December 2015

Interview with Houston Cheng

By Scott Lennox

The SOA made the decision to add General Insurance (property and casualty insurance) to the list of available fellowship education tracks back in 2012. Such a significant undertaking requires many steps to bring a new track to completion. The first critical step is deciding on the topics that will make up the curriculum, as well as the materials that candidates will use as their main source of learning.

The General Insurance Introduction to Ratemaking and Reserving (GI IRR) exam is a five-hour exam that focuses on the fundamental concepts that all GI actuaries need to know. A comprehensive textbook was needed to put all of these concepts together, and the SOA engaged Jacqueline Friedland and her team to write the textbook Fundamentals of General Insurance Actuarial Analysis. The main focus of the textbook is on the practical fundamental tasks that GI actuaries perform. The textbook not only presents this material in a pedagogical manner with many real-world examples, but is also intended to serve as a valuable reference source for the practicing actuary.

The SOA GI IRR exam has now been administered five times through the fall of 2015, and although the exam candidate feedback has been very positive of the Friedland text, we thought it would be informative to review the text from the perspective of a teaching tool. Houston Cheng is an actuary with KPMG in Toronto who has been co-instructor of a course at the University of Toronto since 2014 that relies on the Friedland text. I recently had a chance to talk with Houston to get his perspective on his experience teaching from that book.

Scott Lennox: What topics does the course cover in one term?
Houston Cheng: We tried to cover reserving and ratemaking in one term initially, but that was too much material. This school year, reserving is a fall course and ratemaking will be a winter course.

SL: How deep do you cover the material?
HC: We wanted the course to be from a practical perspective, so we teach the basic reserving methods (e.g., development, expected, frequency & severity, Bornhuetter Ferguson). The assignments are very practical where we use industry data. The students are given a database and run models using spreadsheets. We want the course to mimic a work term, so the assignments are all based on group work. They have to put the data into triangles, perform diagnostics, and then estimate ultimate claims. The text works well for the course the way it is. For the most part we teach in sequence the way the text is set up.

SL: Does the text cover the financial reporting topic well for the students?
HC: We focus on the basic methods (e.g., the basic ratio method for unallocated loss adjustment expenses) and stay away from the advanced methods. The text covers financial reporting quite well, but we supplement the financial reporting portion with material that is specific to Canadian practice (i.e., discounting).1

SL: How challenging is it to create test questions for your course from the material in the Friedland text?
HC: It is easy to create the lecture slide decks from the material, and we draw from the slides for questions. The text is a good resource to use. It’s not heavy mathematics, so examples are straightforward.

SL: What is the student feedback on the text?
HC: They think it’s big. We’re seeing students reading the text to get additional ideas that are not covered in the class. They find it expensive,2 but we tell them it covers two courses and forms the basis of everything they’ll need if they’re going to be working in the GI actuarial field.

SL: What works particularly well with the text?
HC: The exhibits are very helpful.

SL: What doesn’t work well with the text?
HC: There isn’t anything that doesn’t work well. The chapter on premium liabilities might need to be updated at some point, considering the new Canadian Institute of Actuaries education note.

SL: Any final thoughts?
HC: The text does a great job on the basics. We incorporate a lot directly from the text into the lectures. We sometimes supplement, but that’s just to bring personal perspective. Bottom line: it’s a very good teaching tool that covers everything you need, especially the exhibits.

SL: It was the intended purpose of the Friedland text to be a very practical resource containing all the fundamental concepts that GI actuaries need in their work. Not only is the text a valuable reference book for the practicing actuary, but it is proving to be a very valuable study resource for actuarial exams and also instruction in a classroom setting.

Scott Lennox, FSA, BMath, FCAS, FCIA, is staff fellow, General Insurance, for Society of Actuaries. He can be contacted at slennox@soa.org.

1The SOA General Insurance Financial and Regulatory Environment (GI FRE) exam includes nation-specific material relating to financial reporting.
2The price of the textbook is $150; available from Actex Publications.