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

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