1. The Actuarial Profession An Introduction

2. What is an Actuary?

3. Is an Actuary a fortune teller?

4. Is an Actuary a professional gambler?

5. 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.

6. 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

7. P&C Lines of Business Examples  Homeowners  Earthquake  Automobile  Mortgage  General Liability  Medical Malpractice  Workers’ Compensation  Products Liability  Reinsurance

8. 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

9. Pricing New Products

10. Body Piercing Salon Insurance How would you price that?

11. Loss Development

15. Graphing Size of Loss Distributions

16. Claim Counts by Size

17. Lognormal Fit

18. Modeling Catastrophes

19. 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

20. 1992: Hurricane Andrew Photograph © Allan Tannenbaum

21. Today Simulation models are used to estimate hurricane risk, using meteorological data.

22. The Costliest Hurricanes Adjusted to 2004 Cost, Population, and Wealth Levels  KATRINA2005 > $125 B  Southeastern Florida/Alabama 1926 $102B  ANDREW [SE FL / LA ] 1992$43B  Northern Texas: Galveston 1900$37B  Northern Texas: Galveston1915$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

23. Solvency Monitoring

24. 1906: San Francisco Earthquake Only one regional insurance company survived, offering company stock in place of cash to settle claims.

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

26. Are all losses predictable?

27. View from Liberty International Underwriters October 2001 Photograph by Ivan Rodriguez

28. 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.”

29. Insurer Insolvencies A few insurers go insolvent every year for different reasons. Catastrophes are no longer the leading cause of insolvencies.

30. 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

31. 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

32. 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

33. The Jobs Rated Almanac ranks careers according to:  Environment  Income  Outlook  Physical Demands  Security  Stress

34. 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

35. 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

36. Average Earnings based on level of formal education  High School: $12,900  Bachelor’s: $49,700  Master’s: $61,000  Ph.D: $80,000

37. Average Earnings comparison to the actuarial profession All professionsP&C Actuaries only starting salary starting salary  BA: $49,7001 exam: $41 - $53K  MA: $61,000ACAS: $77,000  Ph.D: $80,000FCAS:$145,000 Without considering… average debt from student loans

38. 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 … delayed saving for retirement

39. 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

40. 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

41. Where do Most P&C Actuaries Live? Illinois414Wisconsin112 Connecticut397Minnesota109 New York366D.C. (MD & VA)107 New Jersey317Texas102 California266Florida97 Pennsylvania233Georgia94 Massachusetts166Washington64 Ohio130North Carolina46

42. What are some other choices for P&C Actuaries to live? Michigan44Arizona21 Iowa42Indiana19 Missouri41Colorado18 Kansas40Oregon12 Rhode Island35Delaware10 New Hampshire31South Carolina9 Tennessee22Nebraska8

43. Where might a P&C actuary be hard pressed to find a job ? Alabama7Idaho2 Louisiana6Montana2 Maine6Oklahoma2 Nevada6West Virginia2 Kentucky4Arkansas1 Vermont4Hawaii1 Mississippi3North Dakota1 New Mexico3Utah1 Alaska2Wyoming0

44. International CAS Members Canada246China3 Bermuda73Mexico3 United Kingdom31South Korea3 Switzerland22Brazil2 Singapore7Israel2 Taiwan7Barbados (W.I.)1 Australia6Cayman Islands1 France6Italy1 Germany6Japan1 Hong Kong6South Africa1 Ireland4

45. Two Branches of Actuarial Science REVISITED CAS : Casualty Actuarial Society (Property & Casualty) 3,425 in United States / 3,857 total 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?

46. 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

47. CAS Actuarial Examinations Associate Level Exams ExamTopic 1 Probability 1 Probability 2 Financial Mathematics 2 Financial Mathematics 3 Statistics and Actuarial Models 3 Statistics and Actuarial Models 4 Construction and Evaluation of Actuarial Models 4 Construction and Evaluation of Actuarial Models 5 Introduction to P&C Insurance and Ratemaking 5 Introduction to P&C Insurance and Ratemaking 6 Reserving, Insurance Accounting Principles, 6 Reserving, Insurance Accounting Principles, and Reinsurance 7 Annual Statement, Taxation, Regulation 7 Annual Statement, Taxation, Regulation (U.S. or Canada)

48. CAS Actuarial Examinations Fellowship Level Exams ExamTopic 8 Investments and Financial Analysis 8 Investments and Financial Analysis 9 Advanced Ratemaking, Rate of Return, and 9 Advanced Ratemaking, Rate of Return, and Individual Risk Rating Plans

49. 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

50. CAS and SOA Actuarial Examinations Exam 2 “Financial Mathematics” A. Interest Theory B. Finance

51. Validation by Educational Experience (“VEE”) 1.Applied Statistical Methods 2. Corporate Finance 3. Economics

52. 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

53. 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).

54. The International Association of Black Actuaries IABA’s 2002 Annual Meeting Membership in IABA is growing.

55. 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. www.BeAnActuary.org

56. Write this down! The CAS Website: www.casact.org www.casact.org 1. DETAIL OF EXAMS: Admissions 2006 Syllabus of Basic Education CAS Basic Education Summary 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 Continuing Education Meeting and Seminar Handouts Meeting and Seminar Handouts View the Chronological List View the Chronological List

57. The End