HOW ACTUARIES SEE THE WORLD

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WHAT IS AN ACTUARY?

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PART SUPER-HERO. PART FORTUNE-TELLER. PART TRUSTED ADVISOR.

ACTUARIES ARE EXPERTS IN:

• Evaluating the likelihood of future events—using numbers, not crystal balls.

• Designing creative ways to reduce the likelihood of undesirable events.

• Decreasing the impact of undesirable events that do occur.

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WHAT DO ACTUARIES DO?

WE MANAGE RISK

•Actuaries use a combination of strong analytical skills, business knowledge, and understanding of human behavior to manage today's complex risks facing our society.

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WHAT DOES RISK HAVE TO DO WITH IT?

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THE FUTURE IS UNCERTAIN AND FULL OF RISK.

WHAT IS RISK?

• Risk is the chance that an undesirable event will occur, but risk is also opportunity. That's where we come in.

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YOUR TURN!

Let’s play an insurance game!

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The Setup:•You have $100

• You will buy a house for $60, leaving you with $40; not enough to replace your house if it is destroyed

•You live in an very risky area, so the likelihood of your house being destroyed is once every six years

HOMEOWNERS INSURANCE GAME: Round 1

•Do you want to buy insurance for $10?

• If you buy insurance you will have your home replaced if a storm hits

• If you do not buy insurance and a storm hits, you are out of the game

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BEFORE WE ROLL:•How many bought the insurance?•How many did not buy the insurance?•How many losses might we expect to see?

AUTO PRICING 101HOMEOWNERS INSURANCE GAME: Round 1

OUTCOMES:•Roll the die and note the outcome.•How many losses did we actually observe?•How many homes did insurance replace?•Was anyone knocked out of the game?

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AUTO PRICING 101HOMEOWNERS INSURANCE GAME: Round 2

BEFORE WE ROLL:•Does anyone want to change their insurance buying decision?•How many bought the insurance?•How many did not buy the insurance?•How many losses might we expect to see?

OUTCOMES:•Roll the die and note the outcome.•How many losses did we actually observe?•How many homes did insurance replace?•Was anyone knocked out of the game?

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Is $10 a fair price for this insurance?•The insurance company needs to have enough money to pay for a $60 house when a storm comes.•How many times in 6 years does an insurance company expect to replace a house:1 year in 6.•How much does it cost to replace a house: $60.

AUTO PRICING 101HOMEOWNERS INSURANCE GAME: Discussion

•How much money does an insurance company need to collect over 6 years to pay $60 once?

• $60•How much should the insurance company collect each year to make sure it has collected $60 over 6 years?

• $10

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What happens if we change the rules?•Now a storm happens on rolls 3 and 4•How many times in 6 years do we expect a loss?

• Die rolls of 3 and 4• 2 years in 6

•How much is a loss?• $60

AUTO PRICING 101HOMEOWNERS INSURANCE GAME: Round 3

•What is the insurance company’s expected loss over 6 years?

• 2 x $60 = $120•How much does the insurance company need to collect each year to make sure it has collected $120 over 6 years?

• $120 / 6 = $20

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Why did the cost of insurance double?•The likelihood of a loss doubled

• In round 1, the likelihood was 1 loss in 6 years.

• In round 2, the likelihood was 2 losses in 6 years

AUTO PRICING 101HOMEOWNERS INSURANCE GAME: Round 3

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What happens if we change the rules?•Now a storm happens on a roll of 1, but it costs $30 to replace a house•How many times in 6 years do we expect a loss?

• Die roll of 1• 1 year in 6

•How much is a loss?• $30

AUTO PRICING 101HOMEOWNERS INSURANCE GAME: Round 4

•What is the insurance company’s expected loss over 6 years?

• 1 x $30 = $30•How much does the insurance company need to collect each year to make sure it has collected $30 over 6 years?

• $5 = $30 / 6

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Why did the cost of insurance decrease by half?•The size of a loss was reduced by half

• In round 1, the size of a loss was $60.

• In round 2, the size of a loss was $30.

AUTO PRICING 101HOMEOWNERS INSURANCE GAME: Round 4

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Concepts:•How often claims happen is called frequency•The size of a claim is called severity•Frequency times severity is the cost of claims

• One claim every six years times $60 per claim = $60 per 6 years = $10 per year

HOMEOWNERS INSURANCE GAME: Discussion

•Insurance companies have many more factors to consider:

• Age of home• Geography• How the home was built• What the competitors

are charging

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WHERE DO ACTUARIES WORK?

LIFE AS AN

ACTUARY…

WHAT’S GREAT ABOUT THE PROFESSION?

WHY DID YOU BECOME AN ACTUARY?

WHAT IT’S LIKE …

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NOT JUST INSURANCE.

Although insurance companies can’t function without actuaries, that’s not the only place you’ll find us.

• Consulting• The Government• Rating bureaus • Colleges and universities • Banks and investment firms • Public accounting firms

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WHAT’S GREAT ABOUT THE PROFESSION?

TOP-RANKED JOB

•No matter the source, actuary is consistently rated as one of the best jobs. US News and World Report, the Jobs Rated Almanac, CNN Money, and others all agree.

GREAT SALARY

•Actuaries are well compensated. Experienced fellows have the potential to earn from $150,000 to $250,000 (USD) annually, and many actuaries earn more than that. •Actuaries earn while they learn. An entry level actuary with 1-2 exams passed will bring in a starting salary of $45-$65,000 (USD) depending on region.

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WHAT’S GREAT ABOUT THE PROFESSION?

JOB SECURITY:

•Actuaries enjoy certainty in uncertain times. We're always in demand as the world confronts risk.

LIFE IN BALANCE:

•More than a fulfilling career, being an actuary allows you to maintain a low-stress, highly sought-after work/life balance.

MAKE AN IMPACT:

•Actuaries manage today's complex risks facing our society.

WHAT IS AN ACTUARY

WHERE WILL I LIVE?

GEOGRAPHIC REGIONCAS

MEMBERSHIP (%)SOA

MEMBERSHIP (%)

United States 84.6 68.6

Canada 8.6 17.6

International members 6.8 13.8

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WHERE WILL I LIVE?

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WHY DID YOU BECOME AN ACTUARY?

• How I found out about the profession

• Why I became an actuary

• What I like best about being an actuary

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LET’S COVER SOME

BASICS…

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HOW DO I GET STARTED?

If you want to be an actuary, start preparing now!

• Follow a college preparatory curriculum of high school classes.

• Take math classes every year.

• Take advantage of Advanced Placement (AP) and advanced courses such as statistics and calculus.

• Enroll in computer science courses to develop your computer skills.

• Explore colleges and universities that offer actuarial science curriculum.

• Look into scholarship opportunities.

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WHAT ABOUT COLLEGE?

• Among the college majors you might choose: actuarial science, math, statistics, economics, business and finance.

• Your equation for success should include the following courses:- finance- microeconomics and macroeconomics- calculus - linear algebra - calculus-based probability and statistics - actuarial science courses, as available - computer science courses - business courses, such as marketing - communication courses, such as speech, business writing and

technical writing

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HOW DO I STAND OUT?

While you’re hitting the books, don’t forget to

• Apply for scholarships. There are a number of scholarships open exclusively to actuarial students.

• Look for internship opportunities. An internship will give you a head start on an actuarial career with relevant work experience.

• Get involved with your actuarial or math club, if your school has one.

• Talk to an actuary.

• Start taking exams!

DIVERSITY

PROGRAMS…

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TO DO THIS, WE ACTIVELY SUPPORT:

• Summer actuarial programs for high school students so students can get comfortable with the profession.

• Reimbursements for qualified minority students who pass either of their first two exams.

• Opportunities for those who want more guidance on what it takes to be a professional in today’s economy.

• Scholarship opportunities are available from the Actuarial Foundation and other organizations.

FIND OUT MORE…

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QUESTIONS?