Risk Modelling and Survival Analysis (CS2) Syllabus 2024

Associateship Qualification

Risk Modelling and

Survival Analysis (CS2)
Core Principles

Syllabus for the 2024 Examinations

April 2023

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 Risk Modelling and Survival Analysis (CS2) Syllabus 2024

Risk Modelling and Survival Analysis (CS2)

Syllabus for the 2024 Examinations
This syllabus includes information to support the study of this subject. It will guide you through what you
need to learn, application of learning as well as the skills that you need to develop. Information regarding
the assessment of this subject is also included.

This syllabus includes:

• Aim of the subject
• How this subject links across the Qualifications
• Subject topics and topic weightings
• Subject objectives

• Assessment information

Aim
The aim of the Risk Modelling and Survival Analysis Core Principles subject is to provide a grounding in
mathematical and statistical modelling techniques that are of relevance to actuarial work, including
stochastic processes and survival models and their application.

Link Across the Qualifications

Associateship Qualification
This subject assumes that the student is competent with the material covered in CS1 and the required
knowledge for that subject. CM1 and CM2 apply the material in this subject to actuarial and financial
modelling.

Fellowship Qualification
Topics in this subject are further built upon in SP1, SP7, SP8 and SP9.

Topics & Topic Weighting

1. Random variables and distributions for risk modelling [20%]
2. Time series [20%]
3. Stochastic processes [25%]
4. Survival models [25%]
5. Machine Learning [10%]

Objectives
1 Random variables and distributions for risk modelling [20%]
Statistical distributions suitable for modelling the variables and risks that arise within insurance contracts.
1.1 Loss distributions, with and without risk sharing
1.1.1 Properties of the statistical distributions that are suitable for modelling individual and aggregate
losses
1.1.2 Concepts of excesses (deductibles) and retention limits
1.1.3 Operation of simple forms of proportional and excess of loss reinsurance

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1.1.4 Calculate the distribution and corresponding moments of the claim amounts paid by the insurer
and the reinsurer in the presence of excesses (deductibles) and reinsurance
1.1.5 Estimate the parameters of a failure time or loss distribution when the data is complete, or when
it is incomplete, using maximum likelihood and the method of moments
1.1.6 Fit a statistical distribution to a data set and calculate appropriate goodness-of-fit measures
1.2 Compound distributions and their applications in risk modelling
1.2.1 Construct models appropriate for short-term insurance contracts in terms of the numbers of
claims and the amounts of individual claims
1.2.2 Major simplifying assumptions underlying the models in 1.2.1
1.2.3 Compound Poisson distribution and apply the result that the sum of independent random
variables, each having a compound Poisson distribution, also has a compound Poisson
distribution
1.2.4 Mean, variance and coefficient of skewness for compound binomial, Compound Poisson and
compound negative binomial random variables
1.2.5 Loss distributions for both the insurer and the reinsurer after the operation of simple forms of
proportional and excess of loss reinsurance where underlying losses take the forms given in
1.2.4
1.3 Introduction to copulas
1.3.1 Characterise a copula as a multivariate distribution function that is a function of the marginal
distribution functions of its variates, and explain how this allows the marginal distributions to be
investigated separately from the dependency between them
1.3.2 Meaning of the terms ‘dependence or concordance’, ‘upper and lower tail dependence’, and
state in general terms how tail dependence can be used to help select a copula suitable for
modelling particular types of risk
1.3.3 Know the form and characteristics of the Gaussian copula and the Archimedean family of
copulas
1.4 Introduction to extreme value theory
1.4.1 Recognise extreme value distributions, suitable for modelling the distribution of severity of loss
and their relationships
1.4.2 Calculate various measures of tail weight and interpret the results to compare the tail weights

2 Time series [20%]

Statistical concepts for modelling, fitting and forecasting data that is indexed by time.
2.1 Understand the core concepts underlying time series models
2.1.1 General properties of stationary, I(0), and integrated, I(1), univariate time series
2.1.2 Stationary random series
2.1.3 Stationary random series with a filter applied
2.1.4 Know the notation for backwards shift operator, backwards difference operator and the concept
of roots of the characteristic equation of time series
2.1.5 Concepts and basic properties of Autoregressive (AR), Moving Average (MA), Autoregressive
Moving Average (ARMA) and Autoregressive Integrated Moving Average (ARIMA) time series
2.1.6 Concept and properties of discrete random walks and random walks with normally distributed
increments, both with and without drift
2.1.7 Basic concept of a multivariate autoregressive model

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2.1.8 Cointegrated time series

2.1.9 Univariate time series models have the Markov property and how to rearrange a univariate
time series model as a multivariate Markov model
2.2 Applications of time series models
2.2.1 The processes of identification, estimation and diagnosis of a time series, the criteria for
choosing between models and the diagnostic tests that may be applied to the residuals of a
time series after estimation
2.2.2 Other non-stationary, non-linear time series models
2.2.3 Simple applications of a time series model, including random walk, autoregressive and
cointegrated models, as applied to security prices and other economic variables
2.2.4 Develop deterministic forecasts from time series data, using simple extrapolation and moving-
average models, applying smoothing techniques and seasonal adjustment when appropriate

3 Stochastic processes [25%]

Application of Markov models to model time-indexed risk and claim data arising primarily in insurance and
other appropriate business-related scenarios.
3.1 Stochastic processes
3.1.1 Stochastic processes, in particular a counting process
3.1.2 A stochastic process according to whether it:
• operates in continuous or discrete time
• has a continuous or a discrete state space
• is a mixed type
3.1.3 Applications of mixed processes
3.1.4 Markov property in the context of a stochastic process and in terms of filtrations
3.2 Understand and apply a Markov chain
3.2.1 Essential features of a Markov chain model
3.2.2 Calculate the stationary distribution for a Markov chain in simple cases
3.2.3 Understand and apply systems of frequency-based experience rating in terms of a Markov
chain
3.2.4 Time-inhomogeneous Markov chain model and describe simple applications
3.2.5 Markov chains can be used as a tool for modelling and how they can be simulated
3.3 Define and apply a Markov process
3.3.1 Essential features of a Markov process model
3.3.2 Poisson process, derive the distribution of the number of events in a given time interval, derive
the distribution of inter-event times and apply these results
3.3.3 Kolmogorov equations for a Markov process with time-independent and time/age- dependent
transition intensities
3.3.4 Kolmogorov equations in simple cases
3.3.5 Simple survival models, sickness models and marriage models in terms of Markov processes
and describe other simple applications
3.3.6 Kolmogorov equations for a model where the transition intensities depend not only on age/time,
but also on the duration of stay in one or more states

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3.3.7 Sickness and marriage models in terms of duration-dependent Markov processes and describe
other simple applications
3.3.8 The Markov jump processes and how it can be used as a tool for modelling and how they can
be simulated

4 Survival models [25%]

Description, estimation and use of statistical models for the time until an event occurs.
4.1 Concepts of survival models
4.1.1 Model of lifetime or failure time from age x as a random variable
4.1.2 Consistency condition between the random variable representing lifetimes from different ages
4.1.3 Distribution and density functions of the random future lifetime, the survival function, the force of
mortality or hazard rate, and derive relationships between them
4.1.4 Understand the actuarial symbols tpx and tqx and derive integral formulae for them
4.1.5 Gompertz and Makeham laws of mortality
4.1.6 Curtate future lifetime from age x and state its probability function
4.1.7 Understand the symbols ex and °ex and derive an approximate relation between them. Define
the expected value and variance of the complete and curtate future lifetimes and derive
expressions for them
4.1.8 Two-state model of a single decrement and compare its assumptions with those of the random
lifetime model
4.2 Understand the estimation procedures for lifetime distributions
4.2.1 Various ways in which lifetime data may be censored
4.2.2 Estimation of the empirical survival function in the absence of censoring and what problems are
introduced by censoring
4.2.3 Kaplan–Meier (or product limit) estimator of the survival function in the presence of censoring,
compute it from typical data and estimate its variance
4.2.4 Nelson–Aalen estimator of the cumulative hazard rate in the presence of censoring, compute it
from typical data and estimate its variance
4.2.5 Models for proportional hazards and how these models can be used to estimate the impact of
covariates on the hazard
4.2.6 Cox model for proportional hazards, derive the partial likelihood estimate in the absence of ties,
and state the asymptotic distribution of the partial likelihood estimator
4.3 Derive maximum likelihood estimators for transition intensities
4.3.1 Identify an observational plan in respect of a finite number of individuals observed during a finite
period of time, and define the resulting statistics, including the waiting times
4.3.2 Understand the likelihood function for constant transition intensities in a Markov model of
transfers between states given the statistics in 4.3.1
4.3.3 Identify maximum likelihood estimators for the transition intensities in 4.3.2 and state their
asymptotic joint distribution
4.3.4 State the Poisson approximation to the estimator in 4.3.3 in the case of a single decrement

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4.4 Transition intensities dependent on age (exact or census)

4.4.1 Dividing the data into homogeneous classes, including subdivision by age and sex
4.4.2 The principle of correspondence and its fundamental importance in the estimation procedure.
4.4.3 Specify the data needed for the exact calculation of a central exposed to risk (waiting time)
depending on age and sex
4.4.4 Calculate a central exposed to risk given the data in 4.4.3
4.4.5 Understand how to obtain estimates of transition probabilities
4.4.6 Identify the assumptions underlying the census approximation of waiting times.
4.4.7 Concept of the rate interval
4.5 Graduation and graduation tests
4.5.1 Statistical tests of the comparison of crude estimates with a standard mortality table testing for:
• the overall fit
• the presence of consistent bias
• the presence of individual ages where the fit is poor
• the consistency of the ‘shape’ of the crude estimates and the standard table. For each test,
describe:
• the formulation of the hypothesis
• the test statistic
• the distribution of the test statistic using approximations where appropriate
• the application of the test statistic
4.5.2 Reasons for graduating crude estimates of transition intensities or probabilities, and state the
desirable properties of a set of graduated estimates
4.5.3 How to test for smoothness of a set of graduated estimates
4.5.4 The process of graduation by the following methods, and the advantages and disadvantages of
each (the candidate will not be required to carry out a graduation):
• Parametric formula
• Standard table
• Spline functions.
4.5.5 How should the tests in 4.5.1 be amended to compare crude and graduated sets of estimates
4.5.6 How should the tests in 4.5.1 be amended to allow for the presence of duplicate policies
4.5.7 Carry out a comparison of a set of crude estimates and a standard table or of a set of crude
estimates and a set of graduated estimates
4.6 Mortality projection
4.6.1 Approaches to forecasting of future mortality rates based on extrapolation, explanation and
expectation, as well as their advantages and disadvantages
4.6.2 Lee–Carter, age-period-cohort and p-spline regression models for forecasting mortality.
4.6.3 Use an appropriate computer package to apply the models in 4.6.2 to a suitable mortality data
set
4.6.4 Identify main sources of error in mortality forecasts

5 Machine learning [10%]

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5.1 Elementary principles of machine learning.

5.1.1 Bias/variance trade-off and relationships with model complexity
5.1.2 Cross-validation to evaluate models on unseen data, and estimate hyper-parameters
5.1.3 Understand how regularisation can be used to reduce overfitting in highly parameterised
models.
5.1.4 The use of software to apply supervised learning techniques, to solve regression and
classification problems.
5.1.5 the use of metrics such as precision, recall, F1 score and diagnostics such as the ROC
curve and confusion matrix to evaluate the performance of a binary classifier.
5.1.6 Unsupervised learning techniques (principal component analysis, K-means clustering) to
reduce data dimensionality, identify latent substructure and detect anomalies.

Assessment
This subject will be assessed via two online written examination papers.
• Paper A, 3 hours and 20 mins (including reading time)
CS1A consists of a number of questions of varying marks where the candidate will need to construct and
type answers in Word.
• Paper B, 1 hour and 50 minutes (including reading time)
In CS1B, candidates can expect to answer questions of varying marks, using Microsoft word to complete,
construct and type their answers.
In order to pass this subject, you must sit both CS2A and CS2B within the same sitting, and achieve a
combined mark of a pass.

Topic weighting
The topic weighting percentage noted alongside the topics is indicative of the volume of content of a topic
within the subject and therefore broadly aligned to the volume of marks allocated to this topic in the
examination. For example if a topic is 20% of the subject then you can expect that approximately 20% of
the total marks available in the examination paper will be available on that topic.
Candidates for assessment should ensure that they are well prepared across the entire syllabus. The
examination can be composed of questions drawing from any part of the syllabus within any examination
sitting and using any command verb. This includes knowledge, techniques, principles, theories, and
concepts as specified. Candidates should not rely on past papers alone and should ensure they have
covered the entire syllabus as part of their learning and development of this subject. A list of command
verbs used in the examinations is included on the IFoA website.
In each examination, candidates will be expected to demonstrate, through their answers, that they have
knowledge of, can apply and use higher order skills in this subject:
• Knowledge will be demonstrated through answering questions that assess your
understanding of that knowledge as well as through questions that ask you to apply relevant
knowledge to scenarios.
• Application will be demonstrated through answering questions which assess that you can
identify and apply relevant concepts and skills to solve problems (both numerical and non-
numerical).

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• Higher order skills will be demonstrated through questions that will assess that you can use
relevant knowledge, concepts and skills to solve problems, draw appropriate conclusions,
and make meaningful and appropriate comments on those conclusions.
As a guide, in the examination of this subject, you can expect that approximately 20% of the total number
of marks for this examination be allocated to the demonstration of knowledge, 65% to application and 15%
to higher order.

Qualifications Handbook, Examinations Handbook and Assessment Regulations

Please ensure you read and have understood the Examinations Handbook and Assessment Regulations
ahead of your exam as well as the Qualifications Handbook. These are all available on the IFoA website.

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