The response that the life insurance actuary gave contained a fair amount o=
f bull=2E Some historical reasons why there were fewer P=26C actuaries are=
=3A
1=2E Most P=26C rates used to be set by rating bureaus=2E If a company wa=
s using a bureau rate=2C it may not have seen a need to hire its own ratema=
king actuaries=2E
This has changed dramaticly in the last 20 years =28hence the doubling of t=
he CAS professional membership every 8 to 10 years=2E In Nov=2E '77 there =
were 349 fellows=2E In Nov=2E '97 there were 1=2C654=29=2E =
The rating bureaus now generally issue only advisory rates or advisory loss=
costs=2C with rate competition rampant throughout the industry=2E Even wh=
ere bureau rates are used=2C deviations are allowed=2E Independent company=
rates and deviations create a need for companies to have their own actuari=
es=2E
2=2E The growing litigiousness of U=2ES=2E society has added complexity to=
the estimation of loss costs and loss reserve needs=2E If losses are paid=
out quickly=2C you don't need an actuary to figure out your loss costs=2C =
you need an accountant =28to tally the paids=29=2E It used to be that loss=
es were paid out quickly=2C and P=26C actuaries weren't need as much as the=
y are today =28the unearned premium reserve used to be bigger than the los=
s reserve=2C as least in the 60's and prior=29=2E =
Loss reserves are now closer to 4 times unearned premium reserves=2E Payou=
ts can take 20+ years=2C and even simple lines such as auto liability can h=
ave significant tails over 5 years=2E This has added GREATLY to the need f=
or P=26C actuaries=2E The estimation of the ultimate payout of these reser=
ves requires actuaries =28for both ratemaking and reserving=29=2E
3=2E As the complexity of loss reserves grew=2C the frequency of insurer i=
nsolvency due to underestimation of loss reserves grew=2E This led to an a=
ctuarial opinion requirement for the P=26C blank=2C increasing the demand f=
or actuaries=2E =28This requirement was only feasible once the profession =
grew enough to handle the workload=2E As the profession grows more=2C the =
likelihood for other such mandates on the profession grows=2E=29
4=2E The added cost of insurance products =28again due to the increased li=
tigiousness of society=29 led to a search for alternatives to the normal in=
surance market=2E These alternatives include self-insurance and captives=2E=
Both of these lead to additional job opportunities for P=26C actuaries =28=
either as an actuary for a self-insured company=2C or more likely as a cons=
ulting actuary=29=2E
5=2E All actuaries work with aggregate data=2E If no data exists=2C there=
is probably no need for a full time actuary=2E As data processing and com=
puting power increases=2C the available data has expanded=2C and the tools =
to crunch the data have also expanded=2E This has allowed the profession t=
o expand its capabilities and to grow=2E =28P=26C actuaries may have been =
more dependant on this trend than life actuaries=2C due to data limitations=
=2E My understanding is that the SOA has long played a role in producing m=
ortality tables for its actuaries to use=2E In the P=26C industry=2C the C=
AS has not=2C and probably should not=2C play such a role=2C possibly due t=
o the much greater heterogeneity of risks faced in the industry=2E Also=2C=
the government keeps generally good records on mortality=2C that anyone ca=
n use=2E There is no real comparable public data for the P=26C side=2C hen=
ce the need for company generated data=2E=29
Therefore the reason there are fewer P=26C actuaries is more historical tha=
n =22the need for fewer actuaries=22=2E The historical trends have steadil=
y moved towards a need for more P=26C actuaries=2E When I started out=2C t=
he general rule of thumb I remember is that the SOA was 10 times the CAS in=
numbers of members=2E Per American Academy of Actuaries yearbooks=2C that=
ratio dropped to 5=2E4 to 1 in 1992=2E By 1997=2C the ratio had dropped f=
urther to 4=2E3 to 1=2E
Based on the above discussion=2C it should be obvious where the focus is re=
garding P=26C actuarial work - it is generally in estimating the liabilitie=
s=2E It has been much less on the financial side=2E This is because loss =
estimation has been much more critical to the product than the investment s=
ide=2E Life insurance=2C meanwhile=2C tends to have much more data and pre=
dictability regarding insurance costs=2C with the principal areas of uncert=
ainty more focused on lapse=2Fretention rates=2C the impact of =22call=22 p=
rovisions in the products=2C and interest rate and reinvestment risk consid=
erations=2E Therefore to use investment issues to show how the P=26C indus=
try needs fewer actuaries than the life is a pretty niave comparison=2E A =
fair response would be that because insurance risk is so minor for life rel=
ative to P=26C=2C there is much less need for sophisticated and ground-brea=
king techniques than on the life side=2E The P=26C side is much more ferti=
le ground for estimation methods than the life side =28in my experience=29=2E=
=
=
My general experience is that the P=26C side requires more innovative think=
ing in the reserving area than the life side=2C regarding estimation of ins=
urance risk=2E The Life side has required much more innovative thinking reg=
arding investment=2Finsurance interactions and costing =28or hedging=29 the=
implict =22call=22 option in the contracts=2E =
In summary=2C the two disciplines face different predominant risks but can =
both be demanding=2E The current relative sizes of the profession is more =
a function of history=2C and is not necessarily indicative of future size o=
r future challenges=2E The P=26C side has required great expansion and cre=
ative thinking in cost=2Fliability estimation=2C the life side has required=
similar expansion in insurance=2Finvestment interaction=2C but who knows w=
hat the future will bring to either side=2E
=
=09caslists =40 casact=2Eorg
=0908=2F20=2F98 12=3A01 AM
From=3A POLSONJ=40towers=2Ecom
To=3A =22 - =28052=29cas=22=3A=3B
Subject=3A Life vs=2E PC
I have found myself in the middle of a mentoring situation =28via
e-mail=29=2C and my actuary-to-be has been asking quite a few questions
about Life vs=2E PC=2E I have already pointed him to the discussion thread=
on the CAS website=2C but he presses on=2E I feel a bit out of my league=2C=
not really knowing anything much about the Life side=2E Here is his
latest question=2E I would appreciate any reaction someone with more
practical experience than I might have so that I might share it with
him=2E
Thanks in advance=2E
Jen Polson=2C FCAS
Towers Perrin Re
Just wanna ask one thing=2C which is quite important to me=2E
I am now working in XXXXXXXXXXXXXXX =28Life Co=29 as a summer
intern=2C and I have had a little discussion with my supervisor about my
switching from SoA to CAS=2E She said that one of the reasons for there
being so few P=26C actuaries is that P=26C insurance firms generally need
fewer actuaries=2E For example=2C when a P=26C insurance company is issuing=
products about investment=2C it may employ those who are major in Finance=2E=
She also said the product design and calculations used in P=26C policies
require less actuarial techniques=2Fknowledge=2E Was she correct=3F Thanks=2E=
Visit the CAS Web Site at http://www.casact.org
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