FAP

FAP encompasses real-world applications and uses examples to demonstrate actuarial principles and practices. Practical techniques are presented to assist in your day-to-day work. You will also have opportunities to apply these principles and techniques in traditional and non-traditional actuarial practice areas. With the fundamentals in your toolkit, you will be better prepared to apply your learning to new areas of practice that may emerge during your actuarial career.

About the module

FAP Objectives

• Introducing you to financial security systems, common actuarial techniques, and practical experiences.
• Describing actuarial practices, principles, approaches, methods, commonalities, problems, and solutions.
• Explaining actuarial practices across the traditional areas of practice:
  • Life insurance
  • Property and casualty insurance
  • Health insurance
  • Retirement benefits
• Explaining actuarial practices as applied directly on behalf of financial security system providers or as a consultant to those providers.
• Preparing you to apply actuarial skills in nontraditional and emerging areas of practice.
• Providing context for the specific mathematical and technical skills tested in the Preliminary Education examinations, some of which you may have already taken, others of which you might be studying for now:
  • Probability
  • Financial Mathematics
  • Investment and Financial Markets
  • Statistics for Risk Management
  • Long-Term Mathematics
  • Short-Term Actuarial Mathematics
  • Statistics for Risk Modeling
  • Predictive Analytics
• Helping you prepare for your professional role as an Associate of the Society of Actuaries (ASA).

Each of these modules contains an End-of-Module Test and an Interactive Scenario. There are also four End-of-Module Assessments and one comprehensive Final Assessment.

Learning Objectives

FAP Risk in Actuarial Problems During your Risk in Actuarial Problems study, you will be exposed to typical actuarial problems and the processes used by actuaries to fully define problems. You will learn that problems revolve around risk and that identifying risks to be managed—i.e., looking below the surface—will help you to better define the real problem. You will learn how effective identification, analysis, and prioritization of various risks leads to a clearer definition of the problem and, ultimately, better solutions.

Section 1: Module Overview

1. Explain Define the Problem within the context of the Control Cycle.
2. Explain the significance of identifying and defining the real problem and its associated risks.
3. Describe risks that actuaries manage within a financial security system.
4. Describe risk management for financial security systems from a global perspective.
5. Identify commonalities among problems in existing areas of actuarial practice.

Section 2: Why Define the Problem

6. Explain how Define the Problem fits within the context of the Control Cycle.
7. Given an example of a financial security system failure, describe how a better problem definition could have been employed to help avoid the crisis.
8. Recognize the significance of successfully defining problems.
9. Identify risks related to financial security systems.

Section 3: Introduction to Risk

10. Define risk in an actuarial context.
11. Describe risk management.
12. Define risk types that need to be managed within a financial security system.
13. Explain how risk is transferred from a consumer to a financial security system.
14. Explain risk classification.

Section 4: Define the Problem and Identify Risks

15. Determine factors or influences that are important to identify and analyze risks.
16. Use techniques commonly used in asset-liability management (ALM) with financial security systems.
17. Describe the various risk measures that are used in ALM.
18. Describe the capital requirements for a financial security system.
19. Describe the role of risk measurement tools when analyzing the risks in financial and non-financial organizations.

Section 5: Recognize Problem Commonalities

20. Describe aspects of actuarial work that are both fundamental and common to all practice areas.
21. Categorize commonalities in actuarial problems.

Section 6: Communications

22. Prepare to communicate by answering six key communication questions.
23. Eliminate and limit use of acronyms.
24. Describe elements of effective presentations.
25. Describe elements of effective memos and reports.
26. Avoid common mistakes when communicating as an actuary.
27. Apply the principles of Actuarial Standards of Practice 41 (US), Standards of Practice 1700 (Canada), Section 8 Principle 6 (UK).

Designing and Pricing an Actuarial Solution In this module, Designing and Pricing an Actuarial Solution, you will further explore models by tying together what you have already learned into a framework for models that emphasizes pricing, reserving, and funding. Pricing is the function related to the determination of the cost for an individual to participate in a financial security system. Reserving is the function related to the determination of the amount of assets currently needed to be available to meet the financial security system’s obligations. Funding is the function related to the determination of the financial security system’s future capital needs and the allocation of current and future assets to meet those needs. The purposes and details of each of these types of models will be analyzed.

Section 1: Module Overview

1. Explain how the fundamental actuarial formula provides the basis for all modeling.
2. Demonstrate how models are applied to develop pricing, reserving, and funding solutions.
3. Explain how models are applied on an individual and group basis in the different practice areas.
4. Apply primary and secondary models to practice area pricing, reserving, and funding problems.

Section 2: Overview of Actuarial Models

5. Describe how the fundamental actuarial formula provides the basis for all modeling.
6. Describe how models are applied to develop pricing, reserving, and funding solutions.
7. Describe how models are applied on an individual and group basis in the different practice areas.

Section 3: Pricing Models

8. Explain how pricing models are used to solve pricing problems.
9. Explain how to use “secondary” models/methods to define parameters for pricing models.
10. Apply primary and secondary models to practice area pricing problems.

Section 4: Models for Reserving and the Allocation of Capital

11. Explain how reserving models are used to solve for reserving problems.
12. Explain how to use “secondary” models/methods to define parameters for reserving models.
13. Apply primary and secondary models to practice area reserving problems.
14. For reserving purposes, the application of models to solve the fundamental simplified equation as noted above can be completed on a “prescribed basis” or using a “principles-based” approach.

Section 5: Models for Funding and the Planning for Capital Needs

15. Explain how funding models are used to solve funding problems.
16. Explain how to use “secondary” models/methods to define parameters for funding models. Apply models to practice area funding problems.

Section 6: Tying It All Together

17. Summarize the fundamental concepts learned in the module in regard to pricing, reserving, and funding models within financial security systems.

Model Selection and Solution Design Designing and Pricing an Actuarial Solution focused on common actuarial models being used in the practice areas. A framework for thinking about models was introduced and you learned how the fundamental actuarial formula provides a basis for all modeling. You learned how models are applied to develop pricing, reserving, and funding solutions, as well as how they are applied on an individual and group basis in various practice areas. Finally, the application of primary and secondary models to practice area pricing, reserving, and funding problems was presented. Building on Designing and Pricing an Actuarial Solution, Model Selection and Solution Design provides an overview of the model selection and solution design process. This module begins with an explanation of how the model selection and model-building process fits within the context of the Control Cycle. A three-stage process for building and selecting models (i.e., define the problem, match the model to the problem, and design the solution) provides the basis for the remainder of the content within this module. Specific modeling steps that occur within each stage of the Control Cycle are also covered.

Section 1: Module Overview

1. Review modeling techniques and models used in actuarial practice.
2. Define the business problem that needs to be modeled.
3. Match the model to the problem in context.
4. Design a solution.

Section 2: The Module Control Cycle

5. Explain how the model definition and model-building process fits within the context of the Control Cycle.
6. Work through the process of defining and building a model.
7. Apply Control Cycle principles to the process of model design and building.
8. Describe the rationale for selecting a particular model.

Section 3: Pricing Models

9. Use the Model Control Cycle to solve a pricing problem.
10. Describe how different models can be applied to solve the same problem.
11. Determine which model is most appropriate for the presented pricing problem.
12. Practice applying a model to solve a pricing problem.

Section 4: Reserving and the Allocation of Capital

13. Evaluate YourHealth’s reserve methodology.
14. Determine if YourHealth’s reserves are adequate.
15. Determine the size of the reserve deficiency or surplus.

Section 5: Funding and the Planning for Capital Needs

16. Identify existing models that may be used or adapted for the business problem.
17. Identify available data and determine its adequacy, appropriateness, and sensitivity.
18. Identify required model inputs, assumptions, and constraints.
19. Define the model to be used for the business problem.
20. Understand the applications of Solvency II.
21. Build and test the selected model.
22. Confirm that the model output addresses the original business problem and that the results are reasonable and explainable.
23. Go back and forth between the Define the Model and Build the Model stages.

Selection of Initial Assumptions From your studies, you have learned quite a bit about assumptions. The definition of an assumption is “any non-factual, non-verifiable item that the actuary relies on in a model.” Assumptions may involve filling in a missing piece of data, projecting a future expectation, or hypothesizing about the relationship between two variables. The major types of assumptions are economic, demographic, and experience-based. Assumptions are important to actuaries and their stakeholders. How does an actuary select assumptions? What is the set of assumptions that are material to the business problem, solution, and model? What constraints or other determinants should be considered when selecting them? What methods and tools are available to actuaries when they need to quantify assumptions? These are the questions that will be answered in this module.

Section 1: Module Overview

1. Recall and describe the major categories of assumptions.
2. Describe assumption constraints and determinants.
3. Describe methods and tools for quantifying assumptions.
4. Describe international considerations and constraints.
5. Describe the interdependency of assumptions.

Section 2: Overview of Selecting Assumptions

6. Recognize the significance of assumptions to the success of ongoing risk management of the financial security system.
7. Identify types of actuarial assumptions.
8. Describe the processes used to select initial assumptions.

Section 3: Assumption Constraints

9. Identify assumption constraints and other determinants.
10. Describe assumption constraints.
11. Describe other determinants for assumptions.

Section 4: International Considerations and Constraints

12. Identify the differences between principle-based and rule-based approaches, which will differ in applicable solvency regimes.
13. Describe supplementary regulation and supervision, including corporate governance, risk and solvency assessment, supervisory review process, group supervision, and reporting requirements.
14. Describe definitions and guidelines regarding corporate governance.

Section 5: Methods and Tools for Quantifying Assumptions

15. Types of methods and tools used to quantify assumptions.
16. Methods used to select initial assumption.
17. Tools used to select assumptions.

Section 6: Applying Assumption Concepts

18. Apply assumptions concepts to realistic actuarial scenarios.

Section 7: Interdependency of Assumptions

19. Describe interdependency.
20. Explain how assumptions are dependent on other assumptions.
21. Explain how assumptions are dependent on the product’s design.

Monitoring Results In previous modules of this course, you learned that the Control Cycle can be stated quite simply as three stages: Define the Problem, Design the Solution, and Monitor the Results. In past modules, you learned to Define the Problem and Design the Solution. In this module, you will explore the Monitor the Results stage of the Control Cycle.

Section 1: Module Overview

1. Describe each element of the Monitoring Results Control Cycle.
2. Identify the results to be monitored.
3. Explain how to validate data gathered for monitoring results.
4. Describe possible methods of analyzing experience data.
5. Identify the source of experience deviations.
6. Identify possible solutions to problems resulting from experience deviations.
7. Explain the importance of appropriate communication and documentation while monitoring results.

Section 2: Introduction to Gathering Data

8. Explain how the Monitor the Results stage fits within the context of the larger Control Cycle.
9. Describe each element of the Monitoring Results control cycle.
10. Describe the process of identifying and gathering data necessary to monitor the results.
11. Describe the process of validating data.
12. Apply concepts related to gathering data in an actuarial scenario.

Section 3: Analyzing Results

13. Identify various methods for analyzing data when monitoring results.
14. Explain six data analysis methods including when to apply each.
15. Apply concepts related to analyzing results in an actuarial scenario.

Section 4: Providing Feedback

16. Identify possible sources of error.
17. Identify possible solutions to problems caused by adverse experiences.
18. Explain the critical importance of appropriate communication and documentation.
19. Apply concepts related to providing feedback in actuarial scenarios.

Section 5: Recap of the Control Cycle

20. Recall key actuarial concepts and principles related to Control Cycle elements.

Source Material

Source Material

• Anway, K.L., et al., 2026. E-Learning Module Readings, Volume II: Fundamentals, Fundamentals of Actuarial Practice, (First Edition), Society of Actuaries.
• Brown, R. L. and Lennox, S., 2015. Introduction to Ratemaking and Loss Reserving for Property and Casualty Insurance (Fourth Edition), ACTEX Publications, Inc.
• Segal, S., 2011.Corporate Value of Enterprise Risk Management: The Next Step in Business Management, Wiley.