Actuarial Intuition

One of the things that I found interesting when I started to come across real actuarial work, was that many concepts covered in the first exams are actually used in the industry. Concepts on probability and time value of money are ever-present in every aspect of the actuarial profession. They are the ABC’s of an Actuary and the foundations on which the actuarial models are built upon. We are required to become “Master Calculator Professionals” (or “Jīngsuàn shī”, which is the literal mandarin Chinese translation for Actuary, more or less), as actuarial models are burdened with complex spreWilliamadsheets and programs including endless calculations.

Earlier in the exam process, my understanding was that the most crucial aspect of getting the “right answer” was a 2 step approach: knowing what to do and getting your numbers right. Knowing how to approach a problem can be challenging and is rarely a straight forward process, any given problem can be solved usually in different ways and coming up with a simple and elegant solution is ideal, but not always the case. Strong mathematical and logical skills are necessary for this step, test-makers will make sure that they are coming up with problems you have never seen before, and despite studying hundreds of hours you will come across an oddball, and you’re back on square one. I try to spend around one minute on this step, my rule of thumb: if in 30 seconds there is no solution on sight, skip the problem and leave it for the end (hopefully things will become clear by then…).

The next step is number crunching, and this is a fight against mistakes and errors for they show no mercy on the careless. Discipline and preparation are necessary for this step, practicing as many problems as possible and learning how to use your calculator will make you sharp on the exam day. However, there is another aspect that I started emphasizing later on, and I call it “Actuarial Intuition”. I believe that is something you gain with time and experience, after solving hundreds of problems there are patterns that start to show. Time is precious on the exam, it is tempting to select the choice that resembles the most with the first answer obtained and rush to the next problem. But there are some questions that should be considered after solving a problem:

  • Does this solution make sense?
  • Is this the answer I was expecting?
  • Are the variables in this problem within the range of values I am used to seeing?
  • Is there a different step used on this solution that were not on similar problems?

Asking these questions is essential to an Actuary, taking 10-20 seconds to analyze the results will prove useful, and sometimes for problems we don’t know how to solve just analyzing the possible solutions some answers can be discarded, thus improving our odds. It is my belief that this intuition translates to the real actuarial work, I have noticed that experienced actuaries look at reports and results, and they know right away if the numbers make sense, or if there’s something wrong with them and sometimes they can tell what’s missing, but reaching that level requires to make an effort and spend some time after the problem is over. So take a moment and look at the results, it isn’t over yet!