Chantal Bray, FSA, EA, MAAA

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The New Exam System 2005, 2006, 2007,
never?
Chantal Bray, FSA, EA, MAAA Associate Actuary
Principal Financial Group, Des Moines,
Iowa ASNA Convention Toronto January 10th 2004
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Agenda

• Preliminary Education
• ASA
• FSA Level
• Impact on completion time Proposed Conversion
• Feedback
• Questions

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Origin of Proposed Changes

• In 2001, the Board committee expressed concerns
  on
• The fact that country-specific laws were not
  present in the curriculum.
• The Professional Development part was not
  working.
• Exam 3 and 4 were too theory-oriented.
• Time to completion of FSA was too long

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Overview

• Preliminary Education
• Pre-Requisite 5 subjects
• Validated by Educational Experience 3 classes
• Examinations 4
• ASA Course
• Module Topics 8
• Exercises 1-6 per Module
• Examinations 2
• APC continues
• FSA Level
• Module Topics 4 or more
• Examinations 2 for each of the 5 specialities
• Seminar that will potentially include the le FAC

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I. Preliminary Education - pre-requisite (not
officially tested)

• Calculus
• Linear Algebra
• Introductory Accounting
• Business Law
• Mathematical Statistics

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I. Preliminary Education - validated by
educational experience

• Objective education and non verification
  (examinations)
• Minimum B- or equivalence
• SOA will offer courses and reading material
• List of approved courses will be on the SOA site
• 3 courses
• Macro and micro-economy
• Corporate Finance, intermediate level
• Applied Statistical methods

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I. Preliminary Education - validated by
educational experience

• 1. Macro and micro-economy
• Supply and Demand
• Utililty curves
• Structure of a public financial sector in an
  industrialized economy
• GDP, GNP comparison between countries
• Fiscal and Monetary Policies
• Exchange rate and the open market
• Factors influencing inflation, interest rate,
  unemployment etc.

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I. Preliminary Education - validated by
educational experience

• 2. Corporate Finance
• Capital Structure of a public company
• Bonds, options, etc.
• Personal and Corporate Tax
• Application of key financial models dividends,
  present value of cash-flows, option valuation,
  Black-Scholes
• Performance evaluation of a company financial
  report, revenues, profitability index, etc.

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I. Preliminary Education - validated by
educational experience

• 3. Applied Statistical Methods
• Similar to statistical portion in examination 4
• Linear Regression, "time series", forecasting
• Variance analysis, statistical tests, confidence
  intervals

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I. Preliminary Education - 4 examinations

• Probability 3 hours
• Finance 2 hours
• Model for Quantifying Risk 4 hours
• Construction and Evaluation of Risk Models 4
  heures
• The first 2 exams will be offered as often as
  possible

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I. Preliminary Education -
examinations

• 1. Probability
• Similar to Probability part of Exam 1
• Calculus used to solve probability problems
• Probability and Distributin functions for
  discrete and continuous random variables
• Central Limit Theorem
• Joint and Conditional Probabilities, independence

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I. Preliminary Education -
examinations

• 2. Finance
• Similar to finance part of exam 2
• Knowledge of interest theory, inflation,
  cash-flows, present value, future value
• Amortization, payments, variable interest rates
• Rate of return for series of cash-flows

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I. Preliminary Education -
examinations

• 3. Model for Quantifying Risk
• Life contingencies (exam 3), with more practical
  problems and less emphasis on the theory.
• New reading and learning materials are in
  development

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I. Preliminary Education -
examinations

• 4. Construction and evaluation of risk models
• Similar to exam 4 less applied statistics part.
• Construction of mortality tables was exluded in
  the new 2000 system will be once again added

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II. ASA Course - structure

• Commun subjects professionalism, result
  validations, application of laws, shotchastic vs
  point estimates.
• Emphasis on education rather than examinations
  use of modules
• Knowledge with practical application context
• Practical opportunity with feedback
• Examination 5 will be presented in the form of
  interactives modules via the internet

DB
DC
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II. ASA Course - modules

• Module 1 Introduction and Role of the
  Professional Actuary (Intro to Professionalism,
  control cycle model)
• Module 2 Core External Forces (work of an
  actuary in society, external force applying to
  actuarial work)
• Module 3 Common Actuarial Problems (actuarial
  valuations, reserves, portfolio management,
  pricing, asset and liability management)
• Module 4 Solution to Selected Actuarial Problems
  (application of the control cycle)

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II. ASA Course- modules

• Module 5 Design and Pricing of an Actuarial
  Solution (Intro to various practices, including
  PC)
• Module 6 Selection of an Actuarial Design and
  Model (Finding best model to fit the situation,
  quality of data, valuation of model established)
• Module 7 Selection and Initial Assumptions
  (Intro to selection of assumptions, types of
  asssumptions, credibility theory, sensitivity
  analysis, if missing data, estimation methods)
• Module 8 Monitoring Experience Model and
  Assumptions (techniques for monitoring
  experience, review of model and assumptions
  chosen)

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II. ASA Course- exercises

• A few required exercices others not, meant to
  help master concepts
• A few exercices on general concepts others
  practice-specific
• Formal SOA evaluation (submission of work papers)
  and feedback process validating the exercises

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II. ASA Course- examinations

• 2 multiple choice exams 1 after the 4th module,
  and the 2nd after the 8th module
• Potentially open book, provided on demand (maybe
  even via internet)
• To obtain ASA complete the preliminary
  education, the ASA course and the Associate
  professionalism course (APC)

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II. ASA Course- examinations via internet

• Wanted and feasible via internet
• Flexible, accessible, pratical
• No accounting or logistic problems
• World distribution at low cost
• Easy and fast update
• Active participation in learning process
• Facility to establish links to electronic
  material and referral material.

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III. FSA Level - education

• Necessary subjects rigorous exams
• Material covered via interactif modules and
  exercises will be formally validated.
• Number of modules/exercises still not decide
  possibility of a case study style, a few modules
  will be non practice-specific.
• Possibility to offer a seminar to present advance
  applications might be the last module.
• Incorporation of the FAC

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III. FSA Level - education

• 5 practice area  tracks 
• Individual Insurance
• Health, Group Life and Managed Care (HGM)
• Retirement Benefits
• Investments
• Finance/Enterprise Risk Management (F/ERM)

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III. FSA Level - examinations

• 2 FSA exams for each practice area track
  (including laws specific to Canada and the United
  States)
• Both examinations must be in a single track
  none of the examinations will be common across
  practice area tracks
• Each exam comparable in length and scope to a
  current Course 8 6 hours
• Difficulty level equivalent across practice area
  tracks
• Potential Elimination of the PEC

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Impact on completion time

• Preliminary education offers a practical
  alternative (pre-requisite and course validation)
• Preliminary Education and ASA Course easier
  administration, possibility of internet
  validation (on demand)
• Finance and ASA level exam should have higher
  passing rates with this new exam structure
• ASA level exams should require less tries

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Impact on completion time

• Candidate may complete the ASA Course modules
  while studying for preliminary education
  examinations
• Candidate may work on FSA level modules while
  studying for FSA level examinations
• No professional development!
• No exam 5 (highest failing rate)

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Anticipated Schedule

• Preliminary Education 2005
• ASA Course 2006
• FSA Level end of 2006, start of 2007

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Last Examination Offered - Presumed Dates
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Conversion

• Partial credits attributed for the professional
  development (PD) period given to complete the
  PD and obtain conversion credits.

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Hypothetical Conversion Plan
Current System New System
Probability Exam (preliminary education
PE) Finance Exam (PE) validation by educational
experience (macro, micro and corporate finance
courses) - PE Model for Quantifying Risk Exam
(PE) Exam on Construction and Evaluation of Risk
Models(PE) validation by educational experience
in Applied Statistics ASA Course modules 1-5 and
1st ASA Course Exam FSA Modules, excluding last
module/seminar ASA Course modules 6-8 and 2nd ASA
Course Exam last FSA module/seminar One FSA
level examination of the same specialty then exam
8 Both FSA level examinations of the same
specialty then exam 8 APC FAC
1
2
3
4
5
6
7
Either 8 or PD, but not both
8 and PD
APC
FAC
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Feedback

• Conversion
• Comitee will continue to incorporate feedback
  received and make adjustments
• Validation of university courses
• Doubts on the quality of the courses (B-)
• SOA courses will be available

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Feedback

• Why change so often?
• Lots of problems with the year 2000 system
• Members of the SOA pointed out that changes would
  be necessary, particularly on the relevance of
  certain exam subjects

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Key Changes

• Preliminary education will be more effective and
  relevant new texts to come
• Exame 5 and parts of 6 and 7 will be replaced by
  more imporant subjects and by modules
• Nation-specific laws will be reintroduced in FSA
  Level examinations

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Future

• Many teams/committees are working on this
• The team working on preliminary education has
  practically completed the learning objectives for
  the examinations and courses to validate
• The ASA Course committee is progressing in the
  production of a prototype module
• FSA Level committees are being formed