A Risky Business: An Actuary’s Guide to Quantifying and Managing Risk in Society

✍ Scribed by Catrin Townsend

• Publisher: Palgrave Macmillan
• Year: 2022
• Tongue: English
• Leaves: 415
• Edition: 1
• Category: Library

✦ Synopsis

Intangible, invisible and worth trillions, risk is everywhere.

Its quantification and management are key to the success and failure of individuals, businesses and governments. Whether you’re an interested observer or pursuing a career in risk, this book delves into the complex and multi-faceted work that actuaries undertake to quantify, manage and commodify risk―supporting our society and servicing a range of multi-billion-dollar industries.

Starting at the most basic level, this book introduces key concepts in actuarial science, insurance and pensions. Through case studies, explanations and mathematical examples, it fosters an understanding of current industry practice. This book celebrates the long history of actuarial science and poses the problems facing actuaries in the future, exploring complex global risks including climate change, aging populations, healthcare models and pandemic epidemiology from an actuarial perspective.  It gives practical advice for new and potential actuaries on how to identify an area of work to go into, how best to navigate (and pass!) actuarial exams and how to develop your skills post-qualification.

A Risky Business illuminates how actuaries are central to society as we know it, revealing what they do and how they do it. It is the essential primer on actuarial science.

✦ Table of Contents

Preface
Acknowledgments
The Non-actuaries
The Actuaries
The Future Actuaries
Contents
List of Figures
List of Tables
1 Introduction
1.1 Introduction to Risk
1.2 There’s No Business Like…
1.3 Can I Insure That?
1.4 Risk by Numbers
1.4.1 Risk Metrics
1.4.2 Success Metrics
2 A Short History of Actuarial Work
2.1 I’ll Be There For You: The Beginning of Lloyd’s
2.2 Pooling
2.3 San Francisco and Uberrima Fides
2.4 Lloyd’s as a Marketplace
2.5 The Role of Actuarial Institutes Around the World
3 Products and Perils
3.1 What Could Possibly Go Wrong?
3.1.1 Property Damage
3.1.2 Liability
3.1.3 Financial Loss
3.1.4 Fixed Benefit
3.2 Boats, Buildings, and Beckham: An Introduction to Types of Insurance
3.2.1 Motor Insurance
3.2.2 Property Insurance
3.2.3 Business Insurance
3.2.4 Bespoke Financial Loss Policies
3.3 New Products, New Possibilities, New Problems
3.3.1 Environmental, Social, and Governance Sustainability in Insurance and Pensions
3.4 Case Study: Drone Insurance
4 Data
4.1 More Is More: Data for Beginners
4.1.1 More data gives more certainty
4.2 Data Is (a Bit Like) the New Oil
4.3 Exposure Data
4.4 The Importance of Being Earnest (and Honest): GDPR and Ethics in Actuarial Work
4.4.1 Who Cares About GDPR?
4.4.2 What Are the Broad Aims of GDPR?
4.4.3 What Are the New Consumer Rights?
4.4.4 What Does GDPR Mean for Actuaries?
4.4.5 Price-Walking
4.4.6 Discriminatory Data
4.4.7 Environmental, Social, and Governance (ESG) and Sustainable Investment
4.5 The Future of Data: Insurtech and AI
4.5.1 Telematics
4.5.2 Smart Appliances and Wearable Tech
4.5.3 Machine Learning
5 Annuities
5.1 Interested in Interest?
5.2 Introduction to Annuities
5.3 Variations on Annuities
5.3.1 Annuities Paid Monthly
5.3.2 Deferred Annuities
5.3.3 Increasing Annuities
5.3.4 Perpetuities
5.4 IOU: Calculating Loan Repayments
5.5 Worked Example
6 Life-Dependent Products: Your Money or Your Life
6.1 When Will They Die? (And Other Morbid Questions)
6.2 What Life Tables Tell Us About Life
6.3 Calculations with Life Tables
6.4 Life-Dependent Annuities
6.5 Variation in Mortality Rates
6.5.1 Occupation
6.5.2 Smoking
6.5.3 Income-Related Risk Factors
6.5.4 Genetics
6.5.5 Selection Bias
6.6 Joint Life Annuities
6.7 Reversionary Annuities
7 Pensions: Who Pays?
7.1 A Short History of Pensions
7.2 Defining Defined Benefit Schemes
7.3 The DB Disappearance
7.4 The Fundamentals of Funding
7.4.1 Regular Contribution
7.4.2 Terminal Funding
7.4.3 Pay As You Go
7.5 Social Care
8 Pricing: The Science of Estimating the Risk Cost
8.1 Why Estimate the Risk Cost?
8.2 Getting to Know (People Like) You
8.3 Anti-Selection
8.4 An Introduction to Generalized Linear Models for Insurance Pricing
8.5 Worked Example: Pricing Pet Insurance
8.6 Pricing for Large Risks
9 Pricing: The Art of Estimating Everything Else
9.1 Types of Non-risk Costs
9.1.1 Wages, Rent, and Other Operating Expenses
9.1.2 Insurance and Reinsurance
9.1.3 Commission and Acquisition Expenses
9.1.4 Profit Loading
9.1.5 Investment Income
9.1.6 Insurance Premium Tax
9.2 Insurance Fraud
9.3 The Insurance Cycle
10 Reserving: First Principles
10.1 Principles of Reserving
10.2 Types of Claim Data
10.3 Using Patterns in Data
10.4 Injury Claims and PPOs
11 Reserving: Methods
11.1 Chain Ladder Method
11.2 Expected Loss Ratio method
11.3 The Bornhuetter-Ferguson Method
11.4 Alternative Reserving Methods
11.4.1 The ACPC Method
11.4.2 Curve Fitting
11.4.3 Stochastic Methods
11.4.4 Machine Learning
12 In Case of Emergency: Capital Requirements
12.1 That’s Capital!
12.2 How Much Capital Should be Held?
12.3 Solvency
12.4 Solvency II
12.4.1 What is Solvency II?
12.4.2 How Much is the Capital Requirement Under Solvency II?
12.4.3 What Kinds of Assets are Allowed Under Solvency II?
12.5 Capital Calculation Methods
12.5.1 Risk Measures
12.5.2 Risk Allocation Methods
12.6 Inadequate Capital: A Warning from History
12.6.1 Transit: ‘The Titanic of Insurance Insolvencies’
13 Reinsurance
13.1 A Problem Shared: An Introduction to Reinsurance
13.1.1 Proportional Reinsurance
13.1.2 Excess of Loss Reinsurance (XL)
13.2 The LMX Spiral
13.3 Reinsurance to Close
13.4 Sharing Risk Outside of Insurance
13.4.1 Risk Transfer to the Financial Sector
13.4.2 Transferring Risk to the Public Sector
13.4.2.1 Case Study: Flood Re
13.4.2.2 Other Public Sector Flood Insurance Models
14 Catastrophes
14.1 Modeling Natural Catastrophes
14.2 Lessons from Hurricane Katrina
14.2.1 Lesson 1: Run for Cover
14.2.2 Lesson 2: Count the Seconds
14.2.3 Lesson 3: Take a Break (into Consideration)
14.2.4 Lesson 4: Social Good, but Profit Better
14.2.5 Lesson 5: It Never Rains but It Pours
14.3 Promising the World - the Challenge and Benefits of the Globalization of Insurance
14.4 A Micro Introduction to Microinsurance
14.5 Cyber Insurance
15 Climate Change and Biodiversity Loss
15.1 Climate Change
15.2 From A(ctuary) to Z(oonotic)
15.2.1 Underwriting Exclusions
15.2.2 Creating a Biodiversity Loss Metric
15.2.3 Calculating the Value of Biodiversity to Insurers
16 Latent Claims: A Problem for Another Day
16.1 An Introduction to… (Wait for It) …. Latent Claims
16.2 Asbestos: The Wonder Fabric with a Dark Secret
16.3 The Blame Game: Insurance and the Law
16.4 Environmental Claims
17 Modeling Coronavirus-19
17.1 Modeling in a Crisis
17.2 Modeling Coronavirus-19 Spread
17.3 Re-modeling (and Re-modeling and Re-modeling) Coronavirus Spread
17.4 Covid Corollaries: The Effect of the Pandemic on Insurance and Pensions
18 Careers in Actuarial Science
18.1 What Do You Need to Be an Actuary?
18.2 Professional Qualifications
18.2.1 IFoA Exams—The Detail
18.2.2 SOA and CAS Exams—The Detail
18.3 Exam FAQs
18.4 Professional Development
18.5 The International Market for Actuarial Science
18.6 A Day in the Life of an Actuarial Analyst
18.6.1 A Day in the Life of a Pricing Analyst
18.6.2 A Day in the Life of a Reserving Analyst
18.7 Final Remarks on Actuarial Careers
19 Looking Forward: The Future of Actuarial Work
19.1 It’s The End of The World as We Know it—And We’ll Be Fine
Appendices
Appendix A: Table of Compound Interest, for 3% and 5% Effective Interest Per Annum
Appendix B: Life Tables for UK Male and Female Lives
Appendix C: Net Present Value of Life-Dependent Annuities for 3% and 5% Interest Rates
Glossary
Index