It’s no secret that actuarial exams are hard. In fact, that’s an understatement. For many of us, actuarial exams are one of the biggest challenges we’ll ever face. Countless hours go into preparing for these exams, and it can be difficult to stay motivated. But perhaps the most rewarding aspect of taking exams is knowing that at the end of your journey, you will have mastered key mathematical concepts that will enable you to solve real-world problems. So, how do these topics actually get used in the daily work that actuaries do? 

With this column, we’re bringing back a Future Fellows series with a fresh perspective. in June 2021, “Exams In Real Life” or “Exams IRL” was begun as a way to examine how content from CAS exams are used on the job in real life. Up first in our rebooted series is Modern Actuarial Statistics-I (MAS-I). 

The first of the Associate-level exams, MAS-I covers a wide array of fundamental statistics that are invaluable to actuarial analyses. The key concepts tested on MAS-I include probability models (stochastic processes and survival models), statistics and extended linear models. Following, we list just a few of the ways that these topics on MAS-I can be used in real-world situations. 

• Parameter estimation can apply in many aspects of actuarial work. For preexisting data, loss curves can be fitted. But for a new line of business or market segment, or in the event that an insurer’s data isn’t very homogeneous, it may be necessary to use parameter estimation in various pricing exercises, such as estimating loss proxies and assessing rate adequacy. Parameter estimation can also be useful in reserving through derivation of parameters for loss curves that enable actuaries to estimate future losses for a specific line of business or exposure. 
• Understanding the life tables and being able to calculate simple whole life or annuities are crucial to pricing workers’ compensation policies and calculating pension reserves. 
• Poisson processes are used as the a priori assumption for frequency models for frequency-severity simulations on loss sensitive individual risk rating contracts. 
• Generalized linear models (GLMs) are widely employed in personal lines pricing because of the large number of interactions that can occur between rating variables. Being able to build and evaluate a GLM is key to determining where rating variables need to be removed or introduced. 
• Modeling claim frequency and severity is helpful when pricing commercial risks with limited data. These distributions can be fitted to incomplete datasets, like situations where loss data is truncated at a policy limit. 
• Several MAS-I topics are tested again at a deeper level on later CAS exams, so you’ll want to build a strong understanding of these fundamentals. Limited expected values come up again on Exam 5 in order to calculate increased limit factors. Exam 7 revisits fitting a loss curve and building and analyzing QQ plots. Exam 8 revisits residual plots and AIC & BIC criteria. These advanced topics have many applications. 

As you study, remember that the work you are putting in now will pay off in the form of a passed exam or new credential, and it will give you the ability to apply these techniques to solving real-world problems. The work actuaries do is invaluable not only to the insurance industry, but to society as a whole. 

If you found this article helpful, keep an eye out for the rest of our Exams IRL series!