Math 477568 Casualty Actuarial Mathematics

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Math 477/568 Casualty Actuarial Mathematics

• Fall 2009
• University of Illinois at Urbana-Champaign
• Professor Rick Gorvett
• Session 1 Introduction and Overview
• August 25, 2009

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Agenda

• Welcome
• Syllabus
• The actuarial profession
• The casualty actuarial profession
• Membership
• Traditional functions
• Emerging areas
• The P/C insurance industry

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Syllabus

• Course goals and context
• Class schedule
• Readings and assignments
• Guest presentations
• Projects
• Grading

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What is an Actuary?The Technical Definition

• Someone with an actuarial designation
• Property / Casualty
• FCAS Fellow of the Casualty Actuarial Society
• ACAS Associate of the Casualty Actuarial
  Society
• Life
• FSA Fellow of the Society of Actuaries
• ASA Associate of the Society of Actuaries
• Other
• EA Enrolled Actuary
• MAAA Member, American Academy of Actuaries

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What is an Actuary?Better Definitions

• One who analyzes the current financial
  implications of future contingent events
• - p.1, Foundations of Casualty Actuarial
  Science
• Actuaries put a price tag on future risks. They
  have been called financial architects and social
  mathematicians, because their unique combination
  of analytical and business skills is helping to
  solve a growing variety of financial and social
  problems.
• - p.1, Actuaries Make a Difference

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Membership Statistics (Nov., 2008)

• Casualty Actuarial Society
• Fellows 3,269
• Associates 1,549
• Total 4,818
• Society of Actuaries
• Fellows 12,223
• Associates 8,015
• Total 20,238

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Casualty Actuariesby Type of Employment

• Insurance companies 2,278
• Reinsurers 584
• Consultants 940
• Organizations serving insurance 193
• Brokers and agents 125
• Government 88
• Academic 22
• Other 289
• Retired 299

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CAS Exams Advanced Topics

• Insurance policies and coverages
• Ratemaking
• Loss reserving
• Insurance accounting
• Reinsurance
• Enterprise risk management
• Insurance taxation and regulation
• Investments and financial analysis
• Advanced ratemaking

Exam 5
Exam 6
Exam 7
Exam 8
Exam 9
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History of the CAS

• Founded in 1914
• (Big plans for the centennial in 2014!)
• Initial concern workers compensation
  (introduced in 1911)
• Functions
• Membership standards (e.g., exams, code of
  conduct)
• Communications with public
• Seminars, research
• In academia, still the minority presence

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Traditional Actuarial Functions

• Loss reserving
• Co.s policyholders have had occurrences (or
  incidents or claims)
• Actuary determines the aggregate dollars that
  will ultimately be paid out on those occurrences
• Ratemaking
• A risk (or insured or policyholder) has an
  exposure to loss
• Actuary determines the rate (cost per unit of
  exposure)
• Premium exposure rate

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Recent Developments inActuarial Practice

• Risk return, and other financial applications
• E.g., ROE, ALM, insurance securitization
• Dynamic financial analysis
• An approach to modeling the interaction between
  insurance and financial operations
• Enterprise risk management
• Holistic approach to identifying, quantifying,
  and managing risk

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How Well Do We Do All This?

• Insurance Actuaries A Crisis of Credibility
• Issued by Standard Poors, November, 2003
• Some quotes
• Perpetual additions to reserves are an
  indication that all is not well with insurers
  assessments of their future payouts, but it is
  time to examine how actuaries contribute to the
  problem, according to Standard Poors
  analysts.
• Actuaries are signing off on reserves that
  turn out to be wildly inaccurate,
• reserve shortfalls dont just happen
  overnight. What happened to all the reserving
  opinions signed by actuaries in prior periods?

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The Actuarial Professions Response

• CAS Memorandum summarizing visit with SP
  SP acknowledged that they deliberately used
  flamboyant language in the article in order to
  get the attention of the reader. As strange as
  it seems, they say they did not want to impugn
  actuaries. In fact, their concern is that the
  voice of the actuary (internal or external) is
  not being heard by company managements.
• AAA news release SP report is fundamentally
  flawed.

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The Property / CasualtyInsurance Industry

• Industry facts and numbers
• Companies
• Lines of business
• Very nice resource Insurance Information
  Institute (iii) website www.iii.org

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Next Time

• Risks and Risk Theory
• Risks and risk management
• Description of risk
• Management of risk
• Control and financing of risk
• Risk theory
• Utility theory
• Ruin theory
• Solvency issues