What is an Actuary?
by Richard Sieger, CAS Candidate
As a new employee at Century-National Insurance Company, I was invited to Human Resources Orientation. When I introduced myself as an actuary, the orientation leader said, "Our first in-house actuary. We boldly go where we’ve never gone before." In response to inquiries about what an actuary could do for the company, I wrote down some ideas that were printed in the company newsletter. I am happy to share these thoughts with other candidates.
An actuary is a source of information. I get information and I give information. My main job is to use company data to recommend rates that are adequate but not excessive. I do this by using some standard actuarial techniques to come up with a recommended percentage rate change needed to give us enough premiums to cover expected losses and expenses and allow us some profit.
Where does one learn the actuarial techniques? There are actuarial societies that set standards and have ongoing discussions on the actuarial topics. The Casualty Actuarial Society’s purpose is "to advance the body of knowledge of actuarial science in applications other than life insurance." The society teaches actuarial techniques to its "students" by administering very rigorous exams, given every half year. For some exams there are three- or four-day seminars given in some parts of the country, but for the most part it is self-study. A candidate should spend about 400 hours to study for a four-hour exam!
The course of exams presents standard ways to calculate recommended rate levels, loss reserve allocations, profit allowances, contingencies for catastrophes and many other insurance goodies. After one passes all 10 exams, one becomes a Fellow of the Society. Once these techniques are learned, the actuary can recommend proper rates.
But as an actuary, I am only one part of the rating process. Those in underwriting need to make sure the recommended rates won't cause "adverse selection," i.e., they make sure the rates will not bring in risks that could cause large numbers of claims that we cannot adequately cover. Marketing checks to see if we can sell the recommended rates given what the competition charges. The executives also may cite other factors to consider so that our rates will keep us in business. When the underwriters, marketers, executives, and I agree to a rate change, I file the proposed rates, along with some required exhibits, with the state insurance department. If the department questions the filing, I provide more data or negotiate parts of the filing to make it more palatable for the department to give us approval.
Though ratemaking is my main function, I also file new and revised forms with the insurance departments, run exhibits comparing our rates with those of competitors, and research various insurance topics that may be important to the company.
Editor’s Note: An earlier version of this article was shared with CASNET subscribers.