CM 1 - Actuarial Mathematics
Why you are studying this subject
The aim of the Actuarial Mathematics subject is to provide a grounding in the principles of modelling as applied to actuarial work – focusing particularly on deterministic models which can be used to model and value known cashflows as well as those which are dependent on death, survival or other uncertain risks.
Syllabus
1. Data and basics of modelling (10%)
2. Theory of interest rates (20%)
3. Equation of value and its applications (15%)
4. Single decrement models (10%)
5. Multiple decrement and multiple life models (10%)
6. Pricing and reserving (35%)
The weightings are indicative of the approximate balance of the assessment of this subject between the main syllabus topics, averaged over a number of examination sessions.
The weightings also have a correspondence with the amount of learning material underlying each syllabus topic. However, this will also reflect aspects such as:
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the relative complexity of each topic, and hence the amount of explanation and support required for it
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the need to provide thorough foundation understanding on which to build the other objectives
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the extent of prior knowledge which is expected
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the degree to which each topic area is more knowledge or application based.
Learning Pattern
We suggest that you work through each of the chapters in turn. To get the maximum benefit from each chapter you should proceed in the following order:
1. Read the Syllabus Objectives. These are set out in the box at the start of each chapter.
2. Read the Chapter Summary at the end of each chapter. This will give you a useful overview of the material that you are about to study and help you to appreciate the context of the ideas that you meet.
3. Study the Course Notes in detail, annotating them and possibly making your own notes. Try the self-assessment questions as you come to them. As you study, pay particular attention to the listing of the Syllabus Objectives and to the Core Reading.
4. Read the Chapter Summary again carefully. If there are any ideas that you can’t remember covering in the Course Notes, read the relevant section of the notes again to refresh your memory.
5. Attempt (at least some of) the Practice Questions that appear at the end of the chapter.
6. Where relevant, work through the relevant Paper B Online Resources for the chapter(s). You will need to have a good understanding of the relevant section of the paper-based course before you attempt the corresponding section of PBOR.
What is an actuary?
“Actuary” means a person skilled in determining the present effects of future contingent events or in finance modelling and risk analysis in different areas of insurance, or calculating the value of life interests and insurance risks, or designing and pricing of policies, working out the benefits recommending rates relating to insurance business, annuities, insurance and pension rates on the basis of empirically based tables and includes a statistician engaged in such technology, taxation, employees’ benefits and such other risk management and investments and who is a fellow member of the Institute.
Traditional responsibilities of Actuaries in life and general insurance business include designing and pricing of policies, monitoring the adequacy of the funds to provide the promised benefits, recommending fair rate of bonus where applicable, valuation of the insurance business, ensuring solvency margin and other insurance risks like legal liability, loss of profit, etc. They also define the risk factors, advise on the premia to be charged and re-insurance to be purchased, calculate reserve for outstanding claims and carry out financial modelling. An Actuary works as consultant either individually or in partnership with other Actuaries in multi-disciplines likfe insurance, information technology, taxation, employees benefit, risk management, investment, etc. Evidently, the scope of the functions and duties of an Actuary has increased considerably under the changed conditions.
What does Actuaries do?
a) Actuaries Make Financial Sense of the Future
Actuaries are experts in assessing the financial impact of tomorrows uncertain events. They enable financial decisions to be made with more confidence by:
· Analyzing the past
· Modelling the future
· Assessing the risks involved, and
· Communicating what the results mean in financial terms.
b) Actuaries Enable More Informed Decisions:
Actuaries add value by enabling businesses and individuals to make better-informed decisions, with a clearer view of the likely range of financial outcomes from different future events.
The actuaries skills in analysis and modelling of problems in finance, risk management and product design are used extensively in the areas of insurance, pensions, investment and more recently in wider fields such as project management, banking and health care. Within these industries, actuaries perform a wide variety of roles such as design and pricing of product, financial management and corporate planning. Actuaries are invariably involved in the overall management of insurance companies and pension, gratuity and other employee benefit funds schemes; they have statutory roles in insurance and employee benefit valuations to some extent in social insurance schemes sponsored by government.
Actuarial skills are valuable for any business managing long-term financial projects both in the public and private sectors.
Actuaries apply professional rigor combined with a commercial approach to the decision -making process.
c) Actuaries Balance the Interests of All
Actuaries balance their role in business management with responsibility for safeguarding the financial interests of the public. The duty of Actuaries to consider the public interest is illustrated by their legal responsibility for protecting the benefits promised by insurance companies and pension schemes. The professions code of conduct demands the highest standards of personal integrity from its members.