Dec 21, 2014

Actuarial Readability

As an actuary, accountant or financial consultant, deep knowledge, expert skills and experience are key to writing an interesting article or paper advice.

However, no matter how much you're an expert, finally you're as good as you can get your message across to your audience.

The art of the expert is to simplify the complexity of his/her research into simple, and for the audience understandable text.

In practice this implies that the expert will have to measure the readability of his papers before publishing.

The two most important issues to tackle are 'readability' and 'text-level'.

Although there are many sorts of tests, both topics are simply covered by the so called  Flesch-Kincaid Readability Test.

Let's take a look ate the two simple test formulas of this test:

Flesch-Kincaid Readability Test

Flesch Reading Ease Score

FRES = 206.835 – (1.015 x ASL) – (84.6 x ASW)

Flesch-Kincaid Grade Level

FKGL = (0.39 x ASL) + (11.8 x ASW) – 15.59

ASL  = average sentence length
number of words divided by the number of sentences

ASW = average number of syllables per word

number of syllables divided by number of words

Texts with a FRES-score of 90-100 are easily understandable by an average 5th grader and scores between 0 and 30 are best understood by college graduates.

Some examples of readability index scores of magazines:
- Reader's Digest Magazine: FRES = 65
- Time magazine: FRES = 52
- Harvard Law Review: FRES = 30

The FRES-test has become a U.S. governmental standard. Many government agencies require documents or forms to meet specific readability levels. Most states require insurance forms to score 40-50 on the test.

Where to test your documents?

Besides matching the FRES and FKTL scores in your document, as a guideline try to establish the next English text-test-characteristics
  • Average sentence length 15-20 words, 25-33 syllables and 75-100 characters.
  • Characters per word: < 7
  • Syllables per word: 1.5 - 2.0
  • Words per sentence: 15 - 20

This blog text resulted in scores:
- Flesch-Kincaid Reading Ease 64.7
- Flesch-Kincaid Grade Level 7.2
- Characters per Word 4.4
- Syllables per Word 1.5
- Words per Sentence 11.8

As an example we test the readability of one of the articles of the Investment Fallacies e-book, as published by the Society of Actuaries (SOA) :

By Max J. Rudolph, published in 2014

The readability outcome is as follows:

Readability Score 'The Best Model Doesn’t Win'

Reading Ease
A higher score indicates easier readability; scores usually range between 0 and 100.

Readability Formula

Grade Levels

A grade level (based on the USA education system) is equivalent to the number of years of education a person has had. Scores over 22 should generally be taken to mean graduate level text.

Readability Formula
Average Grade Level

Text Statistics
Character Count 7,611
Syllable Count 2,531
Word Count 1,495
Sentence Count 98
Characters per Word 5.1
Syllables per Word 1.7
Words per Sentence 15.3

Actuarial Texts
With regard to public financial or actuarial publications a FRES-score of around 50 assures, that your publication reaches a wide audience. Even in case you're publishing an article at university level, try to keep the FRES-score as high as possible.

If you write an academic paper, you may use the online application Word and Phrase to measure the percentage of academic words. Try to keep this percentage below 20% to keep your document readable. The publication 'The Best Model Doesn’t Win' would score 17% on academic words......

Next time you write a document or make a PPT presentation, don't forget to


Nov 9, 2014

Retirement Age Development

Due to the continuous ageing process and a strong ongoing growth of life expectancy, countries need to increase their formal retirement age.

Actuarial calculations show  in general that - in order to keep pensions affordable - the formal pension age for future generations will eventually have to increase to the age of 71 or even 75 years.

However, lifting up the retirement age is not an easy process, as people have grown up with the concept of a steady retirement date, all their life. As if 'work is slavery' and life only really starts at your pension date, when you abruptly stop working and live a life behind the window of your apartment...

However THE pension date doesn't exist, it's an illusion, a fata morgana...

Not only that retirement increases the age-related decline of health and cognitive abilities for most workers, it also increases your mortality rate, as a RP-2000 Mortality Study shows:

Secondly, nobody - not even an actuary - can predict the outcome of a pension plan over a period of 60-70 years. Pension dates and and long term pension outcomes are by definition unsure.

OECD Retirement Ages
What we can do is keeping the retirement age in pace with the development of our life expectation. This is exactly what some OECD countries have done, as the next chart shows:

Of  course, the optimal retirement planning depends on several economic en demographic developments in a country.

On the OECD page you can play and compare several pension-related variables across different countries.

Enjoy playing and learning from these OECD data.

- Unhealthy Retirement (2014)
- Does working longer increase your lifespan? (2010)
- OECD Page

Oct 6, 2014

Future Role of THE Actuary

To quote a leading Dutch actuary (Jeroen Tuijp):

THE Actuary doesn't Exist!

But what is, or could be the role of an actuary in the next decade?

Perception: What's an actuary?
The answer to the question "What's an Actuary?", strongly depends on who you are asking.

Some examples of possible answers:

  • Accountant: An Actuary helps to estimate and understand discounting the assets and liabilities
  • Board Member: My Actuary is my premium and liability adequacy advisor, he manages risk
  • Risk Manager: Our Actuary helps me to identify hidden risks and estimate embedded options
  • Investment Manager: Our Actuary helps me to define ALM and investment models
  • Administration Officer: I ask our Actuary for advice on how to administrate in an efficient way
  • ICT Manager: The actuary is responsible for defining the equations in our system
  • Marketing Manager: Our actuary is the driving force behind product development
  • Supervisory Board Member: Our Actuary is the lock on the door

The perception of the professional  contribution of an actuary not only depends on the view in the eye of the beholder, but also on the wide variety of roles that actuaries fill in all kind of organisations.

Some examples of the endless list of the many different (actuarial) roles and positions that actuaries fill in:
  1. Certifying Actuary, Advisory Actuary, Valuation Actuary
  2. Pension Actuary, Investment Actuary, General Insurance Actuary, Health Actuary, Life Actuary, Claims Actuary, Public Pension Actuary, Reinsurance Actuary
  3. Risk Manager, Capital & Solvency (II) Manager, 
  4. Marketing Manager, Head Product Development, Head Financial Control

On top of, the actuarial work field comprises a list of detailed professional disciplines, such as:
  • Regulation: Solvency (II) , Basel,
  • Technical Life Topics: Mortality, Longevity, Healthy Life years, 
  • Technical Non-Life Topics: Car & House Insurance, Catastrophe Risk, Health Insurance, 
  • Investment Topics: ALM, Risk Return Policies, Tail Risks, Economic Risks
  • Long list: Compliance, Resilience, Tax, Ethics, Financial Reporting,  Reinsurance, etc...

All of these viewpoints and wide professional manifestations make it hard to classify and compartmentalize actuaries, especially in and around boardrooms. Yet, actuaries are nearly in every field present, often without being identified or recognized as such!

An actuary is what we call 'The Elephant in the Room', or perhaps better formulated:

THE Actuary is the Multi-Perceived Elephant in the Boardroom

Despite of the wide range of positions actuaries can fulfill, it becomes harder and harder for actuaries to follow a career path that leads to a boardroom position as CXX...

Why is it so hard for an actuary to end up as CEO or COO of a company?

The simple answer to this question is:

Thinking in Stereotypes

Because actuaries are good at mathematics, people in general as well as professionals continue to view and stigmatize them as Overspecialized Nerds and Brilliant Autistics. This way of (wrong) stereotype thinking identifies actuaries often as 'problematic communicators' and 'non-managers'. As a consequence, the managerial qualifications of a lot of actuaries are unfortunately overshadowed by their outstanding professional technical skills.

Thinking in stereotypes is a phenomenon that is around us everywhere, as is shown in Herge's comic book "The Valley of the Cobras". In this book the (quixotic) 'Maharajah of Gopel' is vacationing in the french ski-resort of Vargése. Suddenly the Maharajah discovers his pearl necklace has been stolen and he needs a detective to track down his necklace.The rest of the story is shown in the short comic strip below (click to enlarge):

Conclusions and lessons Learned
THE future role of THE Actuary doesn't exist. As an actuary, fill in every professional role that attracts and fits you. Try it out, to discover you can fill in more than one role in the many healthy life years  ahead of you......

Finally some wrap up ground rules to keep in mind:

  1. Never think in stereotypes as an actuary!
  2. If you are an actuary and have the ambition to become a CEO, CFO or CRO of a company: Act, Dress, Speak and Behave accordingly, as other people probably will keep thinking in stereotypes
  3. If you meet other actuaries: Talk and behave like an actuary
  4. Ground Rule Number One: Always Stay Yourself!