June/July 2012 Volume 9 Issue 3

The Way to Wellness A new area of opportunities for

Actuaries On Boards: Part III The right types of personalities for board positions

Thinking And Decision Making: Part III Choosing the most effective decision-making process

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“The technical sessions provided leading-edge and useful knowledge for actuaries to be prepared for future complex changes.” June/July The Actuary is published bi-monthly (February, Contributing Editors April, June, August, October, December) by the Corin Chapman, FSA, MAAA Society of Actuaries, 475 N. Martingale Rd., Suite [email protected] 600, Schaumburg, IL 60173-2226. Periodicals post- age paid at Schaumburg, IL, and additional mailing Peter Hayes, FSA, FCIA offices. USPS #022-627. [email protected] 18 This publication is provided for informational David Ingram, FSA, CERA, MAAA and educational purposes only. The Society of [email protected] Actuaries makes no endorsement, representa- tion or guarantee with regard to any content, Cathy Lyn, FSA, FIA and disclaims any liability in connection with [email protected] the use or misuse of any information provided Tom A. Phillips, FSA, MAAA herein. This publication should not be construed as professional or financial advice. Statements of [email protected] fact and opinions expressed herein are those of James Ramenda, FSA, CERA the individual authors and are not necessarily [email protected] those of the Society of Actuaries. Sue Sames, FSA, MAAA The Actuary is free to members of the Society of [email protected] Actuaries. Nonmember subscriptions: students, $22; North American $43; Int’l $64.50. Please send Ross Winkelman, FSA, MAAA subscription requests to: Society of Actuaries, P.O. [email protected] Box 95600, Chicago, IL 60694-5600. Ruth Ann Woodley, FSA, MAAA The Actuary welcomes both solicited and unso- [email protected] licited submissions. The editors reserve the right to accept, reject or request changes to solic- SOA President ited and unsolicited submissions, as well as edit Bradley M. Smith, FSA, MAAA articles for length, basic syntax, grammar, spell- [email protected] ing and punctuation. The Actuary is copyedited according to Associated Press (AP) style. SOA Staff Contacts Patrick Gould For more information about submitting an article, Managing Director of Marketing please contact Sam Phillips, magazine staff editor, & Communications at (847) 706-3521, [email protected] or Society [email protected] of Actuaries, 475 N. Martingale Rd., Suite 600, Schaumburg, IL 60173-2226. Lisamarie Lukas Director of Communications ©2012 Society of Actuaries. All rights reserved. [email protected] No part of this publication may be reproduced in any form without the express written permission Karen Perry of the Society of Actuaries. Publications Manager POSTMASTER: Send address changes [email protected] to the SOA, c/o Communications Jacque Kirkwood Department, 475 N. Martingale Rd., Suite Senior Communications Associate 600, Schaumburg, IL 60173-2226. [email protected]

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Cert no. XXX-XXX-XXX June/July 2012 issue of The Actuary ‘

Actuarial Thinking: Knowing when to June/July 12 avoid left turns 24

Cover Story Departments

18 the Way to Wellness 06 letter To The Editor: Comments on Read how the increase of corporate wellness Social Security trust funds programs is creating new opportunities for actuaries. 08 e ditorial: Actuaries in Nontraditional By David A. Sotelo Roles 10 l etter From The President: Our Features Responsibility To The Public 12 if The Personality Fits: Part III 30 e ducation: The Evolution Of Of The Actuaries On Boards Professional Development Series 34 Section HIGHLIGHTS: Focus on This article discusses the personality types that fit board positions. Financial Reporting, Long Term Care By G.M. Filisko and members of the SOA’s , and Management & Actuaries On Boards Task Force Personal Development Sections

24 Actu arial Thinking: Knowing 36 Out of the office: Actuaries On When To Avoid Left Turns Their Own Time Part III in the series on thinking and decision 40 The SOA At Work: Moving into making, this article explores how to choose new areas the right decision-making process. By Neil Cantle and Dave Ingram 42 Recommended Readings 12 Letter To The Editor Social Security trust funds

The Actuary received several letters similar to the one printed here. This letter encompasses many of the points in those letters. The opinions expressed in this letter are those solely of the letter’s author and should not be interpreted as those of the Society of Actuaries or The Actuary’s contributing editors.

Dear Editor, assets— plans, DB or DC, and other forms of savings—are in fact markers giving the holder/retiree claim to some part of the national Regarding Professor Douglas Eckley’s let- economic output even after the holder is no longer contributing. The ter in your April/May 2012 edition, pen- money due for those markers will be paid by current workers at the time sion plans, including Social Security, invest the excess of their current proceeds over benefits paid out. They invest in a Trust Fund Assets broad variety of instruments, some wise, The following is excerpted from the May 2011 issue of some not, but the most important thing Issue Brief published by the American Academy of Actuar- is that the excess money is invested, not buried in the plan sponsor’s ies. The excerpted material is from an article about the Social back yard to be dug up when needed. By law, Social Security’s excess Security Trustees report. proceeds are invested in bonds issued by the Treasury. What Treasury does with the money it borrows isn’t relevant. The only Trust Fund Assets thing that really matters in this context is that when the debt comes Any excess of tax income over outgo is recorded as an asset due, it will be repaid. To suggest that the Social Security Trust Funds are in the Social Security trust funds and allows the Treasury to empty because the feds spent the money borrowed from SSA is non- borrow that much less from the public. These trust fund assets sense. Suppose Social Security had invested one year’s net proceeds in are held in special U.S. Treasury securities amounting to $2.6 corporate bonds—half loaned to IBM and half to General Motors. No trillion at the end of 2010. Trust fund assets are expected to one would say that piece of the trust fund was empty because IBM and increase to $3.6 trillion at the end of the short-range estimate GM had spent on their businesses what they had borrowed from SSA. period (and peak at $3.7 trillion in 2029). The bonds in the Of course, it would be legitimate to say part of the trust fund was ulti- trust funds represent the government’s commitment to repay mately lost since GM went broke, thus devaluing its bonds, but unless the borrowed cash whenever Social Security needs the the feds similarly renege on their promise to fully redeem their bonds, money. As the securities are redeemed by the trust funds, the Trust Funds are, and will continue to be, alive and well. the U.S. government must raise the necessary cash either by raising taxes, increasing publicly held debt, or lowering other The real issue regarding Social Security is moving wealth between expenditures. A generations. And it’s an issue for every pension plan but Social Security’s scale makes it more obvious. Personal financial retirement

06 | The Actuary | June/July 2012 they are cashed. And the values of the markers will also be determined the bonds are paid off on time the Social Security Trust Funds will have then. What buying power retirees receive from their financial retirement done their job exactly as intended. But in fact the benefits paid out of assets is going to depend long-term on how much of the national output those bond proceeds will be paid by the current generation of workers, the current workers are willing to give up. That reality has the potential not by the workers whose taxes built the Trust Funds in the first place. to significantly affect security values, inflation, taxes and other aspects The same would be true had the money been invested in IBM and GM of our economy. bonds. This transfer of wealth across time and between generations may ultimately turn out to be the single most important problem the Specific to the Trust Funds, when the bonds come due someone is actuarial profession can help solve. A going to have to come up with the cash to redeem them. The feds can raise taxes to bring in the money, or re-borrow from someone who then Dennis Barry, FSA has money to lend. Regardless of how the cash is obtained, as long as Little Rock, Ark.

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June/July 2012 | The Actuary | 07 Editorial Actuaries In NonTraditional Roles

By Cathy Lyn

The actuarial profession has serious insolvencies, but our work can demonstrate a National Insurance Fund (for social security) competition from related professions to attract strength that deserves the image of an expert in and all departments with responsibilities for the best students when they are in the process our field, and a truly “trusted advisor.” public sector pension arrangements; overseas of choosing a career. However, more and governments including Malta, Gibraltar, more youngsters, especially outside of North In countries where the financial markets are Ceylon and Singapore; and the trustees for America, are aspiring to become actuaries. small, or still developing, such as my home pension funds of the United Kingdom and Most of those who choose the actuarial path country, Jamaica, there are inevitably fewer commonwealth public sector. Her training are a talented set of individuals with an affinity actuarial jobs. But often the context of the gave her valuable experience and exposure for mathematics who have something positive actuarial role itself is much broader than found to actuarial practices applied in different parts to offer. I would like employers to realize that in larger developed markets such as the United of the world. actuaries and actuarial graduates are valuable States. So, while it may not be necessary for employees who can give an organization a actuaries in the United States to consider Daisy returned to Jamaica to take up a post competitive edge even if they do not function a non-traditional role, I believe all actuaries as government actuary in the Ministry of in the traditional role of an actuary. An should remember that an actuary’s skills are Finance. A couple years later she started actuarial career has been publicized as among valuable in many other industries such as her own consulting firm concentrating one of the best jobs in America by offering energy and utility companies, transportation, mainly in the retirement and social security a pleasant work environment, good salary in fact, nearly any sector that requires a robust practice areas. and healthy job security. However, in recent application of risk management principles. years, some of the rankings have fallen and the It was Daisy’s volunteer work that took her actuarial job often now carries the perception I would like to give readers a glimpse of the into new territory. She became chairman of of being stressful. talent demonstrated by two people I know Public Services Commission, acted as deputy personally who have extended their actuarial chairman of the Jamaica Broadcasting This editorial paints a picture of actuaries flexing skills, taken on leadership roles and moved the Commission Board, and served as a board their actuarial skills beyond signing reports and boundaries out as they successfully ventured member at Prices Commission (now Consumer forms for legislative and compliance work. The into new areas. Affairs Commission), the regulatory body for public wants a strong, profitable and ethical protecting the rights of consumers, to name financial industry that can meet its contractual Daisy McFarlane Coke, ASA, FIA, spent time but a few. guarantees and ensure worthwhile benefits to in the U.K. Government Actuary’s Department their customers and they want to trust their which offered advice to: the Board of Her actuarial knowledge helped to gain an financial organizations. This is more vital in Trade, the ministry responsible for all trade understanding of how to use data from a the face of the global financial meltdown and matters, including insurance regulation and number of sources in decision making. She looming climate change. We cannot eliminate supervision; the Ministry of Finance; the learned the inputs that would be charged to

08 | The Actuary | June/July 2012 the final product, how to evaluate allocation of a short time as the CEO of a broker/dealer the advisory side expenses and profitability over a wide range of and then returned to Sagicor as the group rather than become goods and services in an equitable manner as corporate strategist. Ravi is currently the CEO influential as decision well as understanding that the costs would be of the International Division of the Sagicor makers and be borne by taxpayers. She spoke to various labor Group which incorporates the life insurance accountable for results. unions to initiate discussions on employee operations in the United States, the general Actuaries should study Cathy Lyn benefits, and helped develop the role of the insurance operations in the United Kingdom other disciplines, for example, management, actuary in serving both organizations and and the southern Caribbean. strategy and marketing and learn how these individuals and contributed greatly officially disciplines are interconnected to actuarial and unofficially to the development of the Ravi applied himself to master the new science. Be curious and keep asking yourselves, profession in Jamaica. She is a founding technical areas he adopted and he has been “How can the status quo be improved?” and member of the Caribbean Actuarial Association fortunate to have excellent mentors like Prof. proactively take a leadership role! (CAA) which is now a full member of the International Actuarial Association (IAA). Actuaries should study other disciplines … and learn how those disciplines are Ravi Rambarran, FIA, is a Trinidadian living in Jamaica and working for a Barbadian interconnected to . company with responsibility for insurance operations in the United Kingdom, United Steven Haberman and Stephen Yeo, FIA, from However, none of this will work unless there is States and the southern Caribbean. He was England, Errol Mckenzie, BSc, MBA, from also a level of personal development around awarded an Open Mathematics Scholarship Jamaica, Diane Bean, BA, from Canada and communication ability—an oft-raised criticism by the government of Trinidad and Tobago Dodridge Miller, FCCA, MBA, LLM, LLD (Hon), from those outside the profession, but not which opened the door to tertiary education from Barbados who have regularly provided without foundation. Right from university into for him. He is a fellow of the Institute of advice and opportunities. Following the issue student-level roles and throughout an actuarial Actuaries, a representative of the CAA on of the Green Paper on public sector pension career, continual development of the ability the IAA Insurance Committee, chair of the reform, Ravi’s latest contribution has been to to translate technical information into easily (CAA) Property and Casualty Insurance lead a CAA team to propose a benefit design understood results and advice is the key to a Standards Committee, chair of the CAA to reduce an unsustainable pension cost to the successful business career, in whichever part Public Sector Reform Committee joint parliamentary committee formed to deal of the market one works. I strongly believe in Jamaica and was recently elected vice with this matter. that all actuaries have a duty to serve their president of the CAA. profession by strengthening its image, not only As the above examples illustrate, an actuarial internally but also with other actuaries external As a young man driven to extend himself, training and qualification is just a start. The to your organization. Ravi has worked hard to gain experience actuarial education and training program in a variety of practice areas as an actuary. provides the fundamental skill to achieve I would like to thank Daisy McFarlane Coke, He qualified as a pensions actuary in success in the business world. That is, the Ravi Rambarran and Lesley Traverso of D.W. England, but when he came to Jamaica, ability to think—the ability to ask the right Simpson for their valuable contributions. A he found an opportunity to get involved in questions, to solve problems creatively, to apply group accident and health in addition to mathematical and analytical rigor to all aspects Cathy Lyn, FSA, FIA, is a consulting actuary for Duggan running a pensions portfolio. Subsequently, of “risk management” in its broadest sense. Consulting Limited and immediate past president, he became the appointed actuary to the Actuaries have to continually demonstrate this Caribbean Actuarial Association. She can be contacted at overseas subsidiaries of the parent company, ability to the managers and decision makers [email protected]. Life of Jamaica. The parent company was in their organizations. Why not actively seek later acquired by the Sagicor Group and he out problems in your company, as these are became the chief financial officer and chief opportunities to devise creative solutions. Too investment officer of Life of Jamaica. He had many actuaries seem to prefer to remain on

June/July 2012 | The Actuary | 09 Letter From The President Our Responsibility to the Public

By Bradley M. Smith

Precept 1 of the Code of Professional The level of required capital for insurance protect them from the financial consequences Conduct that applies to all members of companies and other financial institutions of an unforeseen disaster. Is this in the public’s the five U.S.-based actuarial professional has been front-and-center since the financial interest? So, while we may all agree with the organizations states: crisis four years ago. The initial reaction to the concept of working in the public’s interest, question of how much is enough is, “more is doing so may lead different professionals to “An actuary shall act honestly, with better”; reasoning that a financial institution very different answers. integrity and competence, and in a manner can never have too much. Of course, the more to fulfill the profession’s responsibility to capital one has, the less likely it will run out The underfunding of many of our public pension the public and to uphold the reputation of when a crisis occurs. However, that does not plans is seemingly in the news every day. Even the actuarial profession.” mean that the more it holds, the less likely cursory examination of these plans reveals it will become insolvent. Why? Because the the primary causes of this underfunding. For a “Acting honestly, with integrity and ultimate safety net for financial institutions is variety of reasons, plan sponsors have decided competence” is certainly something on access to the capital markets. Requiring more not to fund at the level recommended by their which we all can agree; as is “acting to uphold capital of insurers results in one of two things; actuaries. The investment results over the past the reputation of the actuarial profession.” either prices for the products offered by the decade have resulted in returns for the most However, while “acting in a manner to fulfill financial institution increase or its return on the popular asset classes well below historic norms. Additionally, investment returns have been very volatile, leading to an asymmetric response by The message here is simple. Do more than plan sponsors (i.e., raising benefits when returns the bare minimum. Do more than required have exceeded expectations without the ability to reduce benefits, once granted, when returns by the ASOPs. fall below long-term expectations). This one- way ratcheting up of benefits has led to systemic the profession’s responsibility to the public,” capital decreases. If the return decreases below underfunding of a significant number of plans. is something we can conceptually endorse, a figure acceptable to the capital markets, the Examples include replacing higher-paid, older determining how we do so, in practice, may institution’s ability to raise capital in a crisis employees with lesser-paid younger employees be a little less clear. Consequently, one well- will be impaired, increasing the likelihood of by granting early retirement. Also, allowing meaning actuary’s view of “acting in the insolvency. Such a result, certainly, is not in older employees in final pay defined-benefit public’s interest” may differ from another the public interest. If the cost of the products pension plans to increase their pension benefits equally well-meaning actuary’s view. offered by the financial institution increase in by working an inordinate amount of overtime response to the elevated capital requirement, in the years just prior to their retirement. And, Let’s examine a couple of examples that have the consumer will pay more for the product and of course, politicians sometimes appeal to recently appeared in the news. might not purchase the coverage necessary to public employee unions by granting benefits

10 | The Actuary | June/July 2012 that will be funded well past the politician’s theoretical discussions about the rate of return full ramifications that key tenure. Virtually none of these examples can that should be utilized. assumptions may have be attributed directly to the actuary serving on the results produced. the plan. However, fulfilling our responsibility Perhaps we should take the lead from the Some clients only want to the public requires providing insight into excellent examples of Rick Foster, chief actuary a signature. However, if Bradley M. Smith the possible financial ramifications of the of Medicare and Steve Goss, chief actuary of Rick Foster and Steve Goss can stand up to decisions made by plan sponsors. Did the Social Security. I have read the last few reports presidents of the United States and insist upon actuaries communicate the possible financial to trustees of each of these systems authored, giving insight as well as a defined “answer” to a ramifications of their potential actions in an in part, by each of these professionals. As you very specific question, certainly the rest of us can unambiguous, understandable manner? can imagine, over a 25-year-plus career as a insist on doing so with our clients. Quite frankly, consulting actuary, I have read many actuarial if clients resist our insistence on providing the Given the disappointing investment returns reports. I can say without equivocation that the appropriate level of insight, perhaps it is time for of the past decade, much attention has been actuarial reports for these systems are some of us to re-assess whether they are deserving of our paid to the level of assumed investment return the best I have read. time and talents. in the actuary’s work for public pension plans. One of the key considerations in the actuary’s We all know that actuarial models can be highly The message here is simple. Do more than recommended funding level is allocating leveraged on one or two key assumptions. the bare minimum. Do more than required the cost of the pension benefits fairly to Addressing how the results presented in the by the ASOPs. Don’t just give an answer to the different tax-paying generations. Assuming an report vary as these key assumptions change question asked; give insight into the problem overly conservative rate of return allocates is critical to the insight that may be gleaned by and communicate it in language that a non- a disproportionate amount of the cost to the reader of a report. The trustees’ reports for expert can understand. the current tax-paying generation. Likewise, these massive systems consistently meet this assuming an overly aggressive rate of return standard, despite sometimes severe political Only then have we met our responsibility to may result in future generations paying a pressure to do otherwise. the public. A disproportionate share of the cost. So which public do we serve, the current generation As chairman of a large multidisciplinary Bradley M. Smith, FSA, MAAA, is president of the Society of tax payers or the future generation of tax- actuarial consulting firm, I live in the real world. of Actuaries. He can be contacted at [email protected]. payers? Sometimes, unfortunately, these very I understand that, sometimes, clients do not basic questions get lost in our somewhat want the reader of our reports to understand the

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June/July 2012 | The Actuary | 11 If The Personality Fits

part III of the Actuaries On Boards series

12 || TheThe AcActtuuaaryry || June/July february/mar 2012 ch 2009 part III of the Actuaries On Boards series

february/march 2009 | The Actuary | 13 THIS ARTICLE DISCUSSES THE PERSONALITY TRAITS THAT LEND THEMSELVES TO BOARD MEMBERSHIP AND HOW YOU MAY BETTER FIT THE MOLD. BY G.M. FILISKO AND MEMBERS OF THE SOA’S ACTUARIES ON BOARDS TASK FORCE

orporate boards often used to be ways need to walk softly. The contribution “Clearly, I didn’t know everything about compared to parsley on fish— you make needs to have sensitivity to the the Tupperware organization when I got in- C decorative but useless. But near- idea of, ‘Are we stepping over that line of volved, but I did have good experience in death experiences will sharpen people’s protecting the stockholders’ interest into tell- managing direct-selling organizations that focus, and that’s exactly what happened ing management how they should actually performed on an international basis,” ex- after the nation’s financial crisis. Today, manage the company, as well?’” plained Cloninger. “That’s why they wanted corporate watchdogs and regulators me. TSYS has been a bit different because demand that board members do more than In other words, you should know what it’s a technology company, and I’m not a keep up appearances and instead perform boards don’t do. “Boards don’t run compa- person trained in technology. But I do know true oversight. Who better to provide that nies,” explained Steve Steinig, FSA, formerly how they make money in terms of process- accountability than an actuary? senior vice president and an actuary at New ing transactions for a fee and how they go York Life, where he served on several sub- about pricing … and things like that. I don’t With that in mind, the Society of Actuaries sidiary boards. “It’s not their role to decide if know everything, but I know a lot of the high- (SOA) has formed the Actuaries On Boards my assumptions for my pricing are good or level concepts, and that’s the key. You have (AOB) Task Force to explore opportunities bad or whether I’m using a good projection to be comfortable dealing with high-level for actuaries to pursue board service. Recent- of mortality or not and so on.” concepts instead of needing to know all the ly the task force interviewed more than 15 ac- details. You’re acting in an oversight role, tuaries who have board service experience Instead, Steinig said board members not a management role, and you have to get to gather advice for those who might some- choose a CEO they believe can run the used to the difference in those two roles.” day consider seeking such a position. This is company. And though they often don’t the third in a series of articles in which the possess the skill sets of the company’s se- THE RIGHT STUFF information gleaned from those interviews nior officers, board members should be How can you determine if you have the right will be presented. able to judge whether those senior officers “personality” to effectively perform oversight are capable. “They need a forest-and-trees but not veer into management? There’s no KNOW YOUR PLACE business perspective spanning the mar- question that at some companies, you’ll have Before you can pursue—or accept—a board keting functions of the corporation,” said a shot at a board seat only if you’ve broad- position, you should be clear on what, exact- Steinig, “along with just about everything ened your experience and skills enough to ly, corporate boards do. “It’s important that the corporation is doing.” reach the top of the corporate ladder. board members understand what their roles are,” said Dan Neary, FSA, who has acted as The board needs that expansive perspective “I’m biased because I’ve sat in the chair, chairman of the board and CEO of Mutual because another of its functions is to help but I really believe companies and boards of Omaha and served as a board member of chart the company’s course. That doesn’t are best served by participants having been Valmont Industries. “I look at it significantly require that you know everything about the CEOs,” said Dale Wolf, FSA, president and in terms of protecting the stockholders’ in- company’s business, said Kriss Cloninger, CEO of Jessamine Healthcare. Wolf has terest, playing a strong fiduciary role, and FSA, president, treasurer and CFO of Aflac been a member of several boards, includ- maybe helping to keep management from who has served on not only Aflac’s board ing Catalyst Health Solutions Inc. and Cov- making mistakes relative to risk—but to not but also the boards of Tupperware Brands entry when he was the company’s CEO. cross over that line where we’re also telling and TSYS. However, you must be fluent in “Obviously, that narrows down the number them how to manage the company. You al- high-level business concepts. a lot. But until you know the pressures a

14 | The Actuary | June/July 2012 Personality Actuaries On Boards

CEO is under and how to respond to those job. Pay too much, and they’re improperly management. As board members, we have to pressures, the lack of that experience can getting into the weeds. Steve Batza, FSA, realize the function is more oversight than op- impact the perspective of board members. president and CEO of MTL Insurance, has erations, and that might be for a lot of actuaries In terms of what helped me be effective on encountered two examples of actuaries a little bit of a blind spot. Many technical ex- boards, that CEO experience was invalu- who appeared to be lost in the weeds, thus perts want to get into the real excruciating de- able in every respect.” blowing their opportunity to serve on his tails of things and may lose what the concept company’s board. of oversight really means.” However, Wolf admitted that it’s possible to get the broad range of skills CEOs typically The first actuary didn’t make it past the re- Cloninger said, ultimately, you need to pos- possess without actually serving as a CEO. sume stage, Batza explained. The nominating sess the best qualities of a skilled consultant. Perhaps the most important of CEO-level committee determined based on his resume “It’s saying, ‘We’ll tell you as consultants what skills is the ability to quickly sift through and analyze a broad range of materials. “You It is ... important to know how to hit that have to be able to master information,” sweet spot between being a watchdog and a said Larry D. Zimpleman, FSA, chairman, president and CEO of the Principal Finan- lap dog. cial Group. “You have to be able to take in information, distill it, and find its essence.” that he had too narrow a focus. The second our advice is, and then you need to make up was interviewed, but her head-buried-in- your own mind as to whether it’s right for your Then you need the ability to use relevant in- numbers focus was off-putting. “She was company,’” he said. “That’s, in a sense, the formation to think strategically. That’s not more focused on the accuracy of our finan- role of the board member. Board members something Terri Vaughan, Ph.D., ASA, ACAS, cials, whether reserves are adequate, and might raise questions and make suggestions CEO National Association of Insurance Com- whether our accounting systems are tightly and then let management evaluate that input. missioners, who served on the Endurance controlled,” said Batza. “That’s as opposed to Then board members can assess what man- Specialty Insurance and Principal Financial the real concerns the audit committee should agement’s done with their comments or ques- Group boards, had fully appreciated before have, which is whether management is being tions and whether management’s response she joined a board. However, she learned held accountable and doing enough on risk appears to be adequate.” she enjoyed the opportunity to cultivate it. “I found other board members who had more corporate experience were much more pre- Use Our Skills Tool to Find pared to think in terms of strategy,” she re- Your Growth Areas called. “I was prepared to think about risk, but that’s only part of what a board does. A lot Learn about your strengths—and areas for of what a board does is think in terms of po- growth—by using the SOA Competency Framework sitioning the firm, strategy, and what market Self-Assessment Tool. The tool is an exciting offering should we be in. I actually found that to be that allows you to decide which areas to focus really a fun part of the job because it stretched on when planning your professional develop- me. I really had to learn new things and think ment. The Self-Assessment Tool is a series of about things differently. That was good.” questions that rank your areas for growth. Get started now at SOA.org/ It is also important to know how to hit that competency-framework. A sweet spot between being a watchdog and a lap dog. Pay too little attention to details, and board members are falling down on the

June/July 2012 | The Actuary | 15 THE SOFTER SKILLS the transition from being an actuary to go- other board members are important decision You can have all the business and strategic ing on a board has to do with not how smart makers, they’re likely not going to be subject- intelligence in the world. However, you’ll be you are but how convincing you can be.” matter experts in whatever the particular is- successful in the boardroom only if you are sue is,” according to Zimpleman. “You might able to build relationships with management It’s also critical to know when to communi- have somebody who’s a marketing expert. and other board members and know when cate concerns and how to do that in a way that We’ve got a board member who’s a Ph.D. and how to effectively speak up. doesn’t demean or diminish management or in nutrition. They don’t understand insur- other board members. “You can have some ance, risk management, and so forth and so “What’s more important than anything else environments whereby not much is asked nor on. So communication and the ability to not is your relationship with people and the is much received from board members,” said overcomplicate issues are absolutely criti- ability to influence a board,” said Claude Neary. “But if you bring on the right people, cal. That’s where reading the audience and Lamoureux, FSA, FCIA, former president and the dynamic that can exist on a board can be adjusting your message as necessary is impor- CEO of the Ontario Teachers’ Pension Plan; very beneficial to success, and it doesn’t have tant. You have to start at a very high level and he currently chairs the nominating com- to cross over that line of telling management then, hopefully, as you read the audience and mittee of the Public Sector Pension Invest- what to do. It can just simply be, ‘You know, see they’re comprehending what you’re say- ment Board and The Learning Partnership. I had this prior experience in my own career ing, you can get slightly more granular. If you “Teachers, a lot of times, would appoint where these pilots had every earmark of suc- go too far too fast, you’re going to lose them, some younger people to the board, and they cess only to be disappointing later because and you’re not going to be effective.” had a lot of trouble influencing other, more we missed one or two assumptions. So could senior people. So it’s the ability to deal with we go a little slower and validate some of BUILDING A FOUNDATION people and convince them that your point these assumptions before we jump in?’” If you don’t currently possess those skills, of view makes sense and to understand that you’ll have to begin working to develop things don’t happen just in the boardroom— Cloninger agreed diplomacy is a vital skill. them. While you’re at it, also begin learning that you have to do a lot of work outside the “Boards like to have members who are go- the fundamentals of corporate governance. boardroom if there’s a critical issue. To me, ing to be fairly collegial and get along with “Most actuaries aren’t very knowledgeable other board members,” he said. “You have about corporate governance,” said Phil to develop the ability to listen. Yet you also Briggs, FSA, who began serving on boards need the ability to both discern what’s valid in earnest after his retirement from MetLife. information and what information might He has served as a board member for Trizec need to be probed. So you have to develop Properties, Interstate Bakeries and Blue an ability to think critically without reflect- Cross/Blue Shield, in addition to several sub- ing criticism, so to speak.” sidiary boards during his career. “They also don’t necessarily know much about the busi- Reading people and being able to think on ness practices of a company. Some basic your feet will also serve you well. “While knowledge of those things would be useful Grow Your Skill Sets: Volunteer with the SOA

The SOA offers many opportunities for you to expand your leadership skills such as agenda planning, delegating, strategic planning, decision making and managing virtual teams via volunteer roles. You can also improve collaboration and communication skills such as brainstorming, negotiating and developing presentations by volunteering. To learn more about volunteering, visit SOA.org/volunteer. A

16 | The Actuary | June/July 2012 Personality Actuaries On Boards

to an actuary who’s interested in becoming sionalism. “Just being an excellent profes- “It’s the non-actuarial skill set—the commu- a member of a board.” sional and standing out among your peers nications, the understanding of other disci- is what’s going to set you apart,” contended plines like accounting, law, marketing and Briggs himself lacked that knowledge and Brad Smith, FSA, chairman at Milliman Inc., so forth—that is going to make a successful wished he’d acquired it earlier. “My regret who has served as an advisor to commer- actuary at the higher level a candidate for a with regard to board activity is that my com- cial boards. “Your reputation, integrity and board position,” Smith concluded. “I think pany didn’t encourage me to learn more professional standing are what is going to you train to be excellent and well-respected about boards and governance and so on appeal to a CEO or chairman of a board. I in your profession. The rest follows.” A at an earlier stage in my career,” he said. tell all our consultants that early in your ca- “I could have been a more effective board reer, you focus on getting your credentials. G.M. Filisko is a freelance writer. She can be con- member and more effective for my com- Then you focus on working in a company or tacted at [email protected]. pany if I’d had some experience outside of consulting firm that’s of high integrity and re- Actuaries On Boards Task Force: W. James MacGinnitie, my company, and I could have brought that spected. Then 10 or 15 years down the road, FSA, FCAS, MAAA, HonFFA; Nancy Bennett, FSA, CERA, MAAA; knowledge to bear on our own board. A lot when people start to call you as opposed to Max Rudolph, FSA, CERA, MAAA; Vinaya Sharma, FSA, CERA; of things I learned after I retired were things you calling them, it’s because you’ve built Thomas Terry, FSA EA, FCA, MAAA; John G. Turner, FSA, MAAA; I wish I had known before I retired.” your personal brand. The first year I was with Mike McLaughlin, FSA, CERA, MAAA, FIA; and Amanda C. Fox. Milliman, I got assignments because I was Ultimately, however, the best way to prepare with Milliman. In the 15th year, I got assign- is to focus on continued growth and profes- ments because I was Brad Smith.

June/July 2012 | The Actuary | 17 To W y e a lln W e e s h s T

The increase in corporate wellness programs is creating opportunities for actuaries. Here’s how to get in on the action. By David A. Sotelo

t’s difficult to argue that we aren’t in the middle of an employee wellness revolution. With average U.S. insurance premiums topping $15,000 per family per year for employer- sponsored health coverage,1 employers and payers alike are searching harder than ever for new and creative ways to rein in health care spending. Recent studies report that more than 80 percent of American employers with at least 50 employees have some formI of wellness program already in place,2 and the Affordable Care Act has placed wellness in the spotlight for smaller employers by facilitating access to these programs for those who may have previously found them financially unjustifiable.

18 | The Actuary | June/July 2012

Given the bright future ahead for wellness surers’ wellness products have evolved as on wellness programs or packages of pro- programs in the corporate workplace, it lost children managed outside of the core grams designed, marketed and adminis- seems obvious that every health actuary health plan leadership circle. The future tered by health insurance organizations. in the United States should be familiar success of these products will depend with at least the core concepts of well- on insurers’ ability to design highly cost- Most comprehensive wellness product ness product design and evaluation. How- effective programs with results that can be portfolios consist of a variety of programs ever, as more and more insurers are creat- reconciled to and integrated with trends in loosely distinguished by whether or not ing and launching their own proprietary medical and pharmacy claim costs. they are on-site. On-site programs are wellness initiatives, this budding field services provided by health care practi- has eluded the grasp of most insurance tioners and educators at the employer’s organization actuaries. physical worksite, including live nurse A Primer on Wellness and screenings, flu and immunization clinics, What many health actuaries may not real- Health Promotion and health education classes. Programs ize is that our competencies in pricing and Wellness is a broad term describing that are not traditionally provided on-site financial evaluation are valuable assets employer-centric strategies to combat include health risk questionnaires, multi- that go largely unrepresented in the field unhealthy activities that contribute to stage group fitness competitions and self- of wellness and health promotion. With- avoidable health care spending. It cov- paced lifestyle improvement courses. out this crucial angle, wellness program ers everything from employee gym mem- product design often lacks an important berships to targeted one-on-one health The evaluation of wellness programs and focus on cost effectiveness, and many in- coaching. This writing specifically focuses their benefits from the employer’s perspec- tive is a topic that has already received some attention from within the health care in- dustry. The Health Project’s C. Everett Koop Wellness Program Research Project Award, for example, recognizes programs with demonstrated success promoting per- sonal health and cost-effective health care If you’ve been wondering lately about opportunities for actuaries in the world utilization. Award recipients are typically of wellness programs, you’re in luck! The SOA has partnered with Sibson Consulting to large employer groups with a multi-level conduct a research project on a proposed actuarial model for wellness. evaluation framework for their own well- ness and health promotion programs. The The objectives for the study are: focus of their reported success, however, • Envision the possibilities for an actuarial model and the actuary’s role in wellness; is on ROI in terms of reduced sick days, • Document what currently exists in the marketplace; and enhanced productivity, and reductions to • Establish a conceptual actuarial model framework to support actuaries in the modeling, disability costs in addition to any medical evaluation and assessment of wellness programs and the impact of health on the various and pharmacy cost savings. Many of these actuarial practice areas. measures have limited relevance to health plans with a uniquely different set of well- The project is anticipated to finish in fall 2012. It will be available on the SOA website in ness program goals. the Health Research Projects section. If you have any questions about the project, please contact Steve Siegel at [email protected]. To an insurer, wellness programs offered alongside comprehensive major medical coverage offer two primary advantages:

20 | The Actuary | June/July 2012 1. Suppression of health care cost Besides the statistical bias that is evident program can be compared to non-partici- trend due to reduced utilization in these types of studies, these metrics pants or members who were ineligible to and severity of illness. don’t address the primary factor that participate. Health plans can leverage the 2. Member retention and growth, most drives employers to adopt these programs size of their book of business to create effectively when extended to em- in the first place: reining in medical ex- samples with high statistical credibility, ployees who are uncovered or in- penses. Actuaries are equipped with the and can enhance the model by applying sured by a competing health plan. knowledge and tools to answer the ques- risk adjustment to reduce the effect of se- tion, “How has wellness program participa- lection bias. Understanding the extent to which well- tion contributed to medical cost savings?” ness programs realize these objectives Using regression models, dummy vari- and designing programs that achieve Approaches to answering this question ables can be assigned to participating these goals cost-effectively are the two are not new or revolutionary. Many of the and non-participating populations to major playing chips that a health plan ac- tools available to actuaries evaluating test for statistically significant effects of tuary can bring to the table. wellness and health promotion programs wellness programs. An application of this

Actuaries are equipped with the knowledge and tools The Actuary as an Evaluator to answer the question, “How has wellness program Performance evaluation for wellness programs participation contributed to medical cost savings?” to date has primarily focused on measuring the behaviors and health status measures directly targeted by these programs. It is common to have already been tested and refined on analysis would be to regress participation report on “the number of participants” who another class of health care interventions: in a wellness program against year-over- have “above average/below average/increased/ disease management (DM) programs. The year changes in claim costs for participat- decreased” measures such as “cigarette use/ work of transforming complex financial ing versus non-participating, or eligible salt intake/cholesterol levels/BMI.” Ordinar- analyses designed to measure an employ- versus non-eligible populations. ily, these metrics are sampled once before the er’s return on its DM investment into a wellness program, and a second time afterward. framework relevant to an insurer measur- A more sophisticated extension of re- Measurements for those participating in the ing the impact of its wellness program is a gression analysis would marry wellness program may be compared against non-partici- bridge that few actuaries have attempted program participation data with clinical pants, or against standardized benchmarks. to cross. measurements from the physician’s office. Changes in biometric indices, compliance Propensity scoring models can be used with treatment plans, and reported lifestyle to compare randomly chosen mem- changes can be regressed against claim ber populations from an insurer’s costs. This sort of analysis would lend itself book of business. Members who to assertions such as, “for every member participated or were eligible who lowers their total cholesterol by 25 to participate in a wellness points, our studies predict an xx per- cent reduction to average claim expenses.”

June/july 2012 | The Actuary | 21 comes for wellness programs has not been More Information on Wellness historically well defined. Proper wellness program strategy for health plans should For more information on this subject, visit the blog post by Andrew Sykes, ASA, have clearly defined goals for medical FFA, at www.blog.soa.org, search term Andrew Sykes, where he discusses turning wellness cost trend suppression and membership from a dream to a real business advantage. retention/growth, including an appropri- ate turnaround time (in years) before positive results are to be expected.

In addition to measuring the impact of Actuaries are able to place quantifiable wellness on cost trends for existing mem- value on these measures and develop bers, health plans will also need to under- comparative analyses that advocate for stand the effect that these programs have The Actuary as an Advocate strategies most effectively aligned toward on member retention and, in cases where In addition to providing retrospective ana- achieving wellness program goals. Actuar- non-members are eligible to participate, lytics on performance, actuaries can also ies can address questions such as: “What membership growth. The value that ac- make valuable contributions to prospec- is the minimum number of participants tuaries bring to this discussion is our tive strategy, design and pricing for well- needed to break even on per-purchaser ability to identify and evaluate the driv- ness products. In the absence of a strategic start-up costs?” “What is the marginal ben- ers of membership retention and growth focus on performance objectives, it’s easy efit of each new member conversion that attributable to sources other than well- for wellness and health promotion prod- results from non-member program partici- ness program participation. By factoring uct leaders to overemphasize the value of pation?” and, “At what point in time should out variance due to changes in employer brand marketing and competitive bench- wellness activities begin to have a mea- contribution strategy, member cost shar- marking alone when developing goals for surable effect on cost trends and clinical ing and network adequacy, actuaries can in-house wellness and health promotion health measures?” build an evaluation framework that sin- products, without fully understanding the gles out the effect of wellness programs full marginal economic benefit generated Responsible wellness program pricing alone on member retention and growth. by these programs. should be informed by all tangible costs, including development, overhead, market- Insurers’ wellness program strategies have ing and fees, as well as intangible benefits historically been only loosely results-ori- that offset those costs, such as member- ented. A major challenge here is the long ship growth that results from enhanced turnaround time before positive results brand recognition. Actuaries must ap- are realized on investment in preventive- proach wellness program pricing from a oriented health promotion activities. Sim- holistic perspective, often requiring evan- ilarly, the quantification of positive out- gelical skills at communicating and so- cializing economic concepts and drivers that are difficult to understand and easy to ignore.

Juggling pricing decisions for a portfo- lio of unique wellness products requires a deep understanding of the behind each one. For on-site programs, as

22 | The Actuary | June/July 2012 one example, many of the services per- who can only offer promises of health sta- formed at the employer’s worksite are al- tus improvement. Defining guardrails and David A. Sotelo, ASA, MAAA, is an actuary for ready accessible to members visiting the eligibility for this type of arrangement is Cambia Health Solutions. He can be contacted at [email protected]. doctor’s office. The actuary’s contribution impossible without the involvement of ac- here is the ability to capture and illustrate tuaries who have one foot in health plan Endnotes the additional resources needed to deliv- ratemaking and pricing. 1 “Employer Health Benefits: 2011 Summary er these services at the worksite instead of of Findings,” The Kaiser Family Foundation the doctor’s office, as well as demonstrat- and Health Research & Education Trust. ing the offsetting gain to the health plan 2011. http://ehbs.kff.org/pdf/8226.pdf in doing so. The actuary can also lever- Positioning the Actuary as a 2 “Building a Well Workplace: Six Reasons age skills at evaluating and interpreting Wellness Leader Why Health Promotion Makes Good Business emerging claim experience to opine on To wellness program leaders, the value Sense,” Wellness Council of America. http:// www.welcoa.org/wellworkplace/index.php whether or not participation targets for that actuaries can bring to the table is sim- various wellness programs are reasonable ply not understood. Actuaries must take a given historical patterns. proactive role in broadcasting this value, including bringing wellness stakeholders As wellness programs have gained more into the pricing and ratemaking process. traction in the workplace, employers have Actuaries must also find opportunities begun to demand stronger demonstra- to extend their services and expertise to tions of value. Traditional pitches focus wellness product managers and decision on improvements in self-reported health makers whenever possible. status among members participating in wellness programs. Emergent approaches Considering the bright future ahead for merge clinical outcomes with self-re- wellness and health promotion programs, ported data to add to the demonstration it is important that actuaries embrace of improved health status (e.g., reduced this nontraditional field instead BMI, higher preventive screening rates of dismissing it as outside the and clinical outcome benchmarking). sphere of actuarial exper- The next evolution of this value demon- tise. As insurance orga- stration will involve linking improvements nizations look for new in health status to reductions in medical and creative ways to costs. For experience-rated groups, this is apply their resourc- a powerful marketing tool that the actuary es toward bending will be instrumental in shaping. health care cost trend in evolving markets Actuaries are the key to connecting the and regulatory envi- economics of wellness programs with in- ronments, wellness and surance premiums charged for medical health promotion appear coverage. The health plan that can offer a to be gaining more and multi-year rate guarantee or future renew- more traction as viable tools al premium ceiling contingent on mini- for staying on the competitive mum threshold participation in a wellness edge. A program has a powerful edge over those

June/july 2012 | The Actuary | 23 Systems thinking

Actuarial Thinking: Knowing when to avoid left turns

Knowing when to avoid left turns

The series finale on Thinking and Decision Making, this article explores when Actuaries should use a heuristic or systems analysis method of decision making. By Neil Cantle and Dave Ingram

id you know that FedEx drivers rarely make left turns? Both UPS and FedEx announced back in 2007 that they found that minimizing left turns from their deliv- D ery drivers’ routes actually saved time and money. You can imagine what they had to go through to make that decision. First, someone had to have the outside-the-box idea, then they studied traffic flow and accident information and then someone probably built a model to simulate a large number of deliveries with and without left turns. Finally, they took that research and turned it into a simple bit of standard operating procedure.

There were four steps to that process. First, someone noticed that there was a problem with routes with left turns. Second, they studied the system of traffic flows and accidents and spot- ted patterns that suggested an underlying mechanism at work. Third, they built a statistical simulation model of the problem. Fourth, they turned what they learned into a simple rule of thumb or heuristic.

The best actuarial work will usually go through a similar pattern. The actuarial control cycle was developed to ensure that actuaries remember to challenge their models as new data be- comes available. Good actuaries are respected for their deep knowledge of how things work and their ability to model them. This merging of the real and statistical worlds to produce us- able rules of thumb for non-actuaries is what makes good actuaries valuable.

While the best actuaries may have long been wrapping their statistical models with deep insights up front and simplifying communications at the back end, researchers have been developing those processes into fields all their own. What actuaries now need to consider is whether we need to learn from their research and incorporate the findings into professional actuarial work.

June/july 2012 | The Actuary | 25 necessarily needing to know how it works. Much of the criticism leveled at statistics This, of course, makes studying the problem comes from the fact that it applies tests to much simpler. Much of the world is highly prove whether a hypothesis of the world Statistics Are Not Enough complex, so statistical approaches have pro- is true or not. Depending upon the level It is hard to imagine running an insurance vided a way to make progress in understand- of certainty required, there is a feeling that company without actuaries; however, many ing even where a detailed knowledge of the you can pretty much prove anything is true. years ago people tried. But they struggled; problem’s mechanics is absent. A mathema- Again, this largely comes back to the fact that at least some of them did, to understand the tician might say that statistics can be used to statistics tend to make big predictions about right amount to charge and how much they describe the behavior of phenomena when outcomes but do not explain the mechanism needed to hold onto to give reasonable as- we do not know the actual equation that de- by which they occur, giving people little sub- surance that they could pay out future claims fines that behavior. stance to buy in to. and obligations. With the help of actuaries and actuarial methods, the answers to those So even with the benefit of actuarial- and questions about rates and, reserves became statistics-based financial math, actuaries are somewhat more routine and with those an- Need To Understand always complaining—complaining of lack of swers, some insurers have survived for hun- The apparent success of statistical approach- voice, lack of influence in the affairs of the dreds of years. es has arguably focused a generation of firms that seem to fundamentally rely upon practitioners on modeling outcomes and not their expertise. People also traded options and futures con- everyone remembers the assumptions that tracts for thousands of years without the ben- are being made in applying statistical meth- In another part of the financial services efit of statistics. Since the application of statis- ods to a problem. Whilst studying the trend world, many institutions placed very heavy tics to finance, the perceived safety of trading in outcomes is a powerful way to understand reliance on financial quants, some of whom of derivatives and the volumes of such trades something, it does not provide insight into were literally rocket scientists wielding their have increased by orders of magnitude. why the outcome is that. This lack of explan- statistical models. As we all know, this story atory power can lead to the results being did not end well. The rocket scientists and Statistics in general, and actuarial techniques hard to understand and causing people to their models missed the big picture of the in particular, have proven to be immensely miss the fact that the model has ceased to be flawed mortgages deep inside of their incred- powerful methods to find and exploit situa- a suitable representation of the event being ibly complex structures because they were tions where either combining or separating studied. This can be particularly dangerous only looking at the outcomes and not what risks can be advantageous. Statistics is all when the models are making predictions was really happening underneath. about data: collecting it, organizing it, ana- about rare events so you cannot directly ob- lyzing it and interpreting it. In the hands of serve conflicting evidence to highlight that actuaries, studies of mortality, health, natu- the model is wrong. ral disasters, motor accidents, etc., have all Understanding Why yielded to statistical analyses permitting the The language of statistical analysis is beguil- Other sciences found that complex behav- individual risks to be seen as sufficiently ingly obvious and yet great care is actually iors and outcomes are not necessarily the predictable that companies are prepared to needed to make sure the underlying assump- result of complex rules and that the interac- accept them for a suitable premium. Centu- tions are understood and that the messages tions between factors are crucially important ries of insurance business have been based from studying the model are actually inter- to the understanding of such phenomena. upon the notion that risk events become preted correctly. One of the most common This is somewhat at odds with the statistical somewhat predictable when viewed in suf- mistakes is that people assume correlated world where outcomes are all that seem to ficient numbers. A particular strength of sta- factors are actually linked in some way. In matter. Applying a systems approach to un- tistical methods has been that people can fact, correlation makes no statement at all derstanding a problem requires the modeler focus on the outcomes of a process without about whether two variables are connected. to first appreciate the whole, before apply-

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Knowing when to avoid left turns

ing reductionist methods to replicate it. This ics to stock markets while economists provid- in schools. In the RDM process a decision discipline of remaining open-minded about ed the rationale. maker will identify potential solutions to a what the driving processes are and then up- problem and then evaluate the characteristics dating one’s beliefs in the model is a good But there are (at least) two major flaws to this of the outcomes under those solutions to find way to prevent the model itself being seen advance in the scientific and mathematical the optimal choice. as unassailable truth. An unhealthy belief in approach to understanding the future. First, models arguably contributed to the recent the bulk of humanity has not had the requi- Herbert Simon (1957) identified a major flaw crisis and serves as a good reminder that un- site amount of math training to understand in the RDM approach. There is no natural lim- derstanding why the model is producing a particular outcome is a very important part of “Satisficing” means concluding the decision the modeling process. In two recent articles process when a satisfactory outcome can be in The Actuary, we described two different ap- proaches to thinking and decision making— found from one decision alternative. Heuristics (“The Evolution of Thinking,” Feb./ March 2012) and Systems Analysis (“Systems any of this. And, in that bulk resides most of it to the analysis needed to reach the optimal Thinking,” April/May 2012)—that are, we be- the top executives of the very companies who conclusion. Simon suggested that RDM re- lieve, the answers to these seemingly oppo- must rely on the quantitative analysis. quired “unbounded rationality,” or, in other site problems of underreliance and overreli- words, potentially infinite data and infinite ance on quants. But while the quants were advancing their analysis. ability to do analyses of dizzyingly complex The approach that is fundamental to actuarial financial transactions, psychologists were Actuarial methods are ultimately a part of science and to quantitative finance is rooted studying how the bulk of humanity makes an RDM process. The unbounded rationality in a new branch of mathematics, perhaps the their decisions. In The Actuary article, “The idea is easily seen in the frequent calls of ac- youngest branch of that very old tree, statistics. Evolution of Thinking,” (Feb./March 2012), tuaries for more data and more time to com- the work of Gerd Gigerenzer was cited ex- plete the analysis. plaining the “Fast and Frugal Heuristic” (FFH) as the best representation of how the other 99 Simon went on in his work to develop the The Language of Risk percent think. With FFH, people will naturally idea of “satisficing” as a decision criteria Statistics allows for a mathematical expres- form decision rules where they automati- instead of optimizing. “Satisficing” means sion of the unknown future. Its most powerful cally evaluate thousands of possible clues concluding the decision process when a sat- application is in the determination of an ex- and quickly isolate a few that are all that is isfactory outcome can be found from one de- pected value of some future set of possible fi- needed to find a reasonable solution to most cision alternative. nancial outcomes of an indeterminate agree- problems. ment between parties. As the applications of statistics were expanded in the financial Another psychologist, Gary Klein, in his book world, statistics also naturally became the Sources of Power, describes studies of real A Different Approach language of risk. The main thrust of econom- people making life-and-death decisions. The The findings of Klein’s studies line up well ics over the past 50 to 75 years has been to process he finds is called Natural Decision with Simon’s “satisficing.” The experts stud- translate the ideas of how the world of com- Making (NDM). When he dissects the NDM ied by Klein spent their time in a pattern that merce works into the language of statistics so process as it is practiced by true experts in was directly opposed to the RDM model. Un- that the powerful tools of statistical calculus fields as diverse as firefighting and aviation, der RDM, the decision maker needs to spend could be applied. At some point, scientists he finds that the process is usually fairly simi- most of his or her time studying the alterna- crossed over into the financial world and lar, but not at all similar to the Rational Deci- tive solutions. Klein found that in real life, started to apply models from quantum phys- sion Making (RDM) that is frequently taught most experienced decision makers spent al-

June/july 2012 | The Actuary | 27 most all of their time studying the problem. his comment was a backhanded slam at the types of incidents that are just not visible to As they studied that problem, they were total inaccuracy of the models. the standard analysis techniques. constantly eliminating possible solutions as unsatisfactory. They usually only consid- Actuarial models have had big misses as Outside-the-box thinking is usually based ered one potential solution at a time. When well. In the United Kingdom, actuarial ap- upon Systems Thinking. It seems to be so these experienced decision makers ran out praisals of annuity liabilities were found to unusual because most people do not try of time or were satisfied that they had stud- be short by a large fraction in the early part to understand systems most of the time. In most situations, people just assume that Outside-the-box thinking is usually based tomorrow’s weather will be the same as yesterday’s. It is computationally more upon Systems Thinking. efficient for a brain to spot patterns and trends than to think too deeply about why ied all important aspects of the problem, of this century. In the United States, actu- it is happening that way, so it is not surpris- they then decided to use the single solution arial models of variable annuity guarantees ing that most people default to studying that was still under consideration, one that drastically understated the cost of out-of- problems that way. would work. the-money guarantees in the run up to the dot-com collapse. Other insurance models As we pointed out in The Actuary article These two approaches, FFH and NDM, as of natural catastrophe risks have proved to “Systems Thinking” (April/May 2012), statis- practiced by Klein’s experts appear to fit well be inadequate to anticipate the frequency tical models are by themselves insufficient into Kaheneman’s “Thinking: Fast and Slow.” and severity of catastrophes that have hit in- to capture the range of possibilities of a The Heuristics are the fast thinking and the sured zones in the past 10 years. Nassim Ta- complex adaptive system. Systems Think- NDM approach the slow thinking. But RDM, leb’s book, The Black Swan, is about those ing can provide the insights that allow ac- which includes most actuarial analysis, is out- side of these two common systems of thinking and decision making. Klein found that only Heuristic Process very inexperienced decision makers used an RDM approach. This discussion gives a com- pelling description of why decision makers EXISTING may not seem to be listening to actuaries. HEURISTIC

Big Misses and Outside the Box One of the reasons why decision makers seem NEW UNEXPECTED to not be listening to actuaries is the fact that HEURISTIC INFORMATION like the financial pricing models of mortgage securities, actuarial work sometimes misses the mark. Not by a small amount. In the phras- ing of David Viniar of Goldman Sachs, a “25 standard deviation event.” Many people take that to mean that Viniar does not understand how ridiculously remote a 25 standard devia- tion event would be. But it is actually more likely that he does understand statistics and STATISTICAL SYSTEMS ANALYSIS THINKING

28 | The Actuary | June/July 2012

Knowing when to avoid left turns

tuaries and other quantitative analysts to with by a Heuristic. So the existing Heuristic But the profession cannot afford to continu- “look around the corner” of the situation may well include consulting an actuary for ally be 10 years late to applying the latest, that they are modeling. some statistical analysis. best thinking to our work. This new work in the area of Heuristics, NDM and Systems For actuaries to advance from the situation Analysis can be used to improve actuarial of dissatisfaction with their role in decision processes that already reflect these ideas in Updating the Actuarial making, actuaries need to understand how perhaps a less developed manner. Thinking Cycle our work can be used to reform Heuristics Recognizing that the modern world is increas- and NDM processes, and we need to avoid Actuaries usually figure out when they ingly complex and learning from the insights wrong turns in our statistical analyses that shouldn’t be taking left turns. Systems Analy- of those who have studied complex adaptive can be reduced by using systems analysis. sis provides the tools for more consistently systems, it is a healthy reminder that we must finding the right route and the reason for remain open-minded to see what is in front of avoiding the left turns. NDM and Heuristics us. Integrating techniques more formally into provide ways for actuaries to better commu- actuarial work that can help to make sense of When to Avoid Left Turns nicate their findings to others. A the underlying mechanisms of problems will One system that actuaries were late to un- help to ground models more clearly in reality derstand was the market system. Actuaries Neil Cantle, ASA, FIA, M.A., is principal and consult- and therefore enhance the role of actuaries in had little need for understanding the short- ing actuary with Milliman, Inc., London. He can be con- explaining their models and demonstrating term fluctuations of market prices and tacted at [email protected]. their value. It will also help users to under- tended to model market-traded instruments David Ingram, FSA, CERA, FRM, PRM, is executive stand the deficiencies of models so that they ignoring those fluctuations. However, a vice president for Willis Re Inc. He can be contacted at appreciate when the model can be used and vast science grew up that was based almost [email protected]. when it cannot. solely upon the study of those fluctuations

in market prices. Coincidentally, Financial Resources: Some actuarial work could be identified as Economics itself has been seen to have a Gerd Gigerenzer Rationality for Mortals (2008) specifically targeted to updating a Heuristic vast shortcoming in its appreciation of the Daniel Kahneman, Thinking Fast, Thinking (or NDM process). (See image on page 28.) market system. Slow (2011) Gary Klein, Sources of Power: How People Make While most business decisions are based An example of current Systems Thinking ap- Decisions (1998) Gary Klein, Streetlights and Shadows (2009) upon a set of existing Heuristics and NDM plied to problems that actuaries encounter is Herbert Simon, A Behavioral Model of Rational processes, in the areas where actuaries usu- the Plural Rationalities discussion (recently Choice (1957) ally work, there is some recognition that featured in The Actuary, “The Changing Sea- statistical analysis can produce superior re- sons of Risk Attitudes,” Feb./March 2011). sults than a simple Heuristic. This is usually Both risk attitudes of businesses and risk in the because the number of potentially important business environment are seen to be a part of variables is much larger than can be dealt an interdependent complex adaptive system.

June/july 2012 | The Actuary | 29 Education The Evolution of Professional Development—It’s not just meetings anymore!

By Rod Bubke and Judy Powills

Picture this scenario; You settle into 150 webcasts. During the 10 years since the sions are another way to reach large audiences your seat on the bus or train and get ready first, members and others have attended more with current information. As with webcasts, the for your ride to the office. You pull out than 200 webcasts sponsored or cosponsored recordings of virtual sessions and many meeting your smart phone and see you have two by the SOA and the professional interest sec- sessions are also available if you miss the live new podcasts available from the Society of tions. Webcasts are an efficient way to reach event. The SOA has a long tradition of recording Actuaries, one on complexity science and large audiences over a vast geographical area sessions and provides more than 500 session another an update on new tax legislation. and provide current information. While a recordings per year. You plug in your headphones and listen so well-attended session at a face-to-face meeting you can grow professionally and earn some may have 100 attendees, a webcast can easily Podcasts Continuing Professional Development (CPD) reach many times that number with multiple In 2011, the Actuary of the Future Section credit, all on your way to work! Is this some attendees at each site. Not able to attend the sponsored a pilot podcast as another delivery distant future we are describing? No, this is a webcast when it was presented? No problem, mechanism for PD. Based on the results of scenario that is taking place now. you can still purchase the recording of the that pilot, there is now a structure in place for webcast (free if your company purchased sections to develop and offer their members Professional Development (PD) does not the live webcast). You won’t be able to ask podcasts. Podcasts are relatively short presen- look the same as it did several years ago questions, but you will have the slides and the tations that can be used for a variety of topics. when about the only SOA-supported way to audio of the presentation. As of March 31, there were five sections either develop professionally was to attend a face- in planning or producing a series of podcasts. to-face meeting and the SOA CPD require- Virtual Sessions ment was not in place. The face-to-face meet- Is there a session at a face-to-face meeting you e-Learning ings will continue to be a primary source of would really like to attend, but you’re not able The current prequalification education struc- SOA-supported PD with all the benefits that to make it to the meeting? You may be in luck. ture includes computer-based learning or go along with face-to-face meetings, but there In 2009, the SOA began offering virtual sessions e-Learning. Each of the e-Learning modules are now other ways to stay up-to-date on to its members so you can attend the meeting required to receive the FSA designation are what’s going on in the profession. session from your own office. Not only can you also available to the PD audience. The mod- attend, but, like webcasts, so can other actuar- ules cover topics in all practice areas. The Technology ies interested in the same topic. Like webcasts, module material is on the current prequali- The SOA offered its first webcast in 2002. Over virtual sessions also allow you to interact in real fication curriculum. If the material was not the last five years, we have delivered more than time via submission of questions. Virtual ses- on the curriculum when you took exams,

30 | The Actuary | June/July 2012 here is a way for you to learn more about but also some of the content. Last year, the ments in the profession those topics or for you to learn what the SOA and CIA jointly sponsored a Business and the businesses we students you are supervising are required to Savvy seminar, which targeted these and work in. PD is so impor- learn. Additionally, the SOA has developed other competencies. Based on the feedback tant to the SOA that in new e-courses specifically for PD audiences received from the seminar, this seminar will 2009 the Professional Rod Bubke in the areas of professionalism and effec- be offered twice in 2012. If you attend an Development Committee tive communication. Check out the e-Learn- SOA meeting, there will be sessions on these (PDC) was established. ing opportunities—complete the courses competencies as well as professionalism The charge of the PDC where you want, when you want. So far we and others. In addition, a course is currently is to ensure the SOA’s have talked about changes in how PD is under design to approach these topics in PD program meets the delivered, i.e., how you are able to access a more hands-on, active type of approach. diverse development it. Have there been other changes? The needs of the profession answer, as you might expect, is absolutely. Global PD and provides the highest Judy Powills Over the last several years, where SOA mem- quality learning experi- Competency Framework bers and candidates live and work have ences. The PDC and SOA You might be asking yourself, with so many also changed. We are a global organization. staff are committed to meeting this charge. opportunities to choose from, how do I Therefore, we need to provide PD opportu- focus on the PD that’s right for me? One way nities to members around the world. There Formal Requirement is to complete the Competency Framework have been seminars on financial reporting All actuaries now have a formal CPD require- Self-Assessment Tool on the SOA website. held in Hong Kong, joint regional seminars ment. So, for that reason alone, you should The Competency Framework consists of in multiple locations and last year the first take advantage of whatever PD opportunities eight competencies an actuary needs to be SOA symposium was held in Shanghai. While that meet your needs. But more importantly, successful and the tool will help you identify there is more to be done to make PD avail- actively working at PD will help you grow competencies to focus on. able to our international members, there are professionally and be a better actuary. A some programs currently taking place. In years gone by, PD consisted almost entirely Rod Bubke, FSA, MAAA, is VP—Insurance and of the technical aspects of being an actuary. SOA’s Main Functions Annuity Valuation for Ameriprise Financial Inc. He can But the Competency Framework includes The two main functions of the SOA are edu- be contacted at [email protected]. areas such as Leadership, Communication, cation and research. Education does not end and Relationship Management and when someone attains their FSA. Education Judy Powills is senior director of Curriculum and Interpersonal Collaboration. So not only is a lifelong activity and it is imperative Content Development for the Society of Actuaries. She has the method of delivery of PD changed, that actuaries stay current with the develop- can be contacted at [email protected]. Continuing Professional Development Past And Present

The SOA’s Education Department asked a few members with varying amounts of work experience about their Continuing Professional Development experiences through the years and how things have changed. Here’s your chance to read their interesting and enlightening answers.

Prior to the new CPD requirements, I would were specific to my area of work. In addition, I’d I now have a more formalized approach to attend one or two SOA-sponsored meetings/sym- read section newsletters and publications from the process and I have included certain top- posiums each year and focus on sessions that consultants, reinsurers and audit firms. ics like professionalism and business skills

For more Turn to page 32

June/july 2012 | The Actuary | 31 Continuing Professional Development Past And Present continued

to a greater extent than in the past. Also, the communicating better. I found particular value to a variety of assignments was very important. breadth and scope of development opportuni- in the section on persuasive communication, Ten years after becoming an FSA, I wanted ties have increased significantly over the past and I’ve been able to observe the negotiation to broaden myself, and I began taking MBA few years—webcasts and other e-Learning skills that the instructor highlighted in various courses at night, solely for the experience. courses have become very popular. Our com- settings since I attended the seminar. It’s also Eventually I completed the degree. pany periodically organizes actuarial “round- the first seminar I’ve ever attended where there table” events where individuals give presenta- was enough time to really work through exer- The profession and its members now benefit tions on current industry topics and typically cises to maximize their value. A session like from a vast array of continuing education include an outside speaker—a direct result of this strengthens an actuary’s ability to clearly opportunities. Section newsletters, special- the new PD requirements. Those events have get his/her message across, particularly to a ty meetings, seminars and webinars now been particularly beneficial as they promote non-actuarial audience. As a profession, we provide more of my continuing education increased communication and camaraderie can add considerable value to conversations than the sources that existed when I was across departments and locations. on many topics—but only if we can figure out a new FSA. They offer greater depth in a how to clearly communicate what we know. much greater variety of topics than was pos- I sense that actuaries at our company have I would certainly recommend the seminar to sible earlier. The sections, specialty meetings become more diligent about ensuring they other actuaries, senior and junior. and seminars also provide more effective are keeping up-to-date with their professional networking than the general meetings. The development requirements. The program is Caroline Rendall, FSA, FCIA, MAAA, is an actuary with Internet greatly expands access to materials fairly flexible and offers a good balance Foresters. for self-study. Although I now live in a very between self-study and organized activities. small actuarial community in a physical I like the fact that it allows for both job- sense, I do not feel as isolated as I did in a specific requirements as well as more gen- I think of professional development as occur- larger insurance center earlier in my career. eral business management (soft) skills. The ring from two primary sources: education and availability of an online documentation tool experience. During my career, the opportuni- As a young actuary, I never thought about like TRACE has been very helpful. I think ties for continuing education have exploded. the effect that personal experience outside of the office would have on my professional I recently attended a business savvy skills development, but that, too, is very important. Within the profession, the access to increased seminar that was chock-full of practical continuing education can be very powerful, ideas for communicating better. especially if it is coupled to good experience.

Jerry F. Enoch, FSA, MAAA, is vice president and chief the changes have led to an increase in the As a young FSA, I looked forward to two actu- actuary, Alfa Life Insurance Corp. overall level and scope of developmental arial meetings a year (not very many more opportunities for our membership. were available) and the arrival of The Actuary. We also had a local actuarial club that tried Working as a pension actuary for Towers Don Lyons, FSA, MAAA, is senior vice president, corpo- to meet quarterly, and a few industry publica- Watson in Calgary, there are many opportu- rate actuary, Sammons Financial Group: Midland National tions that were circulated in the department. nities to learn and grow by working with a Life Insurance Company, North American Co for Life and I tried to talk to other actuaries about their diverse group of actuaries, all with different Health Insurance. work to see what I could learn, and there strengths. I hope to become a pension con- was always self-study of textbooks, regula- sultant in the future, and so I am currently tions, and actuarial standards. My own work focusing on becoming more involved with I recently attended a business savvy skills semi- experience was a very important part of my client-facing situations and activities to fur- nar that was chock-full of practical ideas for professional development, so being exposed ther develop my presentation and communi-

32 | The Actuary | June/July 2012 Continuing Professional Development Past And Present continued

cation skills. Towers Watson offers training (and other professional actuarial bodies) mem- popular with international members as a opportunities at different associate levels bers in Singapore to meet their PD require- cost-effective way to meet some of the PD which I will take advantage of when avail- ments. The challenge of being based in Asia requirements through self-study. The syl- able. In terms of SOA professional develop- is naturally that our members cannot easily labus reading lists for the various actuarial ment offerings, I am interested in taking attend the various live meetings held in North exams provide members with an excellent advantage of webcasts, e-Learning and pod- casts as these formats are globally accessible I am interested in taking advantage of these days. In the future, I am also consider- ing getting involved in helping to develop webcasts, e-Learning and podcasts as FSA exam questions and grading. these formats are globally accessible ...

Adelina Lough, FSA, is an actuarial analyst with Towers Watson. America. Hence the international members source for latest and top-notch publications are looking for more local PD opportunities in a particular area of interest (e.g., ERM). As the appointed actuary, I take my continu- and also overseas content available via webi- International members can also, like I do, ing education very seriously. After experi- nars, recorded meeting sessions, e-Learning, volunteer to be involved in the exam setting encing the many ups and downs in the mar- etc. The SOA’s recent increase in options via process which provides an excellent oppor- kets over the years, I have seen numerous these electronic delivery formats has vastly tunity to become familiar with the latest product types come and go. As actuaries, we increased the PD content options available to readings in a particular field. are relied upon to opine on the risks of these international members—and has been much products. I received my FSA in 2001, and at appreciated by international members. Gavin R. Maistry, FSA, CERA, is chief actuary, Life Asia, the time continuing education requirement Munich Reinsurance Committee and chair of the Educa- meant that I just basically needed to attend The attendance at professional development tion Committee of the Singapore Actuarial Society. seminars once a year that may or may not events allows for structured PD credit and address the specific issues I faced. As a has the advantage of bringing networking result, I found myself reaching out to numer- opportunities with other members and also to My professional development used to be ous experts in the field to get a better under- engage in discussions with the speakers. We heavily reliant upon attendance at SOA standing of risks and viewpoints. I would were fortunate in Singapore last year to have meetings or local actuarial events. In recent also read any material I could get my hands various distinguished members of the SOA years, I have found the variety of webcasts on to better understand the risks. With the speak at our afternoon forums for members offered through the SOA and other actuarial new CPD requirements my approach is still of the Singapore Actuarial Society. The speak- organizations to be a great means of supple- very similar. However, I have found that with ers included Brad Smith, Rob Brown, Tom menting these more traditional educational the new CPD requirement, access to informa- Herget and Prof. Elias Shiu and they spoke opportunities. The webcast topics are often tion is much more available. There are many on a variety of interesting actuarial topics. timely and relevant to my job responsibili- more meetings, articles and resources that These excellent speakers gave our members ties; and they provide a cost-effective way better address the specific issues I face. in Asia a look into the latest developments for me and my staff to keep current on the and research in North America and beyond. changing actuarial landscape. A

Chad Padgett, FSA, MAAA, is vice president, appoint- We hope that members of the SOA visiting ed actuary with Forethought Financial Group. cities in Asia continue to volunteer to give Brian Mamola, FSA, MAAA, is vice president—Corpo- these talks that serve as important structured rate Actuarial with FBL Financial Group, Inc. PD opportunities for international members. The Education Committee of the Singapore Actuarial Society, which I chair, tries to ensure Finally, reading the latest articles on actu- that there are enough opportunities for SOA arial and related topics continues to be

June/June/Julyjuly 2012 | The Actuary | 33 Section Highlights

Financial Reporting Section of proposed guidance are expected by late non-actuaries to help represent the non-actu- 2012, building on earlier drafts and discussion arial membership. The section is committed to By Rob Frasca papers exposed to the industry. If things prog- supporting and improving the LTC insurance Financial reporting actuaries continue ress well, final accounting standards could be industry. The section does this in two ways. to follow the discussions occurring within completed in 2013 with implementation begin- the International Accounting Standards ning perhaps in 2016. The first is by funding research. Currently, the Board (IASB) and the Financial Accounting section is co-sponsoring a research project on Standards Board (FASB) related to insurance Even though the timing is uncertain, adoption morbidity improvement using the results of accounting. Under International Financial of new insurance accounting standards will the National Long Term Care Survey, which is Reporting Standards (IFRS), a gap exists in represent a sea change to the way financial based on general population data. The specific the standards regarding the treatment of insur- results are reported, with consequent implica- aims of the study are to estimate the change ance contracts. This gap is currently filled tions to insurance product pricing and design. over time in both ADL (activities of daily living) by allowing companies to continue treating The Financial Reporting Section is monitoring and CI (cognitive impairment) morbidity rates, insurance as they had under their accounting developments closely and is serving its mem- assess sensitivity to alternative sets of cross- basis prior to adoption of IFRS. In the United bers both in sponsoring educational offerings sectional and longitudinal sampling weights, States, the FASB has recognized that current to keep members informed of developments and assess the impact of alternative underwrit- accounting, as embodied within U.S. Generally and in funding research projects to help actu- ing protocols. Accepted Accounting Principles (GAAP), is aries, accountants and other interested parties ill-equipped to handle the current array of understand the impacts of the changes that are The section is also co-sponsoring a research insurance products in the marketplace. Thus, being proposed. A project on the natural hedge characteristics of both in the United States and internationally, the relatively new combination products where there is a recognition that development of a Rob Frasca, FSA, MAAA, is executive director, Ernst & long-term care insurance is paired with life modern, comprehensive framework for insur- Young LLP, and chairperson for the Financial Reporting Sec- insurance or annuities. The study will demon- ance accounting is needed. tion. He can be contacted at [email protected]. strate the hedging characteristics by showing the profit sensitivities to key assumptions for Development of this new framework has been a stand-alone long-term care product, a life/ uneven as the FASB and IASB have been Long Term Care insurance long-term care combination product, and an pursuing seemingly independent paths. More Section annuity/long-term care combination product. recently, the two accounting boards have shown a commitment to working together with By Jason Bushey The second way the section supports the an objective of agreeing on a unified standard. The Long Term Care Insurance (LTCI) Section industry is by supporting activities that will Though complete convergence now appears is different from most sections in that its mem- improve the industry. The section is a sponsor unlikely, at least in the near term, the con- bership is not limited to actuaries. In fact, a of the LTC Think Tank. This group of industry ceptual approaches and many of the details sizable minority, 44 percent, of the members volunteers made up of industry leaders period- of the frameworks being discussed are the are non-actuaries. The section council has ically meet to discuss ideas on how to improve same across the two boards. Exposure Drafts three appointed affiliate members who are the industry and to lend support to other

34 | The Actuary | June/July 2012 groups that are working on specific initiatives ership development is for “soft people.” That one who thinks differently, designs solutions in support of the industry. could not be farther from the truth. Actuaries others called too difficult, and teaches indi- frequently suffer from the perception that they viduals and teams how to solve problems on The LTCI Section is sponsoring the LTCI are not as skilled as other professions in soft their own. You get the picture. The returns we Refinement Work Group. This group has been skills such as leadership and communication. achieve on leadership development set it apart formed to represent companies, regulators In order to combat this and level the playing from the other competencies. and consumers, as well as overall industry field with competing professions, it is more objectives: fewer consumer complaints, fewer important than ever for us to intentionally Through the SOA Management & Personal regulatory issues, more carriers participating, develop our leadership. Development (MPD) Section, actuaries have and generally more sales to keep the industry a resource to improve this vital skill. In 2011, moving ahead. The LTCI Refinement Work It is an overlooked truth that leadership can MPD sponsored sessions for all four major SOA Group has two subgroups (Stand-alone LTC be learned. Some dismiss this under the false- meetings. Leadership book review breakfast and Combo Products) that are each working hood that leaders are born, not made. While presentations continue to be popular sessions on the first draft of their suggested solutions. some do possess natural abilities enabling at these meetings. MPD’s quarterly newsletter, Each subgroup is also working to design ques- them to be more effective leaders, those who The Stepping Stone, features articles actuaries tions for a survey that will go out to insurance struggle with leadership often just have the can use to improve their leadership. Many of companies. This survey will enable testing wrong attitude. For example, many people these articles are written by your peers. the interest that carriers have regarding the believe that leadership is all about position in group’s suggested solutions. After receiving an organization. While it is true some leaders Leadership can and should be learned and the survey responses, the group will be able to do have lofty positions within an organization, developed. Regardless of where you are further refine its suggestions. A there are many leaders who do not. Mother on your leadership journey, you can make Teresa spent her adult life helping the poor, it even better. The MPD Section has the Jason Bushey, FSA, MAAA, is director, Actuarial & Re- hungry and dying in Calcutta, India. She even resources to help. A search, for LifeSecure Insurance Co., and chairperson for won the Nobel Peace Prize in 1979. She is the Long Term Care Insurance Section. He can be contact- considered a remarkable leader despite not Brian Pauley, FSA, MAAA, is a managing actuary with ed at [email protected]. having a prestigious title. What she had was Humana, Inc., and a council member for the Management tremendous influence, and the ability to influ- & Personal Development Section. He can be contacted at ence others is what determines our leadership [email protected]. Management & Personal effectiveness. Not all of us are destined to Development Section change the world with our leadership. But, we all have the potential to have a positive impact By Brian Pauley on our friends and families, the organizations The Society of Actuaries (SOA) has put much we work for and society. To reach this poten- Chat with focus on the Competency Framework in tial, we must develop our leadership. your peers recent years. The framework is designed to reflect the knowledge, skills and abilities actu- When we improve our leadership, we ben- aries need to be valued and successful in efit from the compounding effect it has on our rapidly changing world. It is made up of the other seven competencies. Consider the Check out section eight interrelated key competencies. The most Technical Skills & Analytical Problem Solving LinkedIn groups at important one is Leadership. competency, a well-known strength of actu- LinkedIn.com. aries. By being a good problem solver, we Actuarial education and work is very technical- merely get a seat at the problem-solving table. ly focused. We may be tempted to believe lead- Now, think about the problem-solving leader:

June/july 2012 | The Actuary | 35 Out Of The Office Actuaries on Their Own time

It’s amazing what one can do with color, a paint brush and a blank canvas. Meet four actuaries who have an artistic flair.

Erythrophobia, the fear of red—by Jeffrey A. Leitz, FSA, CERA, chief executive officer, Walbridge Capital Advisors LLC. He can be contacted at [email protected].

Jeffrey A. Leitz has been creating art- “I have strived to master many styles, includ- tative alternative investment strategies. For work for 45 years. His grandparents enrolled ing Dutch masters, Impressionism, Abstract example, ‘Erythrophobia, the fear of Red’ him in private art lessons at age 5, after he Expressionism and Stream of Consciousness is a metaphor for avoiding financial loss by won several coloring contests. “Creating fine Graffiti.” When asked if there is an actuarial protecting capital from market shocks and is art balances and enhances the analytical tie-in to creating artwork, Leitz had this to inscribed with formula graffiti relating to my aspect of my quantitative thinking,” Leitz said. say, “Yes, many works relate to my quanti- hedge fund.” A

36 | The Actuary | June/July 2012 Skystory—by Anna Rappaport, FSA, MAAA, consulting actuary, Anna Rappaport Consulting. She can be contacted at [email protected].

Anna Rappaport started taking art les- me to do my ‘own thing,’ be creative and generally they are my own interpretation sons when she was about 8 years old. “My move into a different space. I really enjoy rather than trying to make a reproduction parents encouraged me and arranged for me thinking about different ideas and trying to of what is there. I try to capture the feeling to go to art lessons in Baton Rouge, La., where get them on paper.” of the place.” we lived. I took the bus downtown to go to les- sons, one of my few types of journeys to town. Rappaport described her art this way, “I believe there is a tie-in, in the way I think I also remember making craft projects with “Someone once asked me if, ‘I color inside about and approach both,” Rappaport said my mother. One I particularly remember was the lines or outside of the lines.’ My response when asked if there is an actuarial tie-in to building houses from shoe boxes and scrap was that I make my own lines. I have a num- creating artwork. “In both, I like to define materials such as thread spools. This was at a ber of different series and each is unique. my own space, pull together and synthesize time when kids went to few special activities Many are abstract collages building in piec- different ideas (and materials) and create and this activity made a big impression on me,” es of paper, pieces of my own photos, ink a new whole. I think art has helped my Rappaport said of her artistic beginnings. splatter, rubber stamps and more. I love actuarial work. I do not work ‘sequentially’ doing mixed media. I am very interested in either,” she added. A When asked what she likes best about creat- in textures, movement and colors. I have ing art, Rappaport said, “Making art enables also done flowers and nature drawings, but

For more Out of the Office, Turn to page 38

June/july 2012 | The Actuary | 37 Out Of The Office Continued

View from Armenzano—by Debi Gero, FSA, MAAA, senior vice president, chief risk officer, Sunamerica. She can be contacted at [email protected].

Debi Gero started creating artwork as an Gero can’t narrow down what she likes things that have strong sense of light, and adult. “I started art classes in 1997, so it will best about creating art. “The journey from a often lighthearted,” she added. be 15 years this fall,” she said. “I would pass beginning student to a professional artist has an art school, Brentwood Art Center, every been special at every step. The support from Gero described the actuarial tie-in to creating day on my way to and from work. One day friends and family, the challenge of learning artwork like this, “In a class when we are told they had a sign in the window advertising something new, the friendships formed, the to divide our page into fourths, for example, the upcoming annual student art show, so I wonder of discovery, the hope that comes I can do the math. I would describe some of attended the show. I was blown away by the with the new art gadget just purchased that my work as having more of a business tie-in quality of art created by the students. I wist- it will make everything better, and of course, than an actuarial tie-in per se. For example, I fully thought ‘maybe someday I can go to a pretty much every minute spent in the cre- created a series of mixed media pieces dur- school like this.’ On the way out I stopped at ative process have made the journey so ing the financial crisis that combined card- the front counter to look at their brochure special. And the thrill of knowing that the board from boxes found outside a grocery and asked the woman at the desk what one journey is far from over.” store (instead of a canvas), pages from The had to do to qualify to take classes. ‘Sign Wall Street Journal, and acrylic paint.” A up.’ Within two weeks I started the Thursday Gero described her art as, “various forms night beginning drawing class.” of representational.” “But I like to focus on

38 | The Actuary | June/July 2012 Carnation—by Joyce Zhang, FSA, actuarial associate, Towers Watson. She can be contacted at [email protected].

Joyce Zhang will tell you when asked asked what she likes best about creating Is there an actuarial tie-in to creating how she got started making art, “I like art. “Painting helps me release my pres- artwork? Zhang had this to say, “I think and enjoy painting very much and have sure, helps me relax and painting with creative thinking, being able to see the been painting in my spare time since I was brighter colors reminds me there’s always whole picture and also paying attention very young. I elected a painting course in a light at the end of the tunnel. I get self- to details are a couple types of actuarial elementary school and started my artwork motivated through painting and I am really tie-ins to creating artwork.” A there. However, due to other higher priority happy each time I create and complete a things, I didn’t continue painting courses new piece of art.” past elementary school. I am only an ama- teur, however, not a professional painter.” Zhang doesn’t think she’s developed her own painting style yet. “But, I like to paint “My creativity and imagination are not nature scenes, such as plants, landscapes, bounded when I paint,” Zhang said when etc. A lot of times, I paint based on pictures.”

June/july 2012 | The Actuary | 39 The SOA At Work Moving Into New Areas

Helping actuaries to gain recognition and expand their roles The initiative had two components: explore and recommend. The for- into new areas has been an SOA initiative for several years. Evidence mer included environmental scanning, identification of skills needed, of this can be seen in the majority of recent SOA activity, including a a gap analysis, and market research with members and employers to series of articles in this magazine, “Actuaries On Boards” (see page determine their interest and organizational readiness. The explora- 12 for the third part in the five-part series), the SOA’s business analyt- tion determined there are significant opportunities for actuaries in ad- ics project that was started in 2011, and a new project on broader vanced business analytics; thus, recommendations were developed financial services that will get underway soon. for consideration by several areas of the SOA for implementation.

The series of articles highlight and explore the skills and knowl- The SOA has plans to create a task force centered on creating op- edge actuaries have to offer as members of a board of directors, portunities for actuaries in the broader financial services arena. To as well as what it takes to get there. The main topics of the articles date, the SOA has conducted studies that have provided some insight are: business/subject matter experience, connections, personality into the opportunities as well as the challenges that it would be faced traits, focus and the SOA’s role. Past issues can be found on the with by an effort to expand into nontraditional markets. The task force SOA website; as mentioned earlier, there is an article in this issue; would take the next step by creating a sustained effort to target specif- and the last two articles in the series will be in the following two ic markets and identify what would be needed for a successful entry issues. The articles are full of good advice, so please take the time into those markets and positions. The task force will complete its re- to read them. search and recommendations by year-end 2012. It will seek approval for the recommended broad course of action in 2013. At the 2010 SOA Annual Meeting, the SOA board of directors ap- proved “Actuaries in Advanced Business Analytics” as part of the As you can see, the SOA is continually seeking ways to better serve 2010 strategic plan. The board requested the answers to two ques- and improve career opportunities for our members. If you have any tions: Are there significant opportunities for actuaries in business suggestions for how we can continue this work, please visit “Contact analytics? And, if so, what actions should be taken by the SOA? Us” on soa.org and share your ideas. A

— SOA Executive Director Greg Heidrich

40 | The Actuary | June/July 2012

The Actuarial Profession in the News Professional The SOA is focused on raising awareness of actuaries in the media. DEvelopment Recent efforts have been successful. Here are just a few examples: opportunities

Be Happy: Become An Actuary An Age-Old Debate 47th Actuarial Research Read about actuary being ranked one The Wall Street Journal blog quotes Eric Conference (ARC) of the top jobs for 2012. For the full article, Stallard. To read the blog, visit Aug. 1 – 4 visit www.efinancialnews.com, www.blogs.wsj.com, search Winnipeg, Manitoba search term Become An Actu- term Age-Old Debater, or use Valuation Actuary Symposium ary, or use the QR code. the QR code. Sept. 10 – 11 Los Angeles, Calif. Planning For Retirement? Plan To St. Louis-Area Man, 100, Dies On Critical Illness Insurance Live To 100 Leap Day—His 25th Birthday Forum MarketWatch quotes two actuaries about Actuaries discuss the probability of being Sept. 10 – 12 retirement planning. To read born on a leap day. For the full Las Vegas, Nev. more, visit www.marketwatch. article, visit www.stltoday.com, com, search term Robert Powell, search term George Keller, or DI & LTC Insurers’ Forum Sept. 12 – 14 or use the QR code. use the QR code. Las Vegas, Nev.

Who Will Take Care Of Us In Our Old Too Young For Life Insurance? The Product Tax Seminar Age? Debate Over Policies For Children Sept. 20 – 21 Washington, D.C. CBS MoneyWatch notes SOA work on pro- Jim Miles, FSA, talks to Fox Business about vider shortages. To read the article, visit purchasing life insurance for children. For Annual Meeting & Exhibit www.cbsnews.com, search more information, visit www. Oct. 14 – 17 term Who Will Take Care Of Us, foxbusiness.com, search term Washington, D.C. or use the QR code. Too Young For Life Insurance, Asset Liability Management or use the QR code. Techniques and Practices Oct. 22 – 24 View all of these articles by going to www.soa.org/newsroom and clicking on the Chicago, IL Profession In The News link. A Asset Liability Seminar Oct. 25 – 26 Chicago, IL

Attention Readers! SOA Annual Symposium – Shanghai SOA周 If you have an idea for an article you Nov. 5 – 6 think should appear in The Actuary, or a Shanghai, China response to something you have read in these pages, tell us about it by sending an View all Professional Development opportunities by visiting www.soa.org email to [email protected]. and clicking on Event Calendar.

June/july 2012 | The Actuary | 41 Recommended Readings

The following is a list of recommended readings from the contributing editors that they feel will pique your interest and help keep you informed.

From Ruth Ann Woodley This New York Times Magazine article is interesting on several you will. Could this field be a potential opportunity for ac- levels, but for actuaries it provides a fascinating perspective tuaries? To read the article, visit www.nytimes.com, on how other types of businesses use the data they have on search term How Companies Learn Your Secrets, or their customers—a different kind of predictive modeling, if use the QR code.

Now Available Online North American Actuarial Journal

Volume 16, Number 1 of the North American Actuarial Journal is now available on http://www.soa.org/naaj-2012-vol16-no1/. If you wish to continue receiving a print copy of the NAAJ, please log in to your member profile and opt in.

In addition to the papers published in this issue, the authors of “Enterprise Risk Management: Strategic Antecedents, Risk Integration and Performance” discuss the practical implications the research has for actuaries.

42 | The Actuary | June/July 2012

For more information, visit www.soa.org, Professional Development, e-Learning. A Join our SOA Annual Meeting community. Unite with peers. Make new connections. Revive old ones. Connect with speakers during our more than 100 sessions—and get loads of CPD credit.

ANNUAL MEETING & EXHIBIT

Washington, DC Oct. 14-17

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“I attended for the networking opportunities!” —Past Attendees

Ready to connect? Head to SOAAnnualMeeting.org. SOA Professional Development E-Learning

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