Ask an Actuary

"My job today is more management than it is actuarial... On a day-to-day basis, my job involves a lot of communication with other areas throughout the company, such as our regional offices, on pricing-related issues."

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 Richard Yocius, Senior Actuary at Allstate Insurance Company.

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

A: I first learned about the profession in my last year of high school. At the time, I wanted to go to college and major in business, but happened to do pretty well in math. While I was in school, I continued to research the profession, and the more I learned, the more interested I became. I really wasn't fully committed that I was going into the career until my senior year in college. I interviewed both for actuarial jobs as well as other positions that used math and statistics in a business context. Once I started talking with actuaries at various companies, I became convinced that this is what I wanted to do.

Q: Who or what influenced your decision?

A: While I was researching the profession, I learned a lot from two sources. First, Hewitt Associates here in the Chicago area puts on a seminar every year for aspiring actuaries to learn more about the profession. I found this to be very informative and it answered a lot of my questions. In addition, I had been having conversations with a Life actuary about a possible internship. I never got the internship, but in the process I learned more about the profession and what actuaries really do.

Ultimately, my decision to become an actuary stemmed from the fact that, while I did all right in math, I really didn't want a career that centered around it. The idea of sitting around all day and "doing math" didn't appeal much to me. I saw the actuarial profession as an opportunity to use math aptitude in a business environment.

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

A: I graduated from Northern Illinois University in DeKalb, IL with majors in Mathematics and Economics. My Math major was with a concentration in Probability and Statistics.

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: Obviously the math/statistics classes are important to succeeding as an actuary. You'd have a much harder time getting through the exam process without them. Outside the exams, though, it is not the textbook stuff that you learn in math classes that helps as much as the problem solving skills you gain. The math education helps you to learn how to analyze and solve problems. I don't recall the last time I needed to take a derivative or integrate a function. There are many computer applications that can be used to do a regression analysis. Yet the ability to understand these concepts is what helps you approach the unique problems you face.

I got a lot out of the business classes I took. I enjoyed the classes I took as part of my Economics major. Computer science classes help you learn some programming skills, but I wouldn't load up on them because your employer probably won't use the languages you learn anyway.

I was disappointed with what I got out of my communications courses in college. I got more out of subsequent activities, such as participation in Toastmasters, which helped improve my public speaking skills.

Aside from math and business classes, I enjoyed a lot of the elective classes I took. I took a course offered by the philosophy department called Symbolic Logic. It really helped in understanding cause-effect relationships and in communicating precisely. I enjoyed a physics class I took because the professor made it interesting. A geology class I took helps when my kids start talking about dinosaurs from the cretaceous period. A course in football officiating comes in handy on Sunday afternoons and Monday nights. I even took a non-credit bartending course. What I guess this all comes down to is that college is a great opportunity to broaden your horizons and learn about a lot of things. I would encourage students to take advantage of that opportunity to its fullest.

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: I started my career at Nationwide Insurance in Columbus, Ohio. I had received a job offer from a Life insurance company, and intended to go there until I got a call from a Northern Illinois alumnus at Nationwide who got one of the many letters I sent out. The company and the work seemed much more interesting to me. My biggest concern was moving away from the Chicago area. I remember the plane trip back, after having received a job offer. I sat next to a local, small-time country music singer who called himself Grizz Sawbuck (no lie). Apparently, Grizz told me enough about the Columbus area to convince me that it was worth a shot! In retrospect, I'm very happy with the decision.

The work I did early in my career was mostly doing ratemaking for personal property lines.

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

A: I took Part 1 (what the Society of Actuaries now calls 100) a couple of times in college. I didn't take it seriously enough, and failed both times. I finally passed it on my 3rd attempt one week after finals my Senior year. After that, I got some momentum going and finished in seven years. I got my FCAS designation when I passed the Part 10 exam in May, 1991.

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

A: At Nationwide, I did mostly personal property ratemaking, with a little automobile pricing thrown in. I started there in 1984. At the end of 1988, I joined Allstate in our Allstate Indemnity affiliate, which writes non-standard (high risk) auto insurance. Since then, I've been involved in all the personal lines of insurance at one time or another, as well as some work on a corporate reengineering effort and on a cross-functional team.

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

A: I am currently a Director responsible for personal automobile pricing for about a quarter of the country. My job today is more management than it is actuarial, although the actuarial piece is still very important. On a day-to-day basis, my job involves a lot of communication with other areas throughout the company, such as our regional offices, on pricing-related issues. I also work with our Legal team in evaluating proposed and enacted legislation in those states for which I am responsible.

Q: How long have you been in the profession?

A: I started right out of college in June, 1984.

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

A: First, I would suggest that you have a real serious conversation with yourself and those around you about whether you are committed to the exam process. They are difficult exams that require a significant sacrifice of your personal life. That not only affects you, but also your spouse, kids, etc. Without a doubt, the rewards are worth it for those that complete the process, but you've got to make sure that those rewards are worth the sacrifices for you personally.

Second, make those sacrifices early. The things in life that you need to give up early in your career may seem important now, but they may not be as important as the things you would have to give up later. I'm so glad that I was almost done by the time my wife and I decided to have children. Now I can coach a T-ball team or go to a band concert without feeling that I really should be studying.

Q: Do you use what you learned from Exams 9 and 10 during your job or do you find Exams 9 & 10 helpful in doing your daily work?--Elie Massaad

A: Part 9 has two sections. One is Advanced Costing and Pricing Techniques and the other is Individual Risk Rating. The latter is used mainly for large, commercial customers. Since I work in personal lines, I don't use this very often, but it helps that I understand what it is. The Advanced Pricing concepts are helpful in our analysis as we evaluate new rating plans and consider modifications to existing plans.

The Part 10 material really helped me pull together how a lot of what we do as actuaries ties into the other aspects of the insurance business. It was one of my favorite exams. To do our job, actuaries need a good understanding of the financial operations of insurance, and this exam covers them well. Most major insurers either purchase or sell reinsurance, which is another topic on this exam. This exam helped in my understanding of the various types of reinsurance, how they are priced, and how reserves are set.

Q: I have two questions, what are the factors that you use in determining rates, etc. and what mathematical formulas do you use?

A: The Casualty Actuarial Society has established principles which guide actuaries in establishing rates. You can access the Statement of Principles Regarding Property and Casualty Insurance Ratemaking CAS Download Library. (You'll need Adobe Acrobat Reader, which you can download for free from that same site.) Included in these are considerations that commonly apply to setting rates.

Briefly, what actuaries attempt to do in setting rates is to estimate the costs of the insurance product in advance and price it appropriately. This is different from pricing a manufactured product. If you were setting a price for a car, for example, you would know how much the materials cost, what you had to pay workers to build the car, the cost of transporting the car to the dealer, etc. and could set a price from there. For an insurance policy, you are setting the rate in advance and you won't know the cost until after the policy is sold -- sometimes long after. In addition, the cost of providing the insurance product varies by customer. Generally, the car costs the same to build regardless of who is going to purchase it. For an auto insurance policy, a bad driver will cost the insurance company more than a good driver.

What actuaries typically do is look at recent loss experience and attempt to use it to predict what those future costs will be. In doing that, we need to adjust that past data for unusual losses (such as catastrophes) as well as our estimate for future inflation. We also need to contemplate other changes which may be occurring. Was there are law change that will affect future costs, such as a change in speed limits? Are drivers driving more safely? What is the effect of safety devices in cars?

As far as mathematical formulas are concerned, each actuary or company uses variations of some basic relationships. If you want to learn more about these, I'd recommend you look at the textbook Foundations of Casualty Actuarial Science, which is available from the Casualty Actuarial Society. This textbook is well-written by practicing actuaries. The first few chapters will give you a good flavor for the types of calculations that actuaries use as the foundation of our work.

Q: I have considered looking for a graduate program in Actaurial Science. Do you recommend graduate programs as a means for passing exams or would you recommend passing the exams while starting an Actuarial career? Thank you.

A: Your question is one on which different actuaries will have different opinions. You specifically ask whether you should pursue a graduate degree for the purpose of passing exams. If passing exams is the only reason you are considering an advanced degree, I would advise against it. A graduate program probably wouldn't help you with the early exams, which cover concepts like Calculus and Applied Statistics, because most of this is taught at the undergraduate level. For the higher exams, I believe you would learn more from working in an actuarial job than you would in a graduate program. Plus, most actuarial employers would have good support programs including paid study time, access to materials, peers to study with, etc.

Few actuarial employers require graduate degrees. While having a graduate degree may give you an advantage over other job candidates, I have seldom seen that advantage being the deciding factor of one candidate over another. You may have other valid reasons for pursuing a graduate degree, such as the personal satisfaction that comes with it. If that is the case, go for it. I wouldn't do it solely to help with exams or in the hopes of securing a better job.