So you want to know what actuary life is actually like. Am I right? In this post, you’ll learn about how my days are filled as a reserving actuary at a medium sized life insurance company. It’s basically an “actuary day in the life” post for my entire year.
As an entry-level actuary, your day will likely be filled with different projection models, Excel tools and macros, coding and data analysis. On a daily basis you’ll be challenged, you’ll have new problems to solve, and you’ll be using your mathematical expertise.
I’ve been at my first entry-level actuarial job 4 years now so have learned a ton. As an actuary, I’m learning new things everyday. That’s what keeps my job interesting.
In this post I go into some of the details about what I do throughout the year in my job as a reserving actuary. I talk about some reasons why I like working for a smaller company too. Trust me, I don’t hold back! I go into all the details about my work. To get the most information, watch the video because I talk more in there about the specifics.
You’ll learn a bit about
- how reserves work and my role in calculating them.
- assumption changes and why we need to do them
- what is DCAT and how’s it work
- the appointed actuaries report
So to learn all that, either watch the video above for all the details or read below for my summary.
I like working in a smaller sized company because since there aren’t as many people working in my area I get exposure to all the different pieces and get to experience first hand how they all fit together.
Like I talked about above, I work in the reserving area of my company. It’s also known as the Corporate Actuarial area. This means I participate in month end financial reporting. My role is primarily based around two areas of the company, S&R and Group insurance.
S&R is short for Savings and Retirement. The S&R area is responsible primarily for our annuity benefits where people get regular payments every month or year for life or for a specified number of years. Typically these are used for retirement purposes once people no longer have a regular income from their job.
Group insurance deals with things like your health and dental benefits that you often receive through your employer. It can also include group life insurance. Some employers choose to pay for life insurance for their employees, or it’s an optional benefit that employees can pay for. Everything related to that fits into group insurance.
So like I talked about, my main responsibility is reserving. A reserve is the amount of money we need right now in order to cover all the future payments and expenses that we expect to need to make to each policy holder.
Since there are hundreds of policy holders, this is a big task! To do it, we use a program called GGY AXIS. AXIS can project payments, and expenses far into the future using assumptions that we give it.
A lot of my job involves keeping the AXIS models up-to date. That means I have to make sure all the assumptions in that model are correct and everything is working as expected. Some of the assumptions that I have to put into AXIS include mortality and morbidity rates, expenses, interest rates, lapse rates, and default rates. During assumption change time, it takes us a long time to figure out if these assumptions need to change and how.
Actuarial Assumption Studies
In order to get assumptions that we can use in our AXIS model, we have to do studies. We have to compare the assumptions that we’re using in our model to what we’ve actually experienced over the past several years.
For example, if we set our mortality rate to 0.01%, we should compare this rate to our experience over the last several years and see if just 0.01% of policy holders passed away. (Note: A mortality rate of 0.01% is very simplified, as mortality rates are actually huge tables depending on age, gender and smoking status)
We might also take into consideration industry mortality rates and see how they compared to our own company experience. Things like that may have an impact to how you update our assumptions in AXIS.
We calculate reserves monthly and each month the new reserve numbers are posted onto our balance sheet. There’s a lot of process work that has to go into calculating reserves and getting them reported. Some of it is very manual while other parts are quite automated.
But before we can report any reserves, we always have to make sure that our reserves seem reasonable. To do this, we compare our new reserves to our reserves last month. We adjust last months reserves for any new policies that were purchased, we remove policies that we no longer have, and we adjust for any policy changes. Usually that allows us to see that we’re in an appropriate ball-park with our reserves and we can continue on with the reporting process.
Sometimes that’s not the case though and we have to investigate further to find out why.
Dynamic Capital Adequacy Testing (DCAT)
This is a process that we have to do once per year to make sure that we’d have enough money to pay our liabilities even if something really bad happened either in the financial markets or with our policy holders.
We do this by “shocking” some of our assumptions like mortality and lapse. That means that we’ll make the assumption really bad (not in our favor) and we’ll see how much our reserve would increase. We use that information for capital purposes, which is money that we hold in addition to our reserves.
Really, DCAT testing is ensuring that we’re prepare for ‘worst case’ scenarios. It’s really important that we have enough money for our policy holders even in these extreme events so these results are taken very seriously.
Appointed Actuaries Report
This is a report created at the end of every year that summarizes all the assumptions that we’re using in our reserves. The report is very confidential because it has all our assumptions in it.
So putting this report together takes a ton of time, maybe 1 – 1.5 months.
Tools and Software I Use Daily
You’re probably wondering what tools I use to get all this done, and what kind of skills you’ll need to learn. Well, primarily I use Excel and AXIS.
Excel is definitely a tool that you should become familiar with. It’s used frequently in almost every actuarial position and your efforts in learning how to use Excel (and VBA) will definitely pay off in your actuarial position. AXIS on the other hand is a very expensive tool that you won’t be able to learn until you’re on the job. Actually, lots of companies don’t even use it.