WCM 2010 - Actuarial Science 101

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  • 1. 2010
  • 2. Actuarial Science 101A Basic Introduction to its Application to Estimating Warranty CostsMichael Paczolt, FCAS, MAAA Consulting Actuary Milliman March 4, 2010
  • 3. Agenda What is an actuary? Common vocabulary Loss triangles Methodology Making selections
  • 4. What is an actuary? Background Finance, Mathematics, Statistics Rigorous Exams Classic Role Pricing Reserving Other Fields Firm Valuation Investments Portfolio Management ERM & DFA
  • 5. Where do actuaries work? Types Consulting Insurance Other Fields Health Life Pension Property/Casualty Other
  • 6. Insurance Basics Risk (not the board-game) Premium Diversification
  • 7. What determines my premium? Expected Loss Expense Profit Risk Loads Market Conditions Underwriting Book of Business Credibility of Data
  • 8. Vocabulary Trend Liability = Ultimate Loss Paid Loss Unearned Premium Reserve Loss Reserve Exposure
  • 9. Loss Triangles History as predictor of future Paid & Incurred Methods Group of similar aged warranties Observe development Update periodically
  • 10. Loss Triangles 326/50 = 6.533 24 Months of Coverage
  • 11. Warranty Methodology Loss Development Incremental Bornhuetter-Ferguson Frequency/Severity Loss Cost
  • 12. Making Selections
  • 13. Questions?