Back in my first job at Liberty Mutual, Eric Brosius (yes, that Eric Brosius of actuarial lore), gave a little talk to some of the new hires. I don’t remember what the talk was about, but what stuck with me were his thoughts about studying for the actuarial exams.
Similarly to “The Management Matrix” from “The 7 Habits of Highly Effective People” (Important vs. Not Important & Urgent vs. Not Urgent), actuarial exam questions can be categorized into different quadrants.
When studying for an exam, it’s critical that you focus on preparing for the right type of exam question.
The Matrix of Actuarial Exam Questions
Actuarial exam questions can be broken down along two continuums:
- Likelihood – The probability a problem will show up on the exam
- Difficulty – How challenging a problem is
Based on these criteria, exam problems can be organized into four quadrants based on their likelihood and difficulty.
The key insight is this:
Some quadrants are more important than others! You should study differently for each problem category.
If you focus your exam preparation on the important quadrants, your studying will be more effective, and you’ll be more likely to pass the exam.
Quadrant 1 – Easy & Likely: “Easy point problems”
These are easy problems that show up on almost every exam. You MUST get these right. Almost everyone else taking the exam will get them right.
Danger:
Silly mistakes
Example:
Exam 5 – Question on Exposure Bases
Quadrant 2 – Difficult & Likely: “Critical Problems”
These are challenging problems that almost always show up on the exam. You need to be rock-solid on these. These are the problems that separate candidates who pass from candidates who fail.
Danger:
Not understanding the concepts and techniques on a deep enough level to handle a problem being asked in a different way.
Also, making silly mistakes (like solving for IBNR when the problem asks for Unpaid Loss).
Example:
Exam 5 – Berquist Sherman or a start-to-finish loss ratio ratemaking problem
Quadrant 3 – Easy & Unlikely: “Nice-to-haves”
These are easy problems that are unlikely to show up or may have never been tested. If you know the obscure formula or factoid on the exam, you’ll get a bonus point or two that most other candidates don’t.
If you have time to study for these, that’s great, but don’t confuse studying these topics with the most important topics that will show up on the exam.
Danger:
Spending too much time studying the minutiae and getting distracted from Quadrant 1 and 2 topics.
Example:
Exam 6 – Obscure thing (essay question or identify)
Quadrant 4 – Difficult & Unlikely: “Danger!”
These are challenging problems that have only been tested once or never. Most candidates won’t solve these problems. You don’t need to solve these to pass, but it’s nice if you know them. The bigger danger is getting sidetracked studying for these obscure, difficult topics and losing focus on studying for Quadrant 2 problems.
If you are rock-solid on Quadrant 1 and 2 topics, then it can be useful to spend some time studying these topics if you have extra time. I would focus more on high-level understanding as opposed to mastering all the details and formulas for these concepts.
Danger:
Wasting hours or days of precious study time trying to understand briefly discussed topics, footnotes, tangents, or borderline off-syllabus concepts that aren’t in the Content Outline Tasks.
Example:
Exam 7 – Heteroecthesious data: Partial Calendar Year
Pareto Principle
You probably have heard of the Pareto Principle. If you haven’t, it’s the idea that 80% of the outcomes come from 20% of the inputs. For example, 80% of a company’s sales come from 20% of the products (think Apple and the iPhone).
The Pareto Principle also holds for actuarial exams:
80% of the problems for the exam will come from 20% of the possible questions
Think of the universe of possible questions that could show up on your exam based on the source material. 80% of your exam’s questions will come from 20% of the possible questions that could be asked. Those 20% of the possible questions are likely Quadrant 1 and Quadrant 2 problems.
This means you should focus your studying on identifying and mastering that subset of possible problems.
You can pass the exam by mastering those key 20% of the possible problems and ignoring the other 80%. But if you study for all problems equally and are semi-confident in all possible problems, you’re much more likely to fail the exam.
Conclusion
Focus your studying on Quadrants 1 and 2.
Quadrant 3 are nice-to-have if you have time. It’s much more important to be rock-solid with Quadrants 1 and 2 than to get stuck in the weeds in Quadrant 4.
Quadrant 3 and 4 are where 80% of the theoretically possible questions are, but only 20% of an actual exam’s questions.
You won’t fail if you can’t answer all the obscure Quadrant 3 or 4 problem that shows up on the exam, but you will fail if you:
- Make silly mistakes on the easy, likely problems (Quadrant 1)
- Don’t understand the key concepts well enough (Quadrant 2)
Focus your studying on Quadrants 1 and 2.