1. 2010
®

2. ®
“Actuarial Science 101”
A Basic Introduction to its Application to
Estimating Warranty Costs
Michael 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? ®