = $250 Total females’ premium = 100 accidents x $500 per accident = $50,000 Each female’s premium = $50,000 / 600 females = $83.33 Total females’ premium = 100 accidents x $500 per accident = $50,000 Each female’s premium = $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 Size

Lognormal Fit

Modeling Catastrophes

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 nKATRINA2005 > $125 B nSoutheastern Florida/Alabama 1926 $102B nANDREW [SE FL / LA ] 1992$43B nNorthern Texas: Galveston 1900$37B nNorthern Texas: Galveston1915$31B nSouthwestern Florida 1944$23B nNew England 1938$24B nSE Florida: Lake Okeechobee 1928$19B nBETSY [SE FL / LA] 1965$18B nDONNA [FL / Eastern U.S.]1960$17B nCAMILLE [MS / LA / VA ]1969$15B nAGNES [NW FL / NE U.S.]1972$15B nCHARLEY [SW FL]2004$15B nDIANE [NE U.S.]1955$14B nIVAN [NW FL / AL]2004$14B nHUGO [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.

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

Insurer Insolvencies 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

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.”

Advantages to the Actuarial Profession nHigh earnings potential nGraduate school not required – no loans to repay nAdvance by examinations – no “glass ceiling” nAdvancement opportunities expand throughout career nProfessional Interactions – “Front Office” role nVariety of avenues to choose nNewsworthy projects nHigh demand – less sensitive to economic cycles nJob security nOverall, a highly ranked profession

Jobs Rated Almanac Ranking is based on six criteria: Income Outlook Stress 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 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 Prerequisites Prerequisites  Calculus  Linear Algebra Validation by Educational Experience Validation by Educational Experience  VEE credits are obtained through college courses, standardized exams, approved educational experiences, and transitional exams for:  VEE - Applied Statistical Methods  VEE - Corporate Finance  VEE - Economics

Preliminary Education Structure Cont’d. Preliminary Examinations Preliminary Examinations  Exam 1/P: Probability  Exam 2/FM: Financial Mathematics  Exam 3: Statistics and Actuarial Models (or SOA Courses MFE and MFC)  Exam 4/C: Construction and Evaluation of Actuarial Models In addition to the preliminary education, each society has additional requirements to become an associate

CAS Associateship Exams Part 5 – Introduction to P&C Ratemaking Part 5 – Introduction to P&C Ratemaking Part 6 – Reserving, Accounting, Reinsurance and Enterprise Risk Management Part 6 – Reserving, Accounting, Reinsurance and Enterprise Risk Management Part 7 – Nation-specific, financial statements, taxation, regulation Part 7 – Nation-specific, financial statements, taxation, regulation Professionalism Course Professionalism Course

CAS Fellowship Exams Part 8 – Investments & Financial Analysis Part 8 – Investments & Financial Analysis Part 9 – Advanced Ratemaking, Individual Risk Rating, Rate of Return Part 9 – Advanced Ratemaking, Individual Risk Rating, Rate of Return

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 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 Meeting Membership in IABA is growing.

Advancing Diversity nMinority Students: uAfrican American, Latino, or Native American nScholarships for Minority Students uIndividual awards of $500 - $3,000, annually uDemonstrated performance and commitment nExam Fee Reimbursement for Minority Students uReimbursed for successfully passing Exam 1 u$175 exam fee reimbursed, up to two times ($350) nVisit the website Minority Programs: Scholarship applications, exam fee reimbursement forms, internships, and more.

Actuarial Web Resources To learn more about the actuarial profession, visit Visit the Casualty Actuarial Society on the Web - or the Society of Actuaries on the Web -