Month: April 2018

I recently got this frequently asked question by email:

This will be my first exam on the ILA track. I’m debating taking LP or LFV. I know the SOA recommends LP first, but I wanted to know if you had any insight into whether taking LFV first would be a bad idea. I need all the study time I can get! Thanks!

I usually recommend taking LP first for people with a typical background because LP gives you a broader foundation in the underlying products, which can make a lot of the reserving concepts on LFV more meaningful and easier to digest. However, if you already have general valuation knowledge and have a decent conceptual foundation in life and annuity products, there’s no reason you can’t succeed taking LFV first, especially if you are planning to start early for the fall sitting.

We have also added some background information in certain LFV lessons to help make sense of products like indexed annuities (EIAs) since the LFV syllabus material doesn’t really give background on those more complex product designs before diving into the valuation concepts.

But again, all else equal, I think LP is the logical place too start. Not only does LP’s foundational product knowledge make it easier to digest material on LFV, LP has a good balance of verbal and calculation material that I think a lot of people find more manageable on their first attempt.

What about LRM and ERM?

And since I also get asked about taking LRM or ERM first a lot, I will add that I think what I said above is even more true for those. LRM, in particular, has a lot of concepts like asset-liability management that sit “on top” of LP and LFV concepts, so to speak. LRM is a relatively short exam, and there are several topics like market-consistent embedded value (MCEV) that LRM implicitly assumes knowledge in. I think people who study LFV topics like MCEV and reinsurance on LFV before taking LRM have a big advantage over those that do not.

In other words, I think people who take LRM first will, on average, spend more time trying to get their mind around certain syllabus topics than people who come into LRM having passed LP and LFV first. Similar comments for ERM, which does not get as “foundational” with product-specific knowledge and also certain reinsurance topics. I’ve seen students struggle to rationalize the underlying concepts associated with those topics. And I’ve also heard from students who took those exams first, and wished they hadn’t (even though they passed!)

In summary

So in summary, any order is allowed, and people certainly take the exams in all kinds of orders, but I think the most ideal order is:

1. LP
2. LFV
3. LRM or ERM

I think overall, for the typical person, this order is the most time-efficient and allows each exam to build on the previous.

Here is another very good question I got by email recently:

I’m finding myself a bit confused by the “describe” verb on FSA exams. Whenever I see this, I’m always tempted to write in complete sentences (and often paragraphs), which obviously soaks up some of my time. But when I look at a lot of sample solutions (yours as well as the SOA’s), I see a lot of bulleted items. I’m always scared of bulleting my “describe” answers because I’m worried it’ll look like listing.

Do you have any guidance on this? Does it still count as “describing” if my bulleted answer contains partial sentences, as long as each bullet doesn’t contain single words?

Bullets are absolutely fine. I understand the desire to want to write a nice looking response, but the SOA does not require this or even expect it in most cases. It is much more important to get the key points down. There just isn’t enough time for editing and writing proper prose under exam conditions.

Here is what the SOA has to say about using bullets in the Guide to SOA Written Exams:

Use bullet and number lists when appropriate. Well-constructed sentences and paragraphs are not essential, as long as your points are made. However, there may be times when formal writing is needed, such as a question that asks you to draft a brief report.

Be sure bullet and number lists are consistent with the verb. For example if you are asked to explain something, lists of one or two-word items are not sufficient.

I would also add, however: Even if you are writing complete sentences to explain something, don’t lose time trying to format it into neat paragraphs in the way you might for an essay. It is totally fine to write complete sentences on individual lines, even in bullet form like:

• The PV of benefits > PV costs
• Therefore company ABC should pursue this project
• However, they will need to reevaluate in one year after other costs are known

Again, this is not “fit” to publish in a book, but it gets down key points with minimal friction in the writing process itself.

On exam day, time is of the essence, so definitely don’t make writing responses more time-consuming than it already is!

I recently had an email exchange with someone about to take their first FSA exam, and realized it really makes for a nice FAQ to share:

The original question:

Can you get point deductions if you write too much for an answer?

Examples:

1) Question asked for 2 examples, but 4 examples are written down.

1a) Also, if 2 of the examples are relevant, and the 2 extra are irrelevant and/or incorrect, then do you receive point deductions? Or would they only grade based on having at least 2 correct?

I’m just wondering if on the exam, if I extra time after finishing the questions, if I should go back and put as much filler as possible.

To which I responded:

Good question. You will never, ever lose points by saying too much unless you contradict yourself. Points are really additive. You start with zero, then you add points to your score as you write (assuming you are answering the question correctly). If you write more than needed, you simply don’t get any extra credit, but you don’t lose points.

The only way you can “subtract” points is if you contradict something you already said that was correct. If an exam question asks you what color the sky is, and you answer “blue,” you get that point. But if you say:

• The sky is blue
• The sky is red

Then those cancel out, and get zero points.

And his next question:

What if I say the sky is blue, and the grass is purple? The grass comment is irrelevant and incorrect. Do you think that would be a point deduction?

To which I responded:

If it’s irrelevent then no harm done. You only lose time, but not points.

And this is worth emphasizing: even though you wouldn’t lose points, your time is finite. Once you feel you’ve fully answered a question, by all means, move on and grab more points on questions that remain!

 

In the past, there hasn’t been clear guidance on whether you are allowed to fold (e.g. “earmark”) pages of the case study during the 15-minute read-through, and it is not specifically addressed in the SOA’s official rules for paper and pencil exams.

However, the SOA recently sent this official email to MLC students, and we are assuming the same would apply to any FSA-level written exam. 

Read through time and writing before or after time – there is no writing/brain dumping, highlighting, folding of exam pages, or the use of a calculator until you are instructed to begin the exam. At the end of the exam once you are told, “Time has expired” you must stop writing. Failure to observe these rules will result in your exam’s disqualification.

Put simply, do not mark/fold anything during the read-through time. Wait until the exam official starts to do that. And certainly don’t do it after time expires either. 

If we get any other clarification on this matter, we will pass it along.

With the exam only a few weeks away, I know many of you feel a heightened sense of urgency. Many people increase their study hours dramatically in these final weeks. 

Just be sure to take breaks, and understand that if you have been studying regularly for the past 2–3 months, your mind already has an enormous amount of information in it. The mind is an incredible thing, and it will continue to make connections and synthesize material even when you are not consciously aware of it.

So don’t hesitate to put down your PDFs sometimes to take a walk, get some exercise, spend time with friends or family, and most importantly, get a good night’s sleep each night. A rested mind will allow you to get MUCH more per hour out of your study time each day.

Hang in there—we’re almost at the finish line!