actuary: what’s that?natalia.humphreys/... · actuaries: more projects i determine corporate...
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Actuary: What’s that?Actuarial Student Association (ASA)
University of Texas at Dallas
Natalia A. HumphreysUniversity of Texas at Dallas
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Travel Can Be Hard...
Huh? What’s that?
Actuary . . . Eh?
Oh la la . . . Qu’est-ce que c’est?
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Actuarial Science: A Calm Profession
The Thrill of Victory The Agony of Defeat
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The Mother Joke
My mother regarded me with a puzzled frown when I told her Iwanted to be an actuary. “Isn’t that where they put dead actors?”
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Questions to answer
I What is actuarial science?
I Who are actuaries?
I Where do actuaries work?
I What does the work include?
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What is Actuarial Science?
Actuarial science appliesStatistics, Mathematics, Economics, Finance, Government policies,
Business management principlesto assess risk in the insurance and finance industries
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Who Are Actuaries?
Actuaries are professionals who use their knowledge of statistics,finance, and business to
Define, analyze and solve business problems involving the cost ofpossible future events
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Where Do Actuaries Work?
I Insurance industryI Financial institutionsI Consulting firmsI Government agenciesI Accounting firms
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An actuary could...
An actuary could place a monetary value on various aspects of life.
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Talent Valuation
Determine the monetary value of unusual items, such as a concertpianist’s hands.
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Property Casualty
Price property insurance for homes, given their location and thelikelihood of a natural disaster.
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Retirement
Analyze statistical information about people over age 55 toestimate deaths, disabilities, and retirement rates.
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Movie Industry
Advise movie studio owners about how much liability insurancethey should purchase to cover dangerous sets.
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What Does the Work Include?
I Projecting how a new auto-safety law will change insuranceclaims
I Estimating the benefit cost of a labor contract
I Projecting financial costs of an epidemic
I Analyzing investment risk
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Property and Casualty (P&C) Actuaries
I Estimate the probability and likely cost to the company of anevent such as loss of property, car or equipment accident
I Help design insurance policies using their expertise inevaluating various types of risk.
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Property and Casualty (P&C) Actuaries (cont.)
I Calculate the expected number of claims resulting fromautomobile accidents, which varies depending on the insured’sage, sex, driving history, type of car, etc.
I Ensure the premium will cover potential claims and otherexpenses and that it is profitable, yet competitive with otherinsurance companies.
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Life and Health Actuaries
I Estimate the probability and likely cost to the company of anevent such as death, sickness, injury or disability
I Help design insurance policies using their expertise inevaluating various types of risk
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Health Actuaries
Help companies develop health and long-term-care insurancepolicies by predicting the likelihood of occurrence of heart disease,diabetes, stroke, cancer, other chronic ailmentsamong a particular group of people who have something incommon such as living in certain area or having a family history ofillness
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Life Actuaries
Help companies develop annuity and life insurance policies forindividuals by estimating how long someone is expected to live
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Actuaries in Financial Industry
I Manage credit and help set a price for corporate securityofferings
I Devise new investment tools to help their firms compete withother companies
I Address financial matters how a company should investresources to maximize return on investments
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Pension Actuaries
I Work under provisions of ERISA - Employee retirementincome security act of 1974 which sets minimum standards forpension and health plans in private industry
I Address financial matters how an individual should invest inorder to attain a certain retirement income level
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Government Actuaries
Help manage social programs such as
I Social security
I Medicare
I Health care reform
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Reinsurance Actuaries
A field in which one insurance company arranges to share a largeprospective liability policy with another insurance company inexchange for a percentage of the premium.
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Actuary vs Accountant: Question
Q: Mr. Smith, why did you become an actuary?
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Actuary vs Accountant: Answer
A: Well, I didn’t have enough personality to become an accountant
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Actuary: the Extrovert. Question
Q: How can you tell when you meet an actuary who is anextrovert?
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Actuary: the Extrovert. Answer
A: He is the one who looks at YOUR shoes when he talks to you!
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Actuaries: More Projects
I Determine corporate policy on riskI Explain complex technical matters to company executives,
government officials, shareholders, policyholders or the generalpublic
I Testify before public agencies on proposed legislation thataffects their business
I Explain changes in contract provisions to customersI Help companies develop plans to enter new lines of business
or new geographic markets by forecasting demand incompetitive settings
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Consulting Actuaries
I Provide advice to clients on a contract basis
I Evaluate company pension plans by calculating the futurevalue of employee and employer contributions and determiningwhether the amounts are sufficient to meet future needs ofretirees
I Help companies reduce their insurance costs by offering themadvice on how to lessen the risk of injury on the job
I Testify in court regarding the value of potential lifetimeearnings of a person who is disabled or killed in an accident
I Calculate the current value of future pension benefits indivorce cases, QDRO
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Overview of Retirement PlansFinancial Security at retirement is the main concern of retiringemployees
I Vehicles used to obtain Financial Security
I Differences between defined benefit and defined contributionplans
I Incentives employers and employees have for contributing toemployees retirement.
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The “Three-Legged Stool”
Components of financial security at retirement
Sources of retirement income
I Government = Social Security
I Individual = Personal Savings
I Employer = Employer-Provided Retirement Plans
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Government: Social Security
I Provides most basic level of retirement income
I Emphasis on lower-income earning individuals
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Government: Medicare
I Basic level of post-retirement medical coverageI Significant out of pocket costs for enrollees:
I Prescription DrugsI DeductiblesI Coinsurance
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Individual
Encompasses:
I Establishing retirement income goals
I Maintaining a standard of living consistent with those goals
I Contributing to an individual retirement vehicle
Ways to invest:
I Contribute to an IRA account or 401(k) plan
I Purchase life, disability, or medical insurance
I SAVE, SAVE, SAVE!!!
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Employer
I Defined Contribution Plan
I Defined Benefit Plan
I Post-Retirement Medical Plan
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DC VS DB PLANS
Defined Contribution Plans Defined Benefit Plans
An individual account is estab-lished for each employee
Promises to pay a specifiedbenefit at retirement age.
Employers can contribute bymatching the ee contribution
Can provide benefits payableupon death, disability, or priorto retirement.
The future value is indeter-minable due to unknown invest-ment returns and contributions
Benefits based on pay, service,expected SS benefits.
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DB or DC? Situation One
An employee who is planning to change employers every 3 to 5years
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DB or DC? Situation Two
A 55 years old expecting to work to age 65 and expecting for themarket over the next 10 years to be a bear market
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DB or DC? Situation Three
A company starting a retirement plan and wishing to control costsassociated with the plan.
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References
I Bureau of labor statisticshttp://www.bls.gov/oco/ocos041.htm
I Watson wyatt co. pension plan training manual
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More Information
Want to know more about actuarial field?
Contact:
Natalia A. Humphreys, Ph.D, FSAClinical Professor
Associate Head of Actuarial Programwebsite: www.utdallas.edu/ natalia.humphreys
e-mail: [email protected]
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