I finally got around to reading through the 'Curriculum 2019' announcement the Institute made last year. Over the last couple of years, the Institute has carried out a comprehensive review of the qualification process. Based on this they then launched a new curriculum, called Curriculum 2019, which is due to be phased in over the next two years.
Some of the changes seem positive, but there's still some fundamental issues that I have with the exams, I thought this would be a good time to write about them.
First let's look at the new exams:
CS 1 - Actuarial Statistics
CS1 looks to be largely just CT3 with a little bit of CT6. The weighting of the subsections for Cs1 will be:
- Random variables and distributions (20%)
- Data analysis (15%)
- Statistical inference (20%)
- Regression theory and applications (30%)
- Bayesian statistics (15%)
My only comments on this would be that I've seen Regression models used in practice only once while I've been working. It does seem more common to use them in econometric models, and to a lesser extent they do seem to be used in banking/investments environment but on the whole I'm not sure how relevant they are to the work carried out by most actuaries. It could be argued that Regression Models are a useful precursor to the much more powerful and widely used Generalised Linear Model, but I'm not sure it warrants a 30% weighting here. Other than that, this module looks sensible.
CS 2 - Actuarial Statistics
CS2 is mainly based on the old CT4, and also has some of the CT6 topics which were not included in CS1.
The subsections are:
- Random variables and distributions for risk modelling (20%)
- Time series (20%)
- Stochastic processes (25%)
- Survival models (25%)
- Machine learning (10%)
The big point to note here is the inclusion of Machine Learning for the first time in the actuarial exams, I think this is a long overdue and much needed addition. My only criticism would be that it has not been given a greater weighting in the curriculum. I think the advances in Machine Learning, and the fact that most actuaries are not keeping abreast of the subject, is the biggest threat to actuaries remaining relevant within the larger analytics space. The danger is that actuaries will be increasingly sidelined over practitioners with backgrounds in Data Science and Artificial Intelligence. I would have argued for creating an entire module based on the advances in Data Science which I would have made entirely computer based with a focus on the practical application of the models.
In order to make room for an increased focus on Data Science, I would have reduced the time spent on Time Series and Survival Models in this module. Time Series, like Regression Models, are not that widely used in practice as far as I'm aware, with their main uses being limited to econometric models, and to a lesser extent in investment models. This part of the curriculum in my opinion could be moved to the Specialist exams section where relevant without much loss. Likewise for survival models, which outside of life and pensions do not have wider application.
CM1 - Actuarial Mathematics
CM1 looks like it is mainly based on CT1 and CT5.
The subsections are:
- Data and basics of modelling (10%)
- Theory of interest rates (20%)
- Equation of value and it s applications (15%)
- Single decrement models (10%)
- Multiple decrement and multiple life models (10%)
- Pricing and reserving (35%)
The invention of Decrement Models and Life Tables in the 17th century marks the beginning of Actuarial Science as a separate field of study. For this historical reason alone, I don't think there's much chance of them being dropped from the curriculum. Personally I've never liked them, finding them messy, and the calculations fiddly and time consuming. Given the fact that they are not used outside of pensions and Life Insurance I would definitely not complain if they were removed from the Core Principles part of the exams and moved into the Specialist Principles section instead.
I think I would definitely recommend to new Actuarial Students that they start with the CS exams or the CB exams before tackling the CM exams. The CM exams, while containing some useful topics, seem on the whole less relevant and less interesting than the material covered in the other exams. If a student came from a STEM background I would probably recommend they start with the CS exams, and if they came from a Economics/Management background I think I would recommend that they start with the CB exams.
CM2 - Actuarial Mathematics
CM2 is largely based on CT8. The subsections and weightings are:
- Theories of financial market behaviour (15%)
- Measures of investment risk (15%)
- Stochastic investment return models (10%)
- Asset valuations (20%)
- Liability valuations (20%)
- Option theory (20%)
CT8 is a tricky exam to judge, I personally enjoyed studying it, yet I'm once again not sure how useful a lot of the material is. Actuaries have often been accused rightly or wrongly of being out of touch with developments in related branches, and I think this was true of the advances in Financial Mathematics 20 years ago. Historically Financial Mathematics had an independent development to Actuarial Science, and for a long time the advances in Financial Mathematics, such as the Captial Asset Pricing Model (CAPM), or the Black Scholes Option Pricing Model, were largely ignored by the Actuarial Profession. An attempt was made to correct for this, and the CT8 module was invented. The issue now is though, that CT8 still has a relatively high weighting in the exams as a whole. Returning to my point about Machine Learning, the Institute has given Option Pricing (an obscure part of investment theory) twice the weighting of the entire subject of Machine Learning! The second worry I have about the CM2 syllabus is that since the Financial Crisis, Financial Mathematics has advanced considerably, with some topics falling out of favour (one such example being the Black-Scholes Option Pricing Model) and other topics have gained favour, yet the syllabus does not seem to have changed in line with these developments.
The other exams in Curriculum 2019 are basically one to one replacements of current exams, so I won't go through them in detail.
I will mention a few broader changes that I would make to the Institute's education policy.
3 Recommendations for a new Curriculum
When I was thinking about what I would change about the course notes I had quite a few ideas - include a module on coding, specialise earlier so that GI actuaries don't need to learn about with-profit life insurance contracts, Life Actuaries don't need to learn about the CAPM etc., expand the communications section of the exams (this one in particular would not be popular..), but other than the three I've written about below, all my ideas had pros and cons and I think I could be talked out of them. The three I mention below though though I think have really compelling arguments.
Recommendation 1 - Rewrite the Course Notes with the aim of making the subject as easy to understand as possible
The process for creating the course notes at the moment is quite convoluted:
Three main problems stand out for me with this process.
Firstly, when Act Ed receive the Core Reading, they are unable to change the ordering of the material. This has the unfortunate effect that often the material is not presented in the order which would make it the easiest to understand.. Material is instead introduced in the the order in which it was included as an item in the syllabus. This quite often necessitates flicking back and forward between pages and not understanding one section until you have read and understood a later section.
The second problem with the current process is that by providing an annotated version of the Core Reading, rather than writing the Core Reading in a manner which could be understood without annotation in the first place, we end up with this strange hybrid style which can be a significant barrier to understanding the material. The Core Reading produced by the Institute is often terse, can be inconsistent, and is not always friendly to the reader. The annotations are often well written and help to clarify the unclear sections, but why add the extra cognitive load? Just get someone like Act Ed involved at an earlier stage and write something that is coherent and easy to understand in the first place.
The third problem is that there is no single person taking responsibility for the finished product. For an Institution that prides itself on it's approach to accountability I think this is unfortunate. By giving someone with the relevant experience and skills overall creative and technical control over the finished product I believe we would end up with a much more polished and accessible finished product. The syllabus appears to be written by committee, and the Core Reading then expanded out with an awareness that clarifications will be made later. While I think Act Ed do a great job of turning this into something understandable, they are at this point constrained by the presentation of the Core Reading, I think a better product overall could be made by changing this process.
Due to the above three issues, when studying for the CT exams I would normally not read the Institute Course Notes at all until just before the exam, instead relying on Course Notes (published online for free!) from uni modules that covered the same material. Due to the exemption system, I found that I could often find modules which covered precisely the same material, but the notes would be written by a university lecturer with a deep understanding of the subject, and also experience of writing notes which are meant to be understood. Whenever I did this, I found the uni notes much easy to work from.
Recommendation 2 - Make all the material available online for free.
The Course Notes for the actuarial exams are really expensive. This basically restricts the people who are able to study the notes to those who are employed in an actuarial role, and who's employer is willing to fund them in sitting the exams.
Given the professions's public charter of "in the public interest, to advance all matters relevant to actuarial science and its application and to regulate and promote the actuarial profession" I think this would be a great idea, as opening up the material to anyone who would be interested in reading them would massively increase the number of people reading the notes. This would particularly lower the barrier for prospective students from poorer backgrounds or countries where the costs would otherwise be prohibitive. To me it's a no-brainer that you should try to reduce the barriers to education as much as possible. Providing free access to allow anyone to study actuarial science is a net public positive with very little downside.
There would not be a significant cost in the Institute hosting the e-books on the website for people to download given the web infrastructure is already there. But there would be a significant loss of income. Looking at the Institute's financial accounts for 2016/2017 the total income relating to 'pre qualification and learning development' was around £10 million, the proportion of this which is made up of income related to selling the Course Notes is not specified, but my very rough guess would be that it might be somewhere around a quarter of the total, so £2.5 million. This estimate is just based on the relative cost of the Core Reading (in the range of £50 - 100 for most exams), and the cost of entering the exams (in the range of £220 - £300 for most exams). This would represent around 10% of the Institute's total income, which is significant, but would not be impossible to offset against increases in other areas.
Recommendation 3 - move away from written Course Notes to Online Videos
Imagine instead of having to read through the Course Notes in order to understand the material, you were instead given one to one private lectures with one of the top educators in the entire country for the six months leading up to the exam. You are allowed to have the lectures at any time of the day, if you prefer mornings you can have them in the morning, if you prefer learning at 2 AM whilst listening to Kerry Perry on full blast then the lectures can be adjusted accordingly. You can repeat any particular lecture as many times as you like, and ask the lecturer to pause half way through a lecture while you think about something. The lecturer is also on top form each lecture, they are giving the best version of that lecture that they have ever given. When you put it like that it sounds pretty good!
I think some version of Massive Online Open Courses (MOOCs) or Khan Academy style videos are the future of education. The best metaphor I heard someone use to explain them is if you think back 200 years, if someone had wanted to write the Dark Knight, then Christopher Nolan would have still written the same amazing script, but rather than watching Christian Bale and Heath Ledger (two of the best actors in the world) star in a production which cost 185 million USD to make, you would have had to go to your local theatre and watch the best two actors in your village do their best take on Nolan's script. The budget would have been a fraction of 185 million, and if the actors were having a bad day, or forgot their lines, then they would have had to muddle through. Bale and Ledger had the opportunity of doing take after take until they came up with the perfect version that they were happy with. The video was then post processed and sharpened for months, before being shown to test audience and then further refined based on their feedback. The Institute could be producing 'Hollywood style' videos right now as a compliment to the Course Notes.