University of Illinois Finance 230 – Intro to Insurance A Career as a Property/Casualty Actuary

University of IllinoisUniversity of Illinois Finance 230 – Intro to Insurance Finance 230 – Intro to Insurance

A Career as a Property/Casualty ActuaryA Career as a Property/Casualty Actuary

Presentation byPresentation by

Gail M. Ross, FCAS, MAAAGail M. Ross, FCAS, MAAA

September 14, 2007September 14, 2007

AgendaAgenda

BackgroundBackground

The Role of the ActuaryThe Role of the Actuary

Challenges for the P/C ActuaryChallenges for the P/C Actuary

Exciting AssignmentsExciting Assignments

Useful SitesUseful Sites

Q&AQ&A

Insurance / Actuarial CareerInsurance / Actuarial Career

Began with Travelers Insurance Co.-1976Began with Travelers Insurance Co.-1976

Got into Consulting Upon Becoming an Got into Consulting Upon Becoming an FCAS - 1985FCAS - 1985

Became active in the CAS upon becoming Became active in the CAS upon becoming an FCASan FCAS

Actuaries – “Risk is Opportunity”Actuaries – “Risk is Opportunity”

Actuaries are experts in:Actuaries are experts in: evaluating risk, evaluating risk, designing creative ways to reduce risk potential, designing creative ways to reduce risk potential, decreasing the impact of undesirable events that do decreasing the impact of undesirable events that do

occur. occur.

Actuaries evaluate the financial impact of current Actuaries evaluate the financial impact of current economic, legal, and social trends on future economic, legal, and social trends on future events. events.

We focus on accurate and responsible matching We focus on accurate and responsible matching of risk to price.of risk to price.

Challenges for the P/C ActuaryChallenges for the P/C Actuary

Setting the Price to Charge for the Setting the Price to Charge for the Insurance ProductInsurance Product

Non-Insurance PricingNon-Insurance Pricing

Insurance PricingInsurance Pricing

Challenges for the P/C ActuaryChallenges for the P/C Actuary

Determining the appropriate level of Determining the appropriate level of reserves to set – varies by exposure:reserves to set – varies by exposure: Short “Tail”– Property , Physical DamageShort “Tail”– Property , Physical Damage Medium “Tail” – Auto LiabilityMedium “Tail” – Auto Liability Long “Tail” – Workers CompensationLong “Tail” – Workers Compensation What Will the Lawyers Dream Up Next “Tail” – What Will the Lawyers Dream Up Next “Tail” –

Asbestos, Pollution, Tobacco, Firearms, MoldAsbestos, Pollution, Tobacco, Firearms, Mold

Challenges for the P/C ActuaryChallenges for the P/C Actuary

Enterprise Risk Management – Helping Enterprise Risk Management – Helping businesses manage businesses manage allall risks facing the risks facing the organization:organization: Hazard RiskHazard Risk Financial RiskFinancial Risk Operational RiskOperational Risk Strategic RiskStrategic Risk

Enterprise Risk Management - Enterprise Risk Management - ExampleExample

Coldhard Steel Company (CSC) Coldhard Steel Company (CSC) manufactures steel products. It’s a family manufactures steel products. It’s a family owned business operating in the owned business operating in the Midwestern US and has a unionized labor Midwestern US and has a unionized labor force.force.

Enterprise Risk Management - Enterprise Risk Management - ExampleExample

Types of RiskTypes of Risk Hazard RiskHazard Risk

11stst Party – Loss to building & equipment due to fire, Party – Loss to building & equipment due to fire, tornadoes, etc.tornadoes, etc.

22ndnd Party – Injury or illness to employees included Party – Injury or illness to employees included work related injurieswork related injuries

33rdrd Party – Slip/falls, product recalls, product Party – Slip/falls, product recalls, product lawsuitslawsuits

Enterprise Risk Management - Enterprise Risk Management - ExampleExample

Types of RiskTypes of Risk Financial RiskFinancial Risk

Foreign exchange risk - CSC has large volumes of Foreign exchange risk - CSC has large volumes of sales in Latin Americasales in Latin America

Commodity risk – changes in prices of raw Commodity risk – changes in prices of raw materialsmaterials

Credit risk – CSC has a large accounts receivableCredit risk – CSC has a large accounts receivable

Enterprise Risk Management - Enterprise Risk Management - ExampleExample

Types of RiskTypes of Risk Operational RiskOperational Risk

Labor relationsLabor relations

Family succession planningFamily succession planning

Assessment of the reliability of machinery and Assessment of the reliability of machinery and processesprocesses

Enterprise Risk Management - Enterprise Risk Management - ExampleExample

Types of RiskTypes of Risk Strategic RiskStrategic Risk

CompetitionCompetition

Regulatory/political issuesRegulatory/political issues

Technological advances that could leave CSC Technological advances that could leave CSC obsoleteobsolete

Enterprise Risk Management - Enterprise Risk Management - ExampleExample

The Casualty Actuary will:The Casualty Actuary will: Assess the hazard riskAssess the hazard risk Work with others to assess the financial, Work with others to assess the financial,

operational and strategic risksoperational and strategic risks Develop models that will integrate all of the Develop models that will integrate all of the

potential risk outcomes/probabilities so that potential risk outcomes/probabilities so that an overall impact on CSC’s results can be an overall impact on CSC’s results can be understood and managed.understood and managed.

Actuarial CareerActuarial Career

Why Consulting ?Why Consulting ? DiverseDiverse ChallengingChallenging Projects Completed in Short TimeframeProjects Completed in Short Timeframe Deal w/ Senior ManagementDeal w/ Senior Management Global OpportunitiesGlobal Opportunities Very Good CompensationVery Good Compensation

Actuarial CareerActuarial Career

Why Why NotNot Consulting ? Consulting ? Long HoursLong Hours Often UnpredictableOften Unpredictable Actuaries in the “Hot Seat”Actuaries in the “Hot Seat”

Exciting AssignmentsExciting Assignments

M&A Due Diligence AssignmentsM&A Due Diligence Assignments

Operational ReviewsOperational Reviews

Reserve ReviewsReserve Reviews

Captive Insurance AssignmentsCaptive Insurance Assignments

Web-Sites and Contact InfoWeb-Sites and Contact Info

Good web-sites to learn more about an Good web-sites to learn more about an actuarial career:actuarial career: www.BeAnActuary.orgwww.BeAnActuary.org www.casact.orgwww.casact.org www.actuarialfoundation.orgwww.actuarialfoundation.org

Actuarial jokes:Actuarial jokes: http://users.aol.com/fcas/jokes.htmlhttp://users.aol.com/fcas/jokes.html

My contact info:My contact info: [email protected]@milliman.com

QuestionsQuestions

Thank You !Thank You !