Ask an Actuary

"Always maintain a sensitivity to the needs and perspectives of those that rely on your work product."

Every other month a different casualty actuary will be asked to describe the path that led him/her to an actuarial career. This month's actuary is Daniel Roth, who works in the Research and Special Projects Department at CNA.

Q: When did you first decide to become an actuary?

A: When I was a sophomore in college, majoring in math and education, I attended a presentation on the actuarial profession given in the math building by some outside actuaries. The profession sounded interesting, so I began to pursue additional information, learning about the type of work and the exam process. I took and passed Part 1 during the Spring of my junior year, but I wasn't convinced that I would abandon teaching for the actuarial path until early in my senior year.

Q: Who or what influenced your decision?

A: From my research, I learned that most actuarial work was not pure number crunching or pure research, but was work that applied math skills to a variety of real-world applications. Particularly interesting to me was the descriptions of interactions with non-actuaries; I always felt that one of my personal strengths was the ability to present mathematical concepts to non-math-oriented people. Of course, the fact that salaries were often directly tied to exam performance, so that actuaries had a lot of control over how much money they made, placed the profession in a fairly positive light.

Q: What is your educational background? Where did you attend college and what was your major?

A: I attended Northwestern University in Evanston, IL. I started as a theatre major, but quickly realized that I was more drawn to sporting events than to plays, suggesting a switch to something else. Since I had always had proficiency in mathematics, I chose it as a major, adding coursework in education with the intention of pursuing work in teaching. When I decided on the actuarial career and received my first job offers, I dropped my remaining education requirements and graduated early with a Bachelor of Arts in Mathematics.

Q: What classes did you take in college that helped prepare you for the career? What class was most helpful? What classes outside of math and statistics (such as communications) were helpful?

A: Clearly my Probability and Statistics course and my Calculus course were extremely helpful in getting me ready for what were, at that time, the first two exams. However, most of the knowledge that has propelled my career has been learned on the job. I was extremely glad that, in college, I took classes that were interesting to me rather than loading up on career-related courses. I took courses in religion, theatre, sociology and human development, all of which helped solidify my skills at approaching different types of problems and different types of people in an effective way.

Q: What was your first job in the profession? How did you get the job? Did you start as an intern or in an actuarial training program? What type of work did you perform in you first actuarial job?

A: At the time I was pursuing my first job, the Society of Actuaries published a list of employers. I simply went down the list and phoned the listed contacts. This garnered two job interviews. My third interview came about as a result of a visit to my Probability and Statistics class by an actuary from a local company during my senior year. I mentioned that I had already been pursuing actuarial work and he arranged for an interview at his company. I received offers from all three, accepting the third.

In my first position, I arrived just after my unit had completed a countrywide rate filing for dental professional liability rates. My job was to prepare responses to state insurance departments who were questioning the calculation of the rate indications. I had to learn what was done and why, and then I needed to write up responses that answered the states' concerns. In many cases, the insurance department representatives that I had to convince were not actuaries.

Q: When did you take your first exam? How long did it take for you to get through the exam process?

A: My first exam was taken as a junior in college. I had varying levels of success on subsequent exams, eventually passing my last exam 13 years later.

Q: What was your career path from your first job to your current position?

A: After dental professional liability pricing, I rotated into our statistical research area. Then I was promoted to manager of the commercial property/package pricing unit. After stints in similar managerial positions supporting commercial automobile and workers compensation, I was promoted to be director of the three commercial pricing units supporting all commercial lines except workers comp. After a reorganization which focused my work solely on commercial general liability, I moved to my current position, which is in our actuarial research and special projects unit.

Q: What type of work do you do on a day-to-day basis in your current position?

A: Part of my work is supporting merger/acquisition activities, which includes performing reserve analyses of potential targets and/or acting as the actuarial member of the due diligence teams charged with determining proper valuations. I am also coordinator for our annual study of unallocated loss adjustment expense reserves. Recently, I have become active in our Dynamic Financial Analysis modeling efforts.

Q: How long have you been in the profession?

A: I've been in the profession a little over 12 years, all at the same company.

Q: What advice would you give to someone first starting out?

A: The main piece of advice I give to students looking into actuarial work is: Know what you're getting yourself into. Having math skills and good communication skills gives you a good base from which to start, but in order to be successful, you have to have the ability and determination to get through the exam process, while at the same time always maintaining a sensitivity to the needs and perspectives of those that rely on your work product.

Q: Which would you say was your most difficult exam, and why?

A: Part 8 (Tort Law/Regulation) was the most difficult for me to pass, primarily because I had trouble getting a handle on what was required in order to get full credit on the essay questions. When a candidate fails, the exam committee gives some guidance as to which questions resulted in lost points, but not why. On other exams, where problems tended to be more calculation-oriented, I was able to figure out what I missed and correct such deficiencies in subsequent attempts. I didn't find this to be the case with Part 8.

Q: How many exams are there, and if you fail can you retake the test?--La Tonya Williams

A: With regard to the second part of your question, the answer is "Yes." You can retake any exam as often as you like. A key issue for many candidates, though, is who pays the costs. If you are employed as an actuary, your employer most likely will have some sort of program that covers the costs of exams and/or study materials, perhaps subject to some limitation on the number of times the company will pay for you to take a particular exam. Some employers simply reimburse costs for any exam you pass, so that the costs of all of your attempts except the last one will come out of your own pocket. For the cost conscious, note that many of the study materials are available for free loan from the CAS. In addition, the CAS offers discounted exam fees for full-time students.

As far as the number of exams, beginning in the year 2000, there will be Nine 'Exams'. Currently, though, there are 10 'Parts', some of which are broken into sub-parts. The current exam structure can be found online in the Syllabus Summary. The new structure can be found in the Draft CAS Syllabus Outline.

Remember that these sites only discuss exams for casualty actuaries. For life, health and pension actuaries, there is an entirely different structure, although it will be changing to a structure that will be more closely aligned with that of the CAS beginning in 2000. Visit the Society of Actuaries web site for more information.

Under the new structures, Exam 1 through Exam 4 will be the same for both societies. If you've already passed some exams of either the SoA or CAS, you may want to read about the Transition Rules that apply between the current and new structures.

Q: I have several questions for Mr. Roth: What made you specialize into P&C side rather than life? And, what do you think are the reasons for there being so few P&C actuaries? Actually, I am an actuarial science student in Hong Kong. Some life actuaries have told me that P&C insurance firms can do business without employing actuaries. Is this true?--Cheung Hung Francis

A: Great! 3 for the price of 1. Here are my answers. In case you're wondering, the current data on membership comes from the 1998 Directory of Actuarial memberships and the historical data I picked off the CAS and SoA web sites.

1. What made me specialize in PC?

In looking for my first job, I interviewed on both the life and casualty side, not knowing which way I would go. Through those interviews, I got much of the same impressions that you might have seen or heard in discussions on this topic. Namely, casualty insurance tends to deal with less understood, constantly changing forms of contingencies (catastrophes, mass tort, social inflation in the court system, etc.), while the modeling of life contingencies is much more well understood. As a result, the cutting-edge work on the life side is more heavily focused on the various methods of funding contingencies rather than on the contingencies themselves, although both disciplines require knowledge of both elements. I also learned that there are many fewer casualty actuaries than life. As an individual who often prefers to take "the road less traveled", the combination of murky waters coupled with a smaller pool of colleagues tilted me to prefer a casualty appointment. Different people have different desires, though, and I should point out that almost all actuaries I've talked to on both sides of the house are happy on the side they're on.

2. Why are there so few P/C actuaries?

I assume that the question is directed at why there are few P/C actuaries relative to life actuaries. One might also ask why there are so few actuaries relative to other professions, to which I would answer that the reason is probably because it's a profession whose services are actively recruited by only one segment of the economy, insurance. As the actuarial profession becomes more prominent, it may well be that other industries will realize the value that actuaries can bring to their businesses and the number of actuaries will grow at a faster rate.

As to the relative size of the life and P/C actuarial professions, I can't say that I have a definitive answer, but I offer the following points that might be contributing factors:

1. It depends on how you count . For several years now, a life actuary has been eligible to join the SoA at about half-way through the exam process, while on the casualty side membership isn't offered until a candidate is at least 70% complete. I suspect that the ratio of the number of society members to the number of people performing actuarial work, by discipline, is very different between life and P/C, so that the actual ratio of "life actuaries" to "P/C actuaries" is much less than the 5:1 ratio determined by looking only at the societies' membership lists.

2. One of the supply drivers of actuaries is actuarial degree programs at various universities. These are almost exclusively geared toward the life side, so that a very large portion of people coming out of college into the career may prefer to build careers as life actuaries.

3. I have a perception that there are more life/health companies than property/casualty companies and/or that a higher percentage of them require actuaries on staff. I think this is especially true outside the U.S. The non-U.S. membership of the SoA is over 16 times the non-U.S. membership of the CAS.

It could also be a function of age. One of the precursors to the current SoA was the Actuarial Society of America, which was founded in 1889. Another organization that pre-dated the SoA was the American Institute of Actuaries, which was founded in 1909. These two merged in 1949 to form the SoA. The Casualty Actuarial and Statistical Society of America (later shortened to the current CAS) didn't come on the scene until 1914, starting with 97 members. The ASA/AIA membership, noted to be at 283 five years earlier, was likely well over 300 by that time.

By the way, I did note that, looking at recent membership figures, and taking into account the comment above about workers vs members, it's very possible that the two disciplines have grown at close to the same average rate over the past 84 years. (Aren't you glad you asked an actuary!)

3. Can P/C firms do business without employing actuaries?

Certainly. There are many small property/casualty companies that do not have any actuaries on staff. To the extent these companies require actuarial services, for example, in the preparation of actuarial statements of opinion on their reserves, they purchase the resources of actuarial consulting firms.

Q: (1) Is there more math on the CAS exams than the SOA exams? and, if not, then (2) Are the CAS exams 6 and higher clear enough for someone to understand by himself?--Elie Massaad

A: Although math skills are important for actuaries, there is a lot more to actuarial work than being able to perform intricate analyses. Almost all actuaries work in environments that require them to produce results that are used by business decision-makers, who often will not be actuaries themselves. Accordingly, both the CAS and SoA exams focus on the practical application of actuarial science concepts to business problems. As to which track has more math emphasis, it is difficult for me to say because I have not taken any SoA exams beyond the introductory level. However, my perception is that the SoA exams have a slightly greater emphasis on mathematical formulas. In particular, I don't think the SoA has anything that excludes mathematical concepts to the extent of the current CAS Part 8, which covers almost no formulas.

With regard to the second part of your question, most of the material on higher-level exams presumes a level of knowledge commensurate with someone who has already passed lower exams. The clarity of the material for a given exam, then, is dependent on the background of the individual looking at the material. I would say that, regardless of one's raw ability, it would be very difficult to pass any of the higher-level exams without a thorough understanding of the earlier topics, either through study or experience. Regardless, in almost all cases, the more you study the material, the clearer it becomes. I would suspect that the above is true for higher-level SoA exams, too.