Actuarial Science CM1 An Introductory Brief

Have you ever wondered how insurance companies calculate their premiums and how the share price of a company is determined? How the mortality rate of a person is assessed and how financial managers choose which project to opt for?

Well, these are some of the basic calculations which actuaries do! And the subject which introduces you to such techniques is CM1 – Actuarial Mathematics.

CM1 – Actuarial Mathematics deals with the principles of modeling and mathematical techniques applied in actuarial work. It focuses particularly on deterministic models which can be used to model past and future cash flows those which are dependent on death, survival, or other uncertain risks.

This is one of the most important subjects of Core Principles’ series which you must study with absolute perfection as its knowledge is a prerequisite for almost all other actuarial subjects.

Let’s go through its contents and see how to crack it!

Let’s Have a Look At The Structure Of CM1

CM1 is divided into two parts – CM1A and CM1B. CM1A is a 3 hours 15 minutes written examination taken at the examination center and CM1B is a 1 hour 45 minutes problem-based assessment using Excel which can be taken from any location as per the student’s convenience. Both the examinations will have to be taken in the same sitting.

While CM1A assesses your theoretical knowledge and understanding of the concepts, CM1B will assess the application of the theoretical knowledge using real sets of data. The weights assigned to CM1A and CM1B are 70% and 30% respectively. However, the outcome will be based on the single evaluation of CM1 by adding the respective weights of the two papers.

Here Is A Basic Idea Of What You Can Expect To Study In CM1A

Before going further, let me tell you the variety of skills that can be tested in this exam – The approximate split of assessment of these skills is 20% Knowledge (the detailed knowledge and understanding of the concept), 65% Application (the practical application of the principles underlying the topic) and 15% Higher Order (the ability to do higher-level analysis, performing the complex calculations, decision making and giving judgments on various situations).

  • Data and basics of modeling (10%) – Deals with data analysis and modeling (uses, benefits, limitations, and how and why the models are used). We will also study the general cash flow models and financial instruments.
  • Theory of Interest rates (20%) – Deals with the knowledge and understanding of the interest rates for different time periods and cash flows. It also describes the time value of money and various actuarial symbols for annuities. You will also study the concepts of duration, convexity, and immunization. This section is very basic but very important. 
  • The Equation of Value and its Applications (15%) – The equation of value is one of the most important tools for solving various practical problems involving calculations of the price of financial instruments, premiums & reserves, and preparation of loan schedules.
  • Single Decrement Models (10%) – Here we gain an understanding of various assurance and annuity contracts and other types of insurance products. We will also study the various life table functions and their use. 
  • Multiple Decrement Models (10%) – Here we study the insurance contracts involving multiple lives. We will also do the valuation of cash flows involving uncertainty.
  • Pricing and Reserving (35%) – It is one of the most scoring sections of CM1. It involves the calculation of premium and reserves under various scenarios and gives us a clear picture of why companies set reserves.

Here Is A Basic Idea Of What You Can Expect To Study In CM1B

The study material for CM1B is not separate from CM1A but the concepts given in CM1A will be applied in Excel based on real data. So, the main topics of this section are Loan Schedule, Project Appraisal- NPV, Payback period, IRR etc., Premium and Reserve calculation, and Profit testing to name a few. However other topics can also be tested in the CM1B exam. So you should make sure that you are thoroughly prepared for the assessment.

Links To Other Subjects

Subjects which should be studied before CM1:

  • CS1 – Actuarial Statistics

Subjects which would require the knowledge of CM1:

  • CM2 – Financial Engineering and Loss Reserving
  • CB1 – Business Finance
  • CP1 – Actuarial Practice
  • CP2 – Modelling Practice
  • SP1 – Health and Care Principles
  • SP2 – Life Insurance Principles
  • SP4 – Pensions and Other Benefits Principles

The Overall Study Plan

So now if you have made up your mind to go for it, let’s see the overall study plan which you can follow:

  • Start with the core reading, understand every concept carefully and think of how it can be applied in real life.
  • For all the sections from which questions are expected to come in the CM1B exam, practice the given illustrations in Excel rather than doing them on paper.
  • Make sure you attempt the questions in Excel as well when reading the course notes.
  • The recommended study hours for CM1 is 250 hours. However, it depends on how committed you are towards the subject. Finish the core reading as soon as possible so that you may have ample time for revision.
  • The course material does not usually contain practice questions. For this purpose, you can check some Revision Materials on the Actuarial Education Company website.
  • Although there are no past papers of CM1 here are some practice modules which you can refer to.

This subject is very interesting and no doubt, there is a lot to learn in it. Also, the concepts introduced are highly important for your actuarial career; so instead of learning it by rote, understand the practical application of it by studying intensively.

This is all from my side. I wish you the very best! Happy Studying!

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