Transcript Presentation Title - Penn State Actuarial Science Club

CASstudentcentral.org
Rising in the Actuarial
Profession through the CAS
CASstudentcentral.org
September 7, 2016
Gina Badowski, FCAS
Peter Hohman
Outline
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What is an Actuary?
What skills are needed to be an Actuary?
What is the difference – CAS and SOA?
How do you become an Actuary?
What do Property/Casualty Actuaries do?
How can I find out more?
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Outline
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What is an Actuary?
What skills are needed to be an Actuary?
What is the difference – CAS and SOA?
How do you become an Actuary?
What do Property/Casualty Actuaries do?
How can I find out more?
CASstudentcentral.org
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What is an Actuary?
 A business professional who deals with the
financial impact of risk and uncertainty
 Analyzes, manages and measures the financial
implications of future risk
 Develops and validates models and
communicate results to guide decision-making
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Areas of Work
 Insurance Industry
 Property and casualty (P/C)
 Life and annuities
 Employee Benefit Industry
 Retirement benefits
 Health benefits
 Financial Services Industry
 Banks, investments, risk management
 Mergers & Acquisitions
 Government
 Social Security
 Regulation of insurance companies
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Typical Actuarial Projects
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Property/Casualty: Estimating the amount of money
to be set aside for insurance claims that have not
been paid
Life Insurance: Designing and pricing life insurance
products
Health Benefits: Setting HMO premium rates.
Retirement Systems: Pricing the cost of increasing
retirement benefits
Finance & Investments: Portfolio diversification
studies
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Outline
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What is an Actuary?
What skills are needed to be an Actuary?
What is the difference – CAS and SOA?
How do you become an Actuary?
What do Property/Casualty Actuaries do?
How can I find out more?
CASstudentcentral.org
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What Skills are Needed?
 Keen analytical, project management and problem
solving skills
 Good business sense
 Solid communication skills (oral & written)
 Strong computer skills
 Knowledge of math and finance
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Actuarial Skill Set:
A Question of Balance
 Technical Competence
 Ability to apply actuarial techniques
 Synthesis skills
 Critical thinking/informed judgment
 Ability to communicate effectively
 Relevance: A business perspective
 Articulate judgments, assumptions, limitations
 Audience may vary – Sr. Management vs. Peers
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Outline
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What is an Actuary?
What skills are needed to be an Actuary?
What is the difference – CAS and SOA?
How do you become an Actuary?
What do Property/Casualty Actuaries do?
How can I find out more?
CASstudentcentral.org
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CAS and SOA
 Two learned bodies
 Casualty Actuarial Society (CAS), focus on property/casualty
 Society of Actuaries (SOA), traditional focus on life, health,
and pensions
 Very different theoretical focus
 P&C – loss generation much less certain
 Life – generally loss producing phenomenon reasonably
known
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Casualty Actuarial Society
 World’s only actuarial organization focused
exclusively on property and casualty risks
 100-year track record in training property/casualty
actuaries
 Nearly 7000 members worldwide, and growing
 Vibrant, growing community with deep and extensive
resources to help CAS members, candidates, and
students advance their careers; strong employer
support
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Salaries for FCAS vs. Other Actuarial
Designations
$200,000
$180,000
$160,000
$140,000
Other
FCAS
$120,000
$100,000
$80,000
4 Years
Exp
8 Years
Exp
12 Years 15 Years
Exp
Exp
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Membership Statistics
CAS Member Growth
2004-2015
8000
7000
6000
5000
4%
5%
5%
2005
2006
2007
6%
6%
2008
2009
6%
1%
3%
2010
2011
2012
7%
8%
6%
4000
3000
2000
1000
0
2004
2013
2014
2015
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CAS Members by Type of Employment
P&C Insurers
Consultants
Reinsurance
Other Retired
Service
Org's
Brokers & Agents
Academic
Government
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Outline
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What is an Actuary?
What skills are needed to be an Actuary?
What is the difference – CAS and SOA?
How do you become an Actuary?
What do Property/Casualty Actuaries do?
How can I find out more?
CASstudentcentral.org
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CAS Syllabus to Reach ACAS
Required CAS Learning Objectives
Met Through Following Exams
CAS Exams
– P—Probability
– FM—Financial Mathematics
– MFE—Models for Financial
Economics
– C— Construction and
Evaluation of Actuarial
Models
– Exam S – Statistics and
Probabilistic Models
– Exam 5—Basic Techniques for
Ratemaking and Estimating
Claim Liabilities
– Exam 6—Regulation and
Financial Reporting (Nation
Specific)
– Actuarial Institute of Chinese Taipei,
Canada, and United States
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Current CAS Syllabus to Reach FCAS
ACAS plus:
 Exam 7—Estimation of Policy Liabilities, Insurance Company
Valuation, and Enterprise Risk Management
 Exam 8—Advanced Ratemaking
 Exam 9—Financial Risk and Rate of Return
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Exam S – Statistics and Probabilistic
Models
 Topics and coverage:
 A. Probability Models (Stochastic Processes & Survival
Models) 20-40%
 B. Statistics (2nd semester of a 2-semester
undergraduate course on Probability and Statistics) 2040%
 C. Extended Linear Models (NEW!) 25-40%
 D. Time Series with Constant Variance (ARIMA) 5-10%
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Outline
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What is an Actuary?
What skills are needed to be an Actuary?
What is the difference – CAS and SOA?
How do you become an Actuary?
What do Property/Casualty Actuaries do?
How can I find out more?
CASstudentcentral.org
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What do Property/Casualty Actuaries do?
 Ratemaking
 Reserving
 Predictive modeling
 Reinsurance
 ERM
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Trends
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Liability and property risks arise daily
Digitalization and “big data”
Increasingly sophisticated predictive models
Enterprise risk management, terrorism
Globalization, international businesses and risks,
global instability
Climate change, volatility, crop insurance
Population shifts, hazard prone areas
Social media, automated vehicles, healthcare
Unmanned commercial aircraft, cyber liability, the
aging population
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Outline
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What is an Actuary?
What skills are needed to be an Actuary?
What is the difference – CAS and SOA?
How do you become an Actuary?
What do Property/Casualty Actuaries do?
How can I find out more?
CASstudentcentral.org
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You’re Invited…
join online today at
www.CASstudentcentral.org
CASstudentcentral.org
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CAS Student Central
 Membership program for university students:
 No Membership fee
 Access to resources including P&C internship listings,
CAS Curriculum Guide, Case Studies, Online Community
 Free webinars created specifically for students
 Invitations to free networking events including student
programs at CAS meetings and Seminars
 Approximately 3,796 student members from 391
schools
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CAS Curriculum Guide
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CAS Case Studies
 Case Study Topics:
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Probability
Catastrophe Modeling
Warranties
Liabilities
Auto Insurance
 Case Studies include Facilitator’s Guide,
Presentation Slides, Recording, and Excel
Workbook
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CAS Student Central
Online Community
 Future Focus Blog shares insights and tips
(example posts):
 CAS to Roll Out New Statistics Preliminary Exam
 Strategies to Assist with Your Job Search – Advice from
Actuarial Recruiters
 A Scholarship That Pays in More Ways Than One
 Connect with other student members
 CAS member directory will give you a sense of how
far and wide, broad and deep our network is.
 Receive latest news and updates from the CAS
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Educational Opportunities for
Student Central Members
 Webinars held fall and spring semesters
 Topics have included: Predictive Analytics, Excel and R for
Actuaries, and Career Paths in the Property and Casualty
Actuarial Profession
 Student programs at CAS meetings/seminars:
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CAS Spring and Annual Meetings
Ratemaking and Product Management Seminar
Seminar on Reinsurance
Casualty Loss Reserve Seminar
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Additional Resources for Students
Beyond CASstudentcentral.org
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CAS - casact.org
Be An Actuary - BeAnActuary.org
American Academy of Actuaries - actuary.org
Salary Surveys
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ezrapenland.com
dwsimpson.com
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CAS Trust Scholarship Program
casact.org/trustscholarship
 Scholarship for students pursing a career in casualty actuarial
science.
 Up to 3 scholarships awarded per academic year
 1st Place Scholarship: $10,000
 Runner-Up Scholarships: $5,000 each if selected
 Winners Attend the 2016 CAS Annual Meeting in Orlando Florida
 Application opens in December and is due March 1, 2016
 Includes: application, essay, recommendation letters, and official transcript
 Winners Announced May 2016
 Visit the CAS website for eligibility requirements
 Must be a member of CAS Student Central and have sat for 1 actuarial exam
To learn about other scholarship opportunities explore
CASstudentcentral.org and BeAnActuary.org!
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CASstudentcentral.org
CASstudentcentral.org
Liability Case Study
What are Liabilities?
Money you owe
 Personal:
 Student loans
 Auto loans
 Mortgages
 Insurance Company: Future payments associated with
events that have occurred
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Insurance Liabilities
Examples of Insurance Liabilities
 Auto: Accident has occurred but car is not yet repaired
 Workers’ Compensation: Injury has occurred but
further medical care is required
 Medical Malpractice: Error has occurred but claim has
not been resolved
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Importance of Liabilities
Liabilities are a big deal to P&C insurers
 They total $XX billion in U.S. This is about $YY for
each person in the U.S.
 Setting aside money to offset liabilities means insurers
will have enough money to fulfill their promises, like
paying for damaged autos and medical care for injured
workers.
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How Actuaries Estimate Liabilities
 Assume historical payment, reporting, and other
patterns are indicative of the future
 Adjust for changes that may make future patterns
different from those of the past
 We will demonstrate the paid development method,
but there are many methods. You may invent you
own…
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Historical Payments
Payments by Year
Accident Year
Paid in 2010
Paid in 2011
Paid in 2012
2010
100
50
30
110
55
2011
2012
120
Cumulative Payments by Valuation Date
Accident Year
As of 12/31/10
As of 12/31/11
As of 12/31/12
2010
100
150
180
110
165
2011
2012
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Payment “Triangle”
Cumulative Payments by Valuation Date
Accident Year
As of 12/31/10
As of 12/31/11
As of 12/31/12
2010
100
150
180
110
165
2011
2012
120
Cumulative Payments by “Age”
Accident Year
As of 12 Months
As of 24 Months
As of 36 Months
2010
100
150
180
2011
110
165
2012
120
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Finding Patterns in Payments
Cumulative Payments by “Age”
Accident Year
As of 12 Months
As of 24 Months
As of 36 Months
2010
100
150
180
2011
110
165
2012
120
Paid Age to Age Ratio: Ratio of Increase in Payments
Accident Year
12 to 24 Months
24 to 36 Months
2010
1.50
1.20
2011
1.50
2012
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Using Patterns to Project Future
Payments
Cumulative Payments by “Age”
Accident Year
As of 12 Months
As of 24 Months
As of 36 Months
2010
100
150
180
2011
110
165
2012
120
180
Paid Age to Age Ratio: Ratio of Increase in Payments
Accident Year
12 to 24 Months
24 to 36 Months
2010
1.50
1.20
2011
1.50
2012
1.50
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Using Patterns to Project Future
Payments
Cumulative Payments by “Age”
Accident Year
As of 12 Months
As of 24 Months
As of 36 Months
2010
100
150
180
2011
110
165
198
2012
120
180
216
Paid Age to Age Ratio: Ratio of Increase in Payments
Accident Year
12 to 24 Months
24 to 36 Months
2010
1.50
1.20
2011
1.50
1.20
2012
1.50
1.20
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Estimating Liabilities
Accident Year
Ultimate Cost
Paid to Date
(12/31/12)
Liabilities
(12/31/12)
2010
180
180
0
2011
198
165
33
2012
216
120
96
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Net Present Value (NPV)
 Reflects that $1 today does not have the same value
as $1 in the future
 Adjustment for NPV depends on investment rate of
return and length of time
 Example: Assume 3% return, 1 year
 $1 today is worth $1.03 a year from now
 $1 a year from now is worth $0.971
(= 1/$1.03) today
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NPV Factors (Assume Payments are
Mid-Year)
 2013 Payments made throughout the year
 Assume average payment date of 7/1/13
 For 12/31/12 Liabilities, 2013 payments are paid in ½ year (on
average)
 Discount factor = 0.985 (=1/1.031/2)
 2014 Payments made throughout the year
 For 12/31/12 Liabilities, 2014 payments are paid in 1.5 years
(on average)
 Discount factor = 0.957 (=1/1.031.5)
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Timing of Future Payments
Cumulative Payments by “Age”
Accident Year
As of 12 Months
As of 24 Months
As of 36 Months
2010
100
150
180
2011
110
165
198
2012
120
180
216
$33 Paid on AY 2011 during CY 2013
$60 Paid on AY 2012 during CY 2013
$36 Paid on AY 2012 during CY 2014
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Calculating NPV Liabilities
Calculation of NPV Liabilities
Accident Year
Payment Year
Payment
NPV Factor
NPV Payment
2011
2013
$33
0.985
$32.5
2012
2013
$60
0.985
$59.1
2012
2014
$36
0.957
$34.4
Total
$129
$126.1
NPV Payment = Payment x NPV Factor
$99 Total Undiscounted Paid in CY 2013
$36 Total Undiscounted Paid in CY 2014
Average discount factor = 0.978 (= 126.1 / 129)
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Displaying NPV Liabilities
as of 12/31/12
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NPV: Impact of Payment Pattern
NPV of Long-Tailed Coverage (Example Workers’ Compensation)
Year of
Payment
% of Liability
Paid in the
Year
2013
17%
0.985
2014
15%
0.957
2015
13%
0.929
2016
12%
0.902
2017
11%
0.875
2018
10%
0.850
2019
9%
0.825
2020 & Beyond
13%
0.801
Total (Avg.)
100%
0.900
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NPV Rate
@3.0% per
Year
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NPV: Impact of Annual Discount Rate
3% versus 1% Annual Discount Rate
Year of
Payment
% of Liability
Paid in the
Year
2013
17%
0.985
0.995
2014
15%
0.957
0.985
2015
13%
0.929
0.975
2016
12%
0.902
0.966
2017
11%
0.875
0.956
2018
10%
0.850
0.947
2019
9%
0.825
0.937
2020 & Beyond
13%
0.801
Total (Avg.)
100%
0.900
0.928
0.965
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NPV Rate
@3.0% per
Year
NPV Rate
@1.0% per
Year
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Impact of “Tail” Development
Liabilities Where Payout Ends at 8 Years
Accident Year
Projected
Ultimate Loss
Loss Paid to
Date
12/31/12
Liabilities
12/31/12
2005
100
100
0
2006
100
95
5
2007
100
85
15
2008
100
70
30
2009
100
65
35
2010
100
40
60
2011
100
25
75
2012
100
5
95
Total
800
485
315
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Impact of “Tail” Development
Liabilities with 10% Still Unpaid (“tail”) at 8 Years
Accident Year
Projected
Ultimate Loss
Loss Paid to
Date
12/31/12
Liabilities
12/31/12
2005
110
100
10
2006
110
95
15
2007
110
85
25
2008
110
70
40
2009
110
65
45
2010
110
40
70
2011
110
25
85
2012
110
5
105
Total
880
485
395
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10% increase in
“tail” lead to 25%
increase in
liabilities
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Calculating Ultimate Loss: Paid
Development Method
Ultimate
Loss
Unpaid
(Liabilities)
Paid
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Calculating Ultimate Loss: Reported
Loss Development Method
Reported
Loss
Ultimate
Loss
“IBNR”
Case
Reserves
Case
Reserves
Paid
Paid
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Probability Case Study
[Date of Presentation]
[Name of Presenter]
Purpose and General Information:
Purpose is to introduce the generalized
concepts of
Insurance
Making a rate
Variation
Should take 15-30 minutes including
discussion
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Basketball and Insurance
A Problem:
 I own the local arena and I want more
people to attend basketball games.
 I decide to hold a single Half-Time HalfCourt shot every game to entice people.
 Win a brand new $30,000 car if you sink it!
 There are 50 games a year in the arena
 Could get expensive over 50 games! How
can I afford it if the shot is made?
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The Discussion:
 I have a friend named Bob - he solves business
problems.
 He knows of an insurance company that would
pay the cost of the new car every game in
exchange for some money today.
 Bob says he’ll ask them how much they would
charge and if the deal goes through, his fee
would be $5,000.
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The Insurance Company’s Analysis:
 New car is given out each
time a shot is made
 The likelihood of someone
making a shot from half court
 Total number of games
during the year
 $30,000
 1 in 25
 50
 What is the average/mean
payout?
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All
 $60,000
How did they get $60,000?
 If we ask 25 people to take a shot, on average only
one will get it in.
 If we ask 50 people to take a shot, on average only
two will get it in.
 Since we have 50 games, on average 2 new cars will
be given away.
 2 cars @ $30,000 each = $60,000.
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Does the Insurance Company charge
$60,000?
 Simple answer… No!
 Bob has brought this deal together and he needs his
fee of $5,000
 The Insurance Company is spending some time and
effort to do the analysis and that is worth $15,000
 Total amount charged = $80,000
 Amount Charged Per Game = $1,600
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My Reaction to the Solution:
 Half-Time Half-Court show will draw larger crowds
to the games
 I’ll sell more tickets, soda, snacks, etc.
 If I gave a car out every game it would cost
$1,500,000 which I cannot afford
 The Insurance Company will cover every new car
for only $1,600 per game cost to me?
 Where do I sign?
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Solve On Your Own Challenge
 $100,000 Cash is given out
each time a shot is made
 $100,000
 The likelihood of someone
making a shot from half
court
 1 in 100
 Total number of games
during the year
 50
 What is the average/mean
payout?
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 Society.
$$$$?
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All
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Total Amount Charged?
Bob brought this deal together and he needs
to be paid $1,000
The Insurance Company is spending some
time and effort to do the analysis and that is
worth $8,000
Total amount charged = $?
Amount Charged Per Game = $
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