Contingencies May | Jun.14 Be Sure to Visit Our Digital Edition At

AMERICAN ACADEMY OF ACTUARIES ■ MAY | JUNE ■ 2014

Black Warrior A Buffalo Soldier Looks Back ® GLOBAL ACTUARIAL & ANALYTICS RECRUITMENT

RETAINED - Director / VP, West USA: Healthcare service provider seeks FSA with 10+ years of health actuarial experience and an entrepreneurial background. This role will analyze both clinical and claims data to underwrite risk effectively, and work directly with C-Level executives. (#41446)

RETAINED - Health Actuary, Southeast USA: This role will be involved with the pricing of Medicare Part D and Medicare Advantage insurance products. Knowledge of Health Care Reform is required. (#40877)

RETAINED - Senior Actuarial Analyst, Northeast USA: International P&C insurance company seeks actuary with 7+ years experience. Commercial or personal lines reserving and Access / SQL experience desired. (#40879)

RETAINED - Actuarial Director, Southeast USA: Our client has an immediate opening for a life actuarial consultant with several years of experience. Responsibilities will include pricing, reserving, financial reporting, mergers & acquisitions, predictive modeling and enterprise risk management. (#41145) Articles in this issue include: International RETAINED - Actuarial Leader, Midwest USA: Midwestern casualty Actuarial Trends & Perspectives: Regulations, Changing insurance company is looking to hire a seasoned FCAS. Executive leadership position overseeing Loss Reserving, Product Pricing, and Modeling activities and Economies, Getting Products to Market; FAQ: Working strategic execution of enterprise evolution. (#41274) Abroad; International Actuarial Salary Survey Preview.

Download the NEW DW Simpson Mobile App Browse, click & apply to actuarial jobs on your smartphone or tablet. Click the bookmark button to add the DW Simpson app to your home screen. Search for the Perfect Job Click the menu button and sort jobs by discipline, location or keyword. Contact DW Simpson Do you have a question about a job on our website? Use the mobile web forms to contact your recruiter for detailed information about any job. CONTACTFAST & RELIABLE Ezra JOB Penland LISTINGS AT [email protected] CAN COUNT ON NORTHEASTMIDWEST USA – - ACTUARIAL LARGE ACCOUNT ANALYST PRICING NortheastFor Position USA 57096, insurer our RETAINED is searching Midwest for experienced USA client isproperty looking toand hire casualty a Com- actuarialmercial Large analysts. Account Requires Pricing Actuary.at least FCAStwo years or ACAS of experience. credentials required. SAS or RRe pro- - ® grammingquires at least skills six ideal.years ofPricing, commercial database lines programming,pricing and reserving statistical experience. modeling and special projects. GLOBAL ACTUARIAL & ANALYTICS RECRUITMENT CALIFORNIA - FCAS NORTHEASTFor Position 57923, – FSA our California – ACCIDENT client has AND an immediate HEALTH need for a casualty Expandingactuary at the Northeast FCAS level. USA Must Accident have 10+ and years Health of property insurer and is seeking casualty an actuarial actu- experience, including some reinsurance or large account pricing experience, as well ary. This Fellow of the Society of Actuaries must have at least five years of as capital modeling skills. Accident and Health experience. NORTHEAST USA - REINSURANCE FCAS NORTHEASTFor Position 57838, – ACTUARIAL this Northeast USA ANALYST employer has asked Ezra Penland, the NortheastLeader in Actuarial USA insurer Recruitment, is searching to find for an experiencedFCAS casualty property actuary. andA good casualty under- RETAINED - Director / VP, West USA: Healthcare service provider seeks actuarial analysts. Requires at least two years of experience. SAS or R pro- FSA with 10+ years of health actuarial experience and an entrepreneurial standing of catastrophe risk models ideal. Reinsurance pricing, actuarial modeling, background. This role will analyze both clinical and claims data to underwrite grammingstatistical simulations skills ideal. and Pricing, other assignments.database programming, statistical modeling risk effectively, and work directly with C-Level executives. (#41446) and special projects. RETAINED - Health Actuary, Southeast USA: This role will be involved NEW YORK - RESERVING ACTUARY with the pricing of Medicare Part D and Medicare Advantage insurance products. NORTHEASTFor Position 57890, – FSA this New – ACCIDENT York insurer is AND searching HEALTH for a property and casualty Knowledge of Health Care Reform is required. (#40877) Expandingreserving actuary. Northeast FCAS USA or near-FCAS Accident ideal.and Health Requires insurer at least is sixseeking years ofan property actuary.and casualtyThis Fellow actuarial of the experience. Society of Actuaries must have at least five years of RETAINED - Senior Actuarial Analyst, Northeast USA: International P&C insurance company seeks actuary with 7+ years experience. Commercial or Accident and Health experience. personal lines reserving and Access / SQL experience desired. (#40879) WISCONSIN - PREDICTIVE MODELING ACTUARY NORTHEASTFor Position 57873, – ACTUARIAL a predictive modeling ANALYST actuary is immediately sought by a RETAINED - Actuarial Director, Southeast USA: Our client has an Wisconsin insurer at the near-ACAS / ACAS / FCAS level. Experience with immediate opening for a life actuarial consultant with several years of experience. Northeast USA insurer is searching for experienced property and casualty Responsibilities will include pricing, reserving, financial reporting, mergers & actuarialEMBLEM, analysts. SAS or R Requiresideal. Requires at least three two to twelveyears ofyears experience. of property SAS and or casualty R pro - acquisitions, predictive modeling and enterprise risk management. (#41145) Articles in this issue include: International grammingactuarial experience. skills ideal. Pricing, database programming, statistical modeling RETAINED - Actuarial Leader, Midwest USA: Midwestern casualty Actuarial Trends & Perspectives: Regulations, Changing andSOUTHEAST special projects. USA - LIFE APPOINTED ACTUARY insurance company is looking to hire a seasoned FCAS. Executive leadership Economies, Getting Products to Market; FAQ: Working position overseeing Loss Reserving, Product Pricing, and Modeling activities and NORTHEASTFor Position 57742, – FSA this Southeast – ACCIDENT USA client AND is searching HEALTH for a life reinsurance strategic execution of enterprise evolution. (#41274) appointed actuary. Fellow of the Society of Actuaries preferred. Financial reporting Abroad; International Actuarial Salary Survey Preview. Expanding Northeast USA Accident and Health insurer is seeking an actu- experience ideal. ary. This Fellow of the Society of Actuaries must have at least five years of AccidentUSA - CHIEF and Health LIFE experience.PRICING ACTUARY For Position 57694, our USA client is seeking a Life FSA with 12+ years of experi- NORTHEASTence. High-profile – lifeACTUARIAL insurance pricing ANALYST role. COLI/BOLI experience a plus. Northeast USA insurer is searching for experienced property and casualty actuarialTEXAS - analysts. CHIEF HEALTH Requires ACTUARYat least two years of experience. SAS or R pro- Download the NEW grammingOur Texas healthskills ideal.client isPricing, looking database to hire an programming,actuary at the FSA statistical or ASA ormodeling near- DW Simpson Mobile App andASA special level for projects. Position 56943. Strong statistical analysis experience and SAS/R EZRA PENLAND’S Browse, click & apply to actuarial jobs programming skills ideal. Pricing, product development, management reporting and on your smartphone or tablet. Click NORTHEASTactuarial modeling – assignments. FSA – ACCIDENT AND HEALTH the bookmark button to add the DW Expanding Northeast USA Accident and Health insurer is seeking an actu- ARIZONA - DIRECTOR OF ACTUARIAL SERVICES Simpson app to your home screen. ary. This Fellow of the Society of Actuaries must have at least five years of For Position 57965, this Arizona insurer has an immediate need for a Director OPEN Accident and Health experience. Search for the Perfect Job of Healthcare Actuarial Services. Requires at least 10 years of experience. Some Medicaid experience preferred. Fellow of the Society of Actuaries credentials ideal. Click the menu button and sort jobs NORTHEAST – ACTUARIAL ANALYST ROLES! by discipline, location or keyword. Northeast USA insurer is searching for experienced property and casualty actuarialOUR LEAD analysts.ING Requires US ACTUARIAL at least two SALARY years of experience. SURVEYS SAS MAY or R BE pro - Contact DW Simpson grammingFOUND skillsAT EzraPenland.com/Salary. ideal. Pricing, database programming, statistical modeling Do you have a question about a job on and special projects. our website? Use the mobile web THESE ROLES AND MANY MORE CAN BE FOUND AT forms to contact your recruiter for THESE AND MANY MORE JOBS CAN BE FOUND AT detailed information about any job. EZRAEzraPenland PENLAND.COM.com

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■ MAY | JUNE ■ 2014 Features IMAGINE: Contents COVER: KEN CECCUCCI / BONOTOM STUDIO CONFIDENCE IN

Black Warrior THE NUMBERS. A Buffalo Soldier Looks Back 22 To the Italian people they liberated, their skin color was less important than their bravery and sacrifice under fire. By Ivan J. Houston with Gordon Cohn

Drilling Down Demographic and Geographic Differences in Retirement Plan Participation 32 Where you live, your gender, race, and educational level, and who you work for are all predictive of whether you will participate in an employer-sponsored pension plan. By Craig Copeland B:11.125” T:10.875”

The Bold Man and the Sea Revitalizing The year he turned 60, he realized his Reinsurance Capacity 42 dream of rowing 2,600 nautical miles 48 Life insurers can’t continue to wait solo across the Atlantic Ocean. for the markets to resolve the impact By Jean-Guy Sauriol the financial crisis has had on their capacity. New ideas are needed. By Jeff Burt

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Departments Published by INSIDE TRACK ��6 The First Step Linda Mallon

PRESIDENT’S MESSAGE ��8 Public Confidence—What Does It Take? PRESIDENT Tom Terry Tom Terry

EXECUTIVE DIRECTOR LETTERS �� 10 Mary Downs COMMENTARY ��14 DIRECTOR OF COMMUNICATIONS Personal ERM Charity Sack Patrick Collins EDITOR AND ASSISTANT DIRECTOR FOR PUBLICATIONS Linda Mallon UP TO CODE �� 18 PUBLICATIONS & MARKETING PRODUCTION MANAGER Owning Precept 13 Cindy Johns John Purple ADVERTISING SPECIAL SECTION �� Mohanna Sales Representatives 54 (972) 596-8777 2014 Software Showcase DEPARTMENT EDITORS WORKSHOP ��58 Thomas L. Bakos Life in the Fast Lane—Proxy Sam Gutterman Robert J. Rietz Techniques and Risk-Based Lenny Shteyman Decisions Tom Toce Brian Robinson PUBLICATION DESIGN & PRODUCTION BonoTom Studio Inc. TRADECRAFT �� 60 www.bonotom.com Best Practices in Insurance Financial Modeling Russ Bingham COMMUNICATIONS REVIEW COMMITTEE John Moore, Chairperson CRYPTIC PUZZLE �� Mike Angelina 62 Mary Bahna-Nolan Silver Screen Cecil Bykerk Tom Toce Eli Greenblum William Hines BRIDGE PUZZLE �� 64 Mary D. Miller Leading Trumps Art Panighetti David Shea Edith McMullin Karen Terry Tom Terry PUZZLES �� 66 Passover Special INTERNET ADDRESS www.contingencies.org Lenny Shteyman“Bob, can we chat for a minute?” Contingencies (ISSN 1048-9851) is published bimonthly by the American END PAPER �� Academy of Actuaries, 1850 M Street, NW, Suite 300, Washington, DC 68 20036-5805. For subscription information and customer service, contact Mortality the Contingencies subscription department at the address above or (202) Robert J. Rietz 223-8196. Advertising offices: Mohanna Sales Representatives, (972) 596-8777, [email protected]. Periodicals postage paid at Washing- ton, DC, and at additional mailing offices. BPA circulation audited. (Basic annual subscription rate is included in dues. Nonmember rate is $24.) Copyright 2014. All rights reserved. This magazine may not be reproduced in whole or in part without written permission of the publisher. Opinions expressed in signed articles are those of the authors and do not necessarily reflect official policy of the American Academy of Actuaries. Postmaster: Please send change-of-address notices for Contingencies to Contingencies, PO Box 16976, North Hollywood, CA 91615-6976.

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Westchester Financial Center / 11 Martine Avenue, 9th Floor / White Plains, NY 10606 Tel: 914-285-5100 / Toll Free: 800-766-0070 / Fax: 914-285-9375 www.actuarialcareers.com / E-mail: [email protected] THINKSTOCK of my everbeingcaughtinsimilarcircumstancesarelessthanzero. attempt toascendthenorthfaceofMountEverestareallmorecompellingmebecausechances leton’s successfulopen-boat crossingoftheseatoSouthGeorgia IslandorMallory’sill-fated (infact,fatal) I HAVE ASTRANGEPENCHANT The FirstStep 6 adapted from aposting thatappeared onhisblog, “A Quest for the stereotype. and, occasionally, working withoutanetastheydothisbelies iar skills, stretching themselves beyond comfortableboundaries, know quiteafewactuarieswhoseinterest in acquiringunfamil- tion ofactuariesas, dare Isay it,slightlyboring bean-counters. like how Sauriol completelyexplodes thecommonmispercep risk andtochallengehimselfbothphysically andmentally. Ialso grand adventure), Igreatly admire hiswillingnesstoembrace my 60thbirthday (oneoftheproximate causesforSauriol’s maplelyssolo.com , tocheckhisprogress andsilentlycheerhimon. the weather, grab a bite, and pull up Sauriol’s website, www. Every morning during that same time, I would get up, curse ing, checktheweather andwaves, grab abite, andhittheoars. trip, whichbeginsonPage 42, Sauriol would getupevery morn- compelling accountofthe hours later, onFeb. 6, 2014. Barbados, 74 days andthree nautical miles, landingin 2013, Sauriol rowed 2,600 Canary Islands onNov. 24, Ocean. Departingfrom the vast expanse of the Atlantic as herowed soloacross the actuary Jean-Guy Sauriol the adventures ofCanadian tracted winter following during thispast cold,pro that I spentmany moments InsideTrack CONTINGENCIES Take Patrick Collins. Hisexcellent commentaryonPage 14 is Over thecourseofmy timeattheAcademy, I’ve cometo While asolocrossing isnottheway I’d choosetocelebrate As he recounts in his It’s nosurprise, then, -

LINDA MALLON MAY | JUN.14 We allhavethestuffofepicjourneyswithinus, whether it’s rowing an ocean or simply filling a whether it’srowinganoceanorsimplyfillinga All weneedtodoistakethatfirststep blank computerscreenwithwords. for gripping talesoffortitudeunderextremeduress. AccountsofShack- - words. Allwe need todoistake thatfirst step. rowing anoceanorsimplyfillingablank computerscreen with a way ofattainingyour goal.” of tremendous odds,” Houston said.“You learnthere isalways happy, andaboutbeingproud ofaccomplishmentsintheface as abusinessmaninlateryears. giving himtheconfidencetopursuealongandsuccessfulcareer his combat experiences as a Buffalo Soldier fighting in Italy for comfort zoneatthebehest ofUncle Sam. Yet Houston credits whose memoirbeginsonPage 22, spentseveral years outofhis efits accrue from pushing your personal envelope. Ivan Houston, putting inmy 10,000 hours, Ineededtostart withmy first few.” lins said.“Therefore, ifIever wanted togetbetteratwritingby run,Ineededtostart bya 26-mile finishingthefirst mile,” Col- the marathon, thinking tomyself thatifIever wanted tofinish We allhave thestuff ofepicjourneyswithinus, whetherit’s “I learned much about people, about suffering, about being Beyond thesatisfaction oftakingonachallenge, other ben-

. WWW.CONTINGENCIES.ORG in makingitlookeasy). all thehard work—comes then all the artistry—and to read his writing, but wouldn’t(you know that it camenaturally tohim And hedidn’t feelthat ing feltmore exposed. public speaking, writ While hehasnofearof out ofhiscomfortzone. lins told me, was way Launching the blog, Col ( an Extraordinary Life” q4el.wordpress.com ). “I remember running - - Opening Doors for Actuaries Globally

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Public Confidence—What Does It Take?

PUBLIC CONFIDENCE. It’s an essential ingredient in the success of any pension or insurance program. And—no surprise—actuaries are an important part of the public confidence equation for such systems.

Actuaries promote public confidence by saying what’s what. taxpayers, are confronted daily with headlines blasting mes- That’s because public confidence comes from facts, not from sages about the dire financial condition of these plans. smoke and mirrors. All too often, public trust succumbs to false Restoring public confidence in public plans is the responsi- confidence in systems that play fast and loose with the facts. bility of many. Most important, plan sponsors must be willing to They’re not transparent, not accountable, and ultimately not make the appropriate funding contributions. Period. reliable. As a profession with a public responsibility, we actuaries also We actuaries know this. must be willing to do our part. As part of the public’s trust in the actuarial profession, one Taking stock, I’d say we have been, but there’s more to do. of our goals is to help ensure that retirement benefits and insur- Our standards of practice steer us toward appropriate actu- ance against life’s risky exposures are protected. arial practice. The Actuarial Standards Board (ASB) has been extraordinarily busy in the past several years strengthening our standards as they apply to pension practice. I applaud the ASB for its hard work and for its progress. But again, there’s more to do. It relates very much to public confidence. Or in this case, the extraordinary attention and concern related to public-sector plans. A substantial number of states and municipalities face considerable fiscal challenges—and pensions are almost always at or near the top of the list of identified problems. There’s an unprecedented level of interest and concern among the citizen- taxpayers of these jurisdictions who, until recently, never paid much attention to pensions. All that has changed. As the result of this heightened interest, it has become apparent that these plans have roughly 10 million plan beneficiaries and are supported by taxpayers in every state and in most local jurisdictions. This just adds to the dimensions of a public confidence hurdle that is already high. We need to respond. And now. The good news is that our profession cares and is engaged. I believe actuaries have a significant commitment to closing this public confidence gap. Individually and collectively, our work as actuaries tends to While we will never be able to mandate that government be steady and consistent. But the terms “steady and consistent” plan sponsors supply the robust funding needed to sustain these are a poor descriptor for the environments in which our pension plans, we can make a difference. How? It’s simple—by providing and insurance programs reside. As a result, public confidence relevant and consistent information. Information that’s needed in these systems ebbs and flows as circumstances change. And by plan sponsors, for sure. But—and this is the key—information so the job of the actuary, and of the profession, needs to evolve that the public wants and deserves. appropriately. The first step is to pull the best ideas from the good work of Our profession can’t afford to relegate public confidence to so many across our profession and fold them into the next round the category of a “checkbox” item that we achieve and then ig- of enhancements to our practice standards. Our standards can nore. What worked yesterday may no longer work today. It’s that be the vehicle for helping restore public confidence. Thus far, simple, and I think most of us know it. we as a profession have been reluctant to directionally focus a practice standard only on public pension plan practice. It’s time Public Pension Plans—a Call to Action to get beyond that reluctance. Despite nearly $3 trillion of assets held by public-sector pen- Let’s take this essential next step to respond to this essential

sion plans, the covered workers and retirees, not to mention need. THINKSTOCK

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Applauding the Work of Those younger workers, in turn, can Para-Actuaries build their pension fund until they are e at Humana enjoyed Tom Terry’s ready to retire. Many countries, such as Wcolumn “Keeping Up With the Brits” Chile, have such an arrangement—much (January/February 2014), and we agree like a giant 401(k)—to fund their Social that the value added by people support- Security benefits. Of course you still need ing actuaries is essential to the success of to maintain a productive country for our organization. such assets to retain their value. But far We have an actuarial community of better that the link between benefits and about 480 associates. Approximately the funding source be direct and explicit one-third of that community is com- workers. Schobel may indeed be correct than the mushy and changeable compact posed of business professionals who in characterizing the present state of our we now have, which is becoming increas- work with our actuarial teams. While Social Security system, but that doesn’t ingly vulnerable to a larger public debt we may not offer a “para-actuary” track mean that it’s the only approach. problem. to our business professionals, we have As a young actuarial pup, I remember Gary Thomas engaged them in all the professional de- being taught that Social Security was a Hamilton, Bermuda velopment activities that we provide our form of social insurance that was fund- actuaries. They are included in all meet- ed by contributions into a trust fund—Al Actuaries Needed ings and communications, recognized for Gore even famously called it a “lockbox” read Robert Reuter’s “A Proposal for excellence in our quarterly meetings, and that he promised to protect. Fast-forward I Better Life Insurance” (May/June 2013) encouraged to participate in the creation to 2013, when we heard President Obama and Laura Mullane’s “National Mea- of our newsletters, blogs, and meeting claiming that restrictions on the govern- sure—The State of U.S. Math Literacy” planning. They are an integral part of ment’s allowance would jeopardize those (March/April 2014) with great interest. our business, and their wide range of ex- very Social Security payments that all Reuter calls for a better type of life periences and skills is invaluable to us. along we had been told were funded! insurance that is based on the concept They also provide us with stability and Indeed, we now are starting to see of the economic value of human life. expertise that we depend on when our what may be the first stray threads in Underwriting could use it to ensure actuaries rotate. the slow unraveling of Social Security that the amount of insurance at issue Our business professionals are ener- as its cash flow needs start to crowd out is reasonable. But because the need for gized and committed to excellence. We other government programs. We increas- insurance declines dramatically when a see this yearly when Humana measures ingly hear that our contributions were in person is nearing retirement, the market- associate engagement. Our business pro- fact taxes, thereby laying the ground for ing department would probably prefer a fessionals score at a world-class level, means-testing the benefits that we all needs analysis. Both concepts are pre- according to Kenexa. thought had been prepaid. Also, many of sented in basic life insurance textbooks. Thank you for taking the time to share those same politicians and pundits tell A more appropriate approach is to use different ideas on recognizing, develop- us solemnly that people are now living needs analysis, but constrained by the ing, and highlighting the non-actuaries longer, as if the idea of mortality improve- economic value of human life. Needs in whom so many of us count on. ment was some new actuarial discovery excess of economic value aren’t sustain- Roy Goldman that can be used to justify higher Social able and could create moral hazards. Shari A. Rodriguez Security tax rates. These consequences This would be consistent with the notion Louisville, Ky. all arise from the pay-as-you-go nature that a financial plan is achievable only if of our Social Security system, which we the planned lifetime spending is no more A Changeable Compact knew all along would become top heavy. than the expected lifetime after-tax in- read with interest Bruce Schobel’s So what can we do? As Schobel points come. When the two are equal, the plan I points concerning retirement plans in out, we can’t simply store goods and ser- is optimal. the letters section of the January-Febru- vices in our basements. However, older This is where Mullane’s article comes ary 2014 issue. I must take issue, however, workers can store assets in the form of into play. An optimal financial plan can with his assertion that a whole society houses, savings, stocks etc., which can be be reduced to a simple algebra problem cannot fund its own retirement and must sold to younger workers in order to raise of two variables and two equations. For

therefore rely on payments from current money for current retirement income. every set of assumptions for parameters THINKSTOCKPHOTOS

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there is a unique financial plan. Many financial planners are -un able to distinguish between a variable and a parameter. Factors that are really parameters but with uncertain values often are treated as variables. In retirement planning, clients ask: “How much to save?” “Annual savings” is clearly a variable. Because income = spending + savings, and income is of a known value, spending is also a variable. But typical planning approaches ask the clients if they would like to have their current lifestyle in retirement, i.e., treating spending as a parameter. As a result, most planning outcome is of questionable value. Mixing up variables and parameters makes it impossible to conduct sensitivity analysis. Many types of planning software We continue to be the leading provider of innovative, include Monte Carlo simulation to assess the risk of running out cost-effective and long-term Reinsurance System of funds. Given a questionable base plan, the simulation could Solutions for life companies. produce a false sense of security for clients. Following the growth and direction of the industry, After 26 years in the field as a life insurance agent, I am hop- ing the life actuaries will spend some time looking into the basic we support: approach to the financial planning process, and come up with life insurance products that better fit the income-replacement H needs of our customers. Assumed, Ceded and But this is strictly my personal opinion. Retroceded Business David Hu Los Angeles H Life, Living Benefits & Saving Social Security Annuities any articles have been written to suggest ways to strengthen MSocial Security. One frequent proposal is to raise the retirement age. This was again put forward by the Academy president H Retention Management in the March/April issue (“Promoting Objective Policy in a Par- tisan World”). This suggestion often strikes me as having one H group “pay” for the benefits given to another group. Claim Administration I have a different proposal. Based on my initial benefit level, I believe that my accumulated payments exceeded all of my FICA taxes within three or four years into my retirement; and With over 30 years experience, we have my employers’ taxes were recovered in the next three or four developed a complete line of quality years. Even if these estimates are off by a couple of years, the software products and services for the two periods probably did not exceed 10 years. Having retired life insurance industry. We invite you to more than 10 years ago, I see that my children are paying for the entire cost of my benefits. An additional consideration is that join our growing list of satisfied users! the cost of living adjustment (COLA) is not significant for those receiving higher benefit payments, and it reduced the payback period mentioned. I suggest that the COLA be eliminated at the higher benefit levels, at least after eight or 10 years into retirement, and graded upward as the initial or current benefit level decreases. I don’t know whether this would contribute much to the solvency of Social Security. If not, a lower cutoff date or age could be considered, at least at the higher benefit levels. Perhaps another reader will notice something that I have Life Reinsurance Systems overlooked. If so, that would give us more insight into the possibilities. My children already are convinced that there will be Call: 708/403-7775 • Fax: 708/403-7801 no Social Security for them. Email: [email protected] • Web: www.taire.com Walter Crow Bay Village, Ohio Over 100+ Successful Installations!

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MIB_0188_HRID 2014 Print Advertising_0326.indd 1 3/28/14 12:14 PM Commentary BY PATRICK COLLINS

Personal ERM

HOLY SMOKES! THAT’S IT!? (My palm slaps my forehead.) In some ■■ Buying insurance to protect against ways, it seemed like such an obvious conclusion. Perhaps the answer catastrophes; ■■ was always right there in front of me the whole time and I chose not Shoring up important client relationships; to see it. ■■ Recognizing and retaining key As an executive and actuary in the endeavor. After all, before you can thrive, employees; insurance/reinsurance business, I have you must survive. Taking steps to maxi- ■■ Accounting controls to prevent fraud focused a lot of energy on the subject mize the likelihood of survival seems like and theft; of risk and uncertainty over the course a great first step. ■■ Pruning unprofitable or non-strategic of my career. Enterprise risk manage- Often overlooked or underappreci- business units; ment (ERM) is a popular topic in my ated is the opportunity component of ■■ Developing new business relation- daily work. While the concepts and ERM. One way to manage risk is to rec- ships or tactical alliances. methods are getting more sophisti- ognize and seize opportunities. These Recently, I decided to approach cated, in principle it’s pretty simple to may be occasions for growth, diversifi- these concepts in a different way and understand. ERM focuses on under- cation, or some other way to add value. apply ERM to my own life. The result standing and managing business risk By exploiting prospects, an enterprise was enlightening. to optimize the return versus the risk actually can reduce many risks. dynamic. Really good companies have been do- The Enterprise Is Me The emphasis on risk is intuitive to ing ERM for centuries without formally What is the best investment I can make many. We tend to look at what can go defining it. They understand and act to now in my personal enterprise, giving wrong and seek ways to mitigate the improve the chances of success. Some me the highest return and reducing the risk of that happening. This is a good examples include: most risk? SHUTTERSTOCK / BONOTOM STUDIO

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What is the best investment I can make now in my personal enterprise, giving me the highest return

I started by thinking about the con- and reducing the most risk? cept of security. My basic premise was that happiness and fulfillment can be want to improve my health. For starters, 1. Get started; optimized with high security (being fewer processed foods, higher nutritional 2. Take action—and improve on how I’ve secure). I outlined three categories of se- content, fresher ingredients. All aspects done it before; curity: financial, emotional, and physical. needed attention. 3. Repeat Step 2. Drilling down, I replaced the word Next, I’m paying attention to what I’m security with health and asked myself doing with my body. Clearly, I need to get Getting Off the Dime how I’ve been managing the balance moving. Activity, and then more activity. As you can see, I’m not a fan of compli- between my financial, emotional, and There are many straightforward actions cated solutions or processes. Life is tough physical health. I realized that over the I can take. I’ll choose to walk whenever enough. For me, the simpler the solution, course of my life, I was likely to spend a I can. Use the stairs instead of the eleva- the better. As an actuary, I’ve grown to certain amount of resources (time, en- tor. Skip the cab ride and enjoy a long appreciate the exponential function over ergy, and money) on my physical health. stroll to the office in the city. And while the years. It can be seen and applied ev- No matter what I did, that wasn’t likely we’re at it, better quality activity. I have erywhere. A simple graph, like the one to change. But I could influence how and discovered that I prefer walking the golf below, vividly depicts how a small, steady when those resources would be spent. I course to riding in the cart. While rock percentage increase can generate ex- could spend them sooner on wellness or climbing and hiking upped my fitness traordinary returns over time. Even if later on sickness. While no one can com- quotient, I also discovered how pleasur- the increase is small, the improvement pletely prevent accidents and emergency able they are. Hot yoga has improved my can be significant over time. illnesses, you still can improve your odds flexibility greatly. And I find great joy in dramatically. shooting hoops with my sons. Almost everyone I know who has ex- After that, I’m looking at what I am perienced an acute medical episode has putting on my body. Here the focus is on spoken about how everything changes reducing the level of toxicity of my envi- the moment the episode begins. There’s ronment. I’m examining the ingredients life before, and there’s life after. There’s of the products that I put on or near some truth to the old cliché that runs, my skin. More natural fibers with few- “When you have your health, you have er chemicals seem like a good idea. I’m everything. When you don’t have your looking at ways to improve the air quality In the case of improving my health, health, nothing else really matters.” in my home—houseplants help, and they I’m thinking the same concept can apply. Investing more time, energy, and look nice as well. I’m checking into bet- All I need to do is focus on getting just a money into improving my physical health ter ways to clean and maintain the house. little bit better every day. and wellness is the best investment for The number of natural products on the At first I wanted to kick myself for my personal enterprise. Improved physi- market has grown tremendously. They not reaching this conclusion earlier cal health is great in and of itself. But it do the task and are much less harmful to in my life. But that’s no excuse for get- also has the bonus of improving all three me or my environment. ting started once I made the realization. aspects of health and security, yielding To summarize my personal ERM There’s no time to waste as high returns incredible potential returns. plan, I’m focusing on my body, what I’m are waiting. Here’s to all our health! So, how to improve my physical putting into it, what I’m doing to it, and PATRICK COLLINS is a fellow of the health? What specific steps can I take? the environment in which I place it. Now Society of Actuaries and member of the For starters, I’m focusing more on what I have the beginnings of an action plan. Academy. He is chief actuary for AXIS I’m putting into my body. Many years ago, Perhaps it’s not perfect, perhaps it’s not Accident & Health, a subsidiary of AXIS when I was coding software, I became comprehensive, but still, it’s a start. How Capital, where he supports and enables familiar with the concept of garbage in, exactly I’m going to implement my plan the global accident and health insurance garbage out. If the data coming in was is another matter. Magical overnight so- and reinsurance divisions to grow and bad, the data coming out was guaranteed lutions rarely have worked for me. In this thrive. Outside of work, his current focus to be bad as well. The quality of the food case, I have opted for a more deliberative is to be a good father to his two sons, I am ingesting is absolutely critical. My process that I’ve had success with in the a good husband to his wife of 16 years, daily eating habits need to get better if I past. The steps are easy: and a good friend to others.

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2 Greenwich Office Park I Greenwich, CT 06831 I Phone: 203-861-5530 I Fax: 203-861-5531 I www.winklevoss.com Up to Code BY JOHN PURPLE

Owning Precept 13

WHAT IS IT ABOUT the requirements of Precept 13 that makes many ■■ Rules for admission, including basic actuaries uncomfortable? One of 14 precepts in the Code of Profes- education and/or experience and con- sional Conduct, Precept 13 requires an actuary to take action if he or tinuing education; ■■ A Code of Professional Conduct; she has knowledge of a potential violation of the code by another cre- ■■ Qualification Standards and standards dentialed actuary. Much like the Transportation Security Administration of practice; ads, this is the “if you see something, say something” requirement. ■■ Rules addressing how and when members may be counseled, disci- As I thought about why we are reluc- carried on into college, where most un- plined, or removed from professional tant to deal with potential violations of dergraduates would turn a blind eye to membership. the code among our peers, it occurred to all but the most egregious violations of Because the U.S. actuarial profession me that maybe it’s part of our upbringing. campus rules by their peers. is self-regulated, compliance with Pre- As children, we were told to work things Now that we are credentialed actuar- cept 13 is a critical element in ensuring out when interacting with playmates ies, however, we are part of a profession, that our members meet the standards we and siblings. How many of us heard the and the rules and perceptions must have established. And because actuaries parental admonition, “Don’t be such a change. Code violations by our mem- understand better than those outside the tattletale”? As we got into high school bers are serious business for all of us. It profession what might constitute a viola- and participated in activities such as takes only a few publicized cases of bad tion of the code, self-reporting is the best athletics, we were encouraged to be part work to ruin the reputation of the entire vehicle for policing ourselves. of the team. The culture there tended profession and undermine public trust in So what is it that Precept 13 requires to frown on a team member who ratted what we do. As a self-regulated profes- us to do? Precept 13 says, “An Actuary out another. And, I believe, this culture sion, we have established: with knowledge of an apparent, unresolved, material violation of the Code by another actuary should consider discuss- ing the situation with the other actuary and attempt to resolve the apparent violation. If such discussion is not at- tempted or is not successful, the Actuary shall disclose such violation to the appropriate counseling and discipline body of the profession, except where disclosure would be contrary to Law or would di- vulge Confidential Information.” Precept 13 also contains two annota- tions. The first deals with materiality and says in part, “A violation of the Code is deemed to be material if it is important or affects the outcome of a situation.” The second explains that an actuary is not expected to discuss the violation with the other actuary if either is prohibited by law from doing so or is acting in an adversarial environment involving the other.

Know Your Options “Bob, can we chat for a minute?” Understanding the importance of com-

JOE SUTTLIFF pliance with Precept 13 and actually

“Bob, can we chat for a minute?” 18 CONTINGENCIES MAY | JUN.14 WWW.CONTINGENCIES.ORG It takes one to know one... an actuary placing actuaries

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Pryor.COntengencies.indd 1 8/9/13 8:59 AM Up to Code CONTINUED

handling a situation in which there has the code or an actuarial standard of prac- states “An Actuary shall act honestly, been an apparent violation of the code tice (ASOP), and the situation is resolved. with integrity and competence, and in a are very different. It can be awkward for But what are your options if a dis- manner to fulfill the profession’s respon- all parties involved. Overcoming our in- cussion doesn’t take place? Note that sibility to the public and to uphold the grained aversion to turning others in is Precept 13 doesn’t require you to talk reputation of the actuarial profession.” difficult. And many simply aren’t com- with the other actuary. Annotation 13-2 Fortunately, the Academy’s Council fortable with that type of conflict. says an actuary is not expected to dis- on Professionalism in December 2013 From time to time, members of the cuss the potential violation if prohibited published a paper on dealing with Pre- Actuarial Board for Counseling and Dis- by law or if an adversarial relationship cipline (ABCD) get requests for guidance exists with the other actuary. You also Overcoming our ingrained from actuaries who are faced with pos- can decide that you simply don’t want to sible Precept 13 situations. While each have the conversation. Or perhaps you aversion to turning others in instance is unique, we find that many did talk with the other actuary and mat- is difficult. And many simply possible violations of the code can be ters weren’t resolved to your satisfaction. aren’t comfortable with that resolved by speaking with the other ac- The reason doesn’t matter here, but tuary. That discussion might even lead Precept 13 clearly states that the actuary type of conflict. to better understanding by both parties, shall disclose the violation to the ABCD if especially when some aspect of profes- the discussion didn’t occur or was unsuc- cept 13 issues, The Application of Precept sional judgment has been involved. In cessful. And, it should be noted, failure to 13 of the Code of Professional Conduct. some instances, the discussion leads to comply with the requirements of Precept The discussion paper doesn’t provide clarification of the issue or application of 13 could be a violation of Precept 1, which guidance like an ASOP but provides thought-provoking ideas from fellow actuaries on ways to comply with this difficult precept. The paper includes an infographic that depicts the Precept 13 process. The paper also offers examples and attempts to better describe the terms “apparent,” “unresolved,” and “material.” Pension software solutions Whether or not you are facing a Precept 13 situation, I would urge you to take the from WySTAR Global time to read this paper, which is available DBVAL Defined benefit valuations and web benefit projections at www.actuary.org/files/Precept_13_ DCVAL Defined contribution, balance forward recordkeeping, Discussion_Paper_FINAL121913.pdf. ESOPs and compliance While it may be difficult to apply in OPEVS Post-employment benefits practice, Precept 13 is a cornerstone to TestWyz DB/DC compliance testing the structure of the U.S. actuarial profession. We all need to be aware of its Find out more requirements. And, as always, if you want Discover how your organization can benefit from partnering with a leading- to discuss a Precept 13 situation in con- edge technology provider. For more information, call us at 800-505-9076 fidence, please reach out to a member of or email us at [email protected]. You can also visit our website at the ABCD. You can find us on the ABCD’s www.wystar.com/solutions/software. website, www.abcdboard.org/.

JOHN PURPLE, a fellow of the Casualty Actuarial Society, a member of the Academy, and a member of the Actuarial Board for Counseling and Discipline, is a part-time actuary with Risk & Regulatory Consulting LLC in Farmington, Conn. He is © 2011 WySTAR Global Retirement Solutions. All rights reserved. ECG-634603 a former regulator with the Connecticut Insurance Department.

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Size 8-1/8” w X 10-7/8 H- trim size + 1/8” bleed-set up as 4 color ﬁ le: ARM-14-02959-P1-L&H_ContingenciesMag_1-16 Black Warrior A BUFFALO SOLDIER LOOKS BACK

By Ivan J. Houston with Gordon Cohn

NO SURVIVING MEMBER of Combat Team 370 of Editor’s Note: Academy the 92nd Buffalo Division will ever forget Aug. 23–24, member Ivan J. Houston 1944, the night we prepared to enter combat for the first enlisted in the U.S. Army time. Assembled on the south bank of the Arno River at the age of 17 in 1943 near Pontedera, Italy, not far from Pisa and the Ligu- and served as a member rian Sea, we were a single untested African-American of Combat Team 370 infantry regiment in a racially segregated U.S. Army, of the 92nd Infantry Men of the 92nd Division poised to fight against the retreating battle-wise forces crossing the Arno River, of Germany’s 16th Panzergrenadier Reichsfuehrer Divi- Division of the U.S. 5th August 1944 Army. Also known as sion under the overall command of Field Marshal Albert the Buffalo Soldiers, it Kesselring. Once Hermann Göring’s deputy, “Smiling Albert” had commanded Germany’s air fleets during the invasion of France and the Battle of Britain in was the only African- 1940 and later served as Gen. Erwin Rommel’s co-director of Germany’s North American division African campaign. Acknowledged as one of the ablest strategists in the German to fight in Europe high command, Kesselring was in Italy to direct a last-ditch defensive effort for during World War II. a dying army. The Germans had lost Rome to the Allies just 60 days before and Houston, who was had retreated north to a deeply fortified position known as the Gothic Line; this chief executive officer position stretched 170 miles from the Ligurian Sea east across the Apennine of Golden State Mutual mountains that form the spine of Italy to the Adriatic. Life Insurance Co. from 1970 until his retirement Our objective as the 370th Regimental Company I, under its commander, Lt. Jes- Combat Team was to cross the Arno River se Jarman, on the left, with its command post in 1990, wrote about and break through the Germans’ Gothic Line, at Cascina, reported enemy activity around his experiences as a Field Marshal Kesselring’s last major line of an area designated Outpost 4. In the firing Buffalo Soldier in his defense in northern Italy. that followed, Platoon Sgt. James E. Reid of book, Black Warriors: The move to the front through small vil- Company I, with whom I had played cards The Buffalo Soldiers lages was quite emotional. The Italians knew and passed idle hours only days before as we of World War II we were going to fight the dreaded Germans crossed the Atlantic, was wounded and later (iUniverse, 2009). What and that some of us would not come back. died, thus becoming the first fatality of the 3rd follows is excerpted They threw flowers at our vehicles. They Battalion, the first battle casualty of the 92nd from that book. handed flowers and wine to those of us rid- Division, and the first African-American in ing in the vehicles. the European theater of war to die in infantry

22 CONTINGENCIES MAY | JUN.14 WWW.CONTINGENCIES.ORG • To the Italian people they liberated, their skin color was less important than their bravery and sacrifice under fire.

April 1945: The author on leave in Rome

A combat patrol attacks an enemy machine-gun nest just 300 yards distant. were trulyhappy toseeus:Theywere free. Celebrations in Except for a few fascists, most of the people we encountered they didnotlike the adequate food.Even thoughtheywere alliesofthe Germans, They hadbeenlivingbehindGermanlinesformonthswithout hicles. Theythrew flowers atusandshouted,“ hundreds of starving and cheering Italians surrounded our ve no, all on the north side of the river east of Pisa. All along the way, the villagesandtowns ofLugnano, Uliveto, Caprona, andAscia the Renaissance cityofFlorence. which flows between Pisa,withitsfamousleaningtower, and On Sept.1,1944, CombatTeam 370crossed theArnoRiver, Viva Americani! demoralizing. are you fighting?” We foundherjabberentertaining, never things like, “Give up your arms,” and “Why she was certaintoannounceit.Shewould say mans hadtaken any prisonersfrom our unit, music for us every night—jazz—and if the Ger trate Americanpositions. AxisSally was toplay Her revelations enabledtheGermanstoinfil Axis Sally, alsohadthepassword somehow. paganda totheAmericantroops eachnightas Mildred Gillars, whobroadcast Germanpro the 5thArmy, butanAmericanwoman named used eachnightwas given toevery memberof our first nightincombat.Apassword tobe was gone. There was muchconfusionduring combat. Just like that,someoneIhadknown Black Warrior 24

As the3rd Battalion beganitsoffensive, we moved through CONTINGENCIES

CONTINUED Tedeschi

, the Italian word for Germans. MAY | JUN.14 - - - Viva Americani!

in LosAngeles, June 1944 Houston and his mother Houston andhismother against theGermans. 5th Army advances unopposed, asthe ford theArnoRiver 370th Regiment, I, 3rdBattalion, columns ofCompany Sept. 1,1944:Two ” - - we inallrespects. remained second-class liberators andshowering uswithlove, whileinourown country scenes. Here were whiteItalians greeting African-Americans as Also, duringthebattleforRipafratta, Jumbo Joe Fry, 1st sergeant work. Major Briggs was thefirst whiteofficerkilledinbattle. it assaultedRipafratta, was aconsequenceofthiskindteam Aubrey Biggs, theexecutive offerwho was withCompany Ias since tanksandinfantryattacked asateam.ThedeathofMaj. This created adilemma forthosetroops attackingwithtanks artillery would comeflyinginifatank was anywhere nearus. a considerable distance orprobably seetheirdust. Allkindsof were goingtostart firingatthetanks. Theycouldhearthemfrom we knewthatwe hadtogetsomeshelterbecause theGermans away from our advancing tanks. As soon as our tanks appeared, the causeofheavy Germanfire. Infantrymenlearnedto stay learned that the noiseanddust generated by our tanks were It was duringtheassaultonRipafratta onSept.4thatwe

very large villa when we were shelled 127 times like afreight train. He was right. had toldmethatartilleryfire overhead sounded vision artilleryinFrance duringWorld War I.He you. My father hadbeenanofficerinthe92ndDi ing from. Theywould just start exploding around different: You never knewwhere they were com we could feel the debris from it. Mortars were the explosion, andsometimes whenitwas close the incomingshell.Then,ofcourse, there was the artillerypassingoverhead andthehissingof fire cominginorgoingout. We couldalways hear until thewar endedwhenthere was notartillery passed from thetimewe went onlineinAugust 500 rounds. Idon’t thinkthere was anhourthat emy artillery fire thatday. We took more than was from Pennsylvania. and laterreceived abattlefieldcommission.Fry of Company showed K, outstanding leadership with grapes, flowers, andfruit.Some ran along, clung toourvehicles andshowered thesoldiers en could be seen crying. The excited civilians Others just waved happily. Someofthewom es that were beyond our limited vocabulary. of “ Arno, thecitizensgreeted uswithmore cries ing progressed. At ahamletjust northofthe each communityseemedtogrow asthemorn today I smile and feel good when I recall those the columnfeelinglike aconqueringhero. Even ute withheartykisses. Theyhadevery guyin others ofbothsexes andallagespaidtheirtrib pouring wineforallwhowould acceptit,while I was inthetemporary commandpost ina Our entire battalionfelttheweight ofen Viva Americani! WWW.CONTINGENCIES.ORG ” “ Buongiorno! ” andphras ------

COURTESY OF U.S. NATIONAL ARCHIVES

SHUTTERSTOCK COURTESY OF U.S. NATIONAL ARCHIVES

SHUTTERSTOCK the retreating battle-wise Germanforces. Ligurian Sea,wewerepoisedtofightagainst near Pontedera,Italy, notfarfromPisaandthe Assembled onthesouthbankofArnoRiver Spanish and a little Italian. The Brazilian commander spoke a member ofthebattalionheadquarters staff who spoke some this company would relieve Company K. we agreed—in English,Portuguese, Italian, andSpanish—that linguistic tanglethatinvolved everyone inthecommandpost, area andbecameasuccessful businessman. Francisco–Oakland to infantrydivisions. Afterthewar, Patterson moved totheSan The army stopped this program in March 1944, sending all ofus fication Test backtocollegebecomeengineers, doctors, etc. enlisted menwhoscored highontheArmy’s General Classi- Army SpecializedTraining Program thatsent Star for his gallantry, was an ASTP alumnus, the the crest ofthehill.Patterson, whowon a Silver machine guns hidden in deep emplacements on assist becausetheywere pinneddown by five from above thecastle. Company Kcouldnot guns were destroyed, butfire was still coming a German machine gun from the site. Two other machine-gun emplacement and then snatched ing handgrenades. He tossedagrenade intoa of Fort Wayne, Ind.,rushedfrom cover, throw One ofthem,Sgt. Patterson Charles“Schoolboy” Company L fought their way uphill to the castle. ated. Had they exploded, everyone inside would have been killed. I went outsideandsaw thecylindricalholesshellshadcre front of the house but did not explode. When the shelling stopped, Bianca, afewmilestothenorthwest, fellonthesoftground in large rounds from German11- railroad or15-inch gunsatPunta (I counted),hitsandnearmisses, by Germanartillery. Two very Relief by theBrazilians was almost comic.Iwas theonly The next day acompany ofBrazilians arrived, andaftera By 0900hoursahandfulof brave menof Arno River - - before beingknocked outby aconcussion grenade. He was taken killing over a dozen Germans with his Browning automatic rifle Company K was one of the mainstays in this defense, personally despite dwindlingammunition supplies. Pvt.Jake McInnis of men, andtheystuck totheirpositionthroughout theafternoon thought theywere fanatics. ing, theGermanshadkept comingdespiteourheavy fire. He K Company, toldmewhenhecameoffthehilllaterthatmorn- counterattack onthemountain.BillRich,acorporal Iknewin the telephonewire forcommunication. join themasthearea around usseemedtoexplode, yet noneof the bombardment, theBritishpausedfortea.Iwas invited to heavy shellingby theGermans. It was afternoon,anddespite ous. Igotoutofthere inahurry. struck like shrapnel andtheshellingbecameeven more danger When theslabsofmarblebegangettinghit,shards ofstone gan shelling. Iducked intothefactoryasshellingcontinued. the battalionoutpost just northofQuerceta, theGermansbe had beenquarriedfrom themountainsabove. AsIheadedto there was afactoryhousinghugeslabsofCarrara marblethat the sickandthosewhowere otherwiseinjured. There were alsoanumberofnoncombatcasualties, including suffered 263casualties:19 dead, 225 wounded, and19 missing. Germans continuedtodemolishtheroad before us. fast and maneuver our vehicles over impossible terrain. The retreating Germans. We surprisedthemwithourabilitytomove The menofthe3rd Battalion moved quicklyandpressed the man fortificationsoftheGothic(sometimescalledGreen) Line. The 3rd Battalion hadsucceededinbreaching thefamedGer Mounting Casualties mander andItalked andfinallyclarifiedoursituation. little Spanish,aItalian, andPortuguese. TheBrazilian com- German mortarfire andgrenades couldnotdislodge our With the coming of daybreak, the Germans had begun to In Pietrasanta we relieved aBritishunitduringperiodof At thenorthendofPietrasanta, nearatown calledQuerceta, After just over five weeks ofcombat,Combat Team 370had on theleft.KCompany would lead out,carrying right, Company Linthecenter, andCompany K Company Iwould attackMount Caualaonthe pany commanderswere given theplanofattack. and approaches totheriver crossing, andcom- reconnaissance was madeforobservation posts fire swept the streets ifmenappeared. Careful buildings at regular intervals, and small-arms above. Medium andheavy artilleryraked the tered town was visible to the enemy in the hills every move thatourtroops madeintheshat and surreal respite. us was hurtor even excited duringthatcurious MAY |JUN.14 Mount CaualadominatedSeravezza, and CONTINGENCIES 25 - - - - Black Warrior CONTINUED

A Conversation with Ivan Houston •

After graduating from college, you went to work at Golden State Mutual Life Insurance Co., which was founded in the 1920s to assist African-Americans who were unable to purchase life insurance. Describe some of the changes that you witnessed over the course of a long career in insurance.

The changes that I have were about 60 black life The Serra River in Seravezza, Italy, at the point where Houston crossed witnessed since joining insurance companies with the ammunition detail in October 1944. Mount Cauala rises sharply on the right. This photo was taken 58 years later, on the company in 1948 have of various sizes. Most Oct. 16, 2002. been truly amazing. Nearly were in the South. These all of our policyholders companies had formed the were African-Americans, National Negro Insurance to the rear but returned days later. His stand that day earned working-class individuals Association (NNIA) in 1922 him the Silver Star. who were serviced by (the name was later changed I had volunteered for the ammunition supply detail with about agents going door to door in to the National Insurance a dozen men. I carried a metal box of ammunition in each hand. segregated communities Association). The NNIA met The boxes were rectangular and weighed about 25 pounds each. Yet until the late 1960s, annually at the home office I loosened the sling on my M-1 rifle and slung it over my back. African-Americans were of one of its larger member The first time I saw the Germans up close and shooting at us was employed by life insurers companies, and until about at Seravezza. As we approached the hill, we looked up and could mostly for marginal jobs— 1960, the hosting company see a German machine gun raking our position. There were two janitor, messenger, etc. would have to struggle to (New York and some of the find housing for meeting German soldiers manning the gun, and our fire hit one. The other New England states with delegates because hotels carried him away, and we continued toward our goal. When we Fair Employment Practices refused to accept African- reached the base of the hill, the Germans unleashed a tremendous Commissions may have American customers. artillery barrage. We crouched for a time and then continued on been the exception.) At (The National Insurance our way. Halfway up the hill we encountered more machine-gun Golden State, all of our Association no longer fire and mortars. Shrapnel was flying all around, and some of it, employees were African- exists, and most of the quite hot, landed on my clothes, burning through to the skin. American, and most had companies that were a part Some in our detail were hit. The detail could not continue and a college education. Our of that organization have returned to the base of the hill. We had failed in our mission to operation was well run and been merged into larger supply ammunition, and soon other men from the rifle companies highly efficient. companies in the industry.) were coming off the hill. It became a mess. I will never forget the In 1948, when I With the passage started my career, the of the 1964 Civil Rights smell of burning gunpowder as the shells exploded all around us. only major insurance Act, major life insurance I lost my appetite for several weeks after this experience. For a association that admitted companies began to hire while I thought I had been gassed; however, it was the burning black companies was the black employees and agents. cordite that came from the exploding shells that had made me ill. Life Office Management While this was good for During the battle for Seravezza a large number of the battal- Association, which was them, our company began ion’s officers and enlisted men were killed, wounded, or listed then headquartered in New to lose outstanding recruits as missing in action. Most of those listed as missing were later York. It wasn’t until the late and other employees. It confirmed as killed in action. Lt. Lionel Ladmirault of Company 1950s and into the 1960s that was difficult to maintain I, an African-American from Louisiana with blue eyes, blond African-American insurers competitive wages and hair, and white skin; Lt. Ralph Skinner of Company L; and Pfc. were admitted to the other benefits. To maintain a Hugh Portee were killed in action. Lt. Skinner, although mor- major life insurance trade quality workforce, we associations. even undertook reverse tally wounded, continued to lead his men against a German During the 1950s, there integration. counterattack until he died. He was awarded the Silver Star

posthumously. Pfc. Portee was near me during our effort to HOUSTON J. IVAN

26 CONTINGENCIES MAY | JUN.14 WWW.CONTINGENCIES.ORG You qualified as an actuary at a time when the profession You’ve been active in numerous civic and religious wasn’t particularly diverse. What changes have you seen in the organizations, particularly in Los Angeles. To what do you actuarial profession over the course of your career? attribute your lifelong involvement in public service?

When I first got involved Award from the International There are many reasons African-Americans for jobs. in professional actuarial Association of Black Actuaries for becoming involved I was involved in the Los organizations, I saw few in 2008 because I was among in civic and religious Angeles Area Chamber of women and hardly any the earliest black actuaries organizations. First you must Commerce and the California African-Americans. That in this country. They flew like the organization and Chamber of Commerce has changed, especially for me to their convention in its mission. You must also because they were engaged in women, but I still don’t see a Washington to receive the determine what you have to the politics of the city and the significant number of African- award. The room was full of offer and what you can gain state in which I worked, and Americans. African-American actuaries from being involved. political decisions always have The International and actuarial students. It gave I was active in life an effect on business. Association of Black Actuaries, me a wonderful feeling just to insurance industry Since my retirement, I’ve of which I am a member, see their numbers and to know organizations, even serving become a member of the is making a real effort to that these professionals and as chairman of the Life Office board of trustees of Catholic recruit African-Americans young students are pursuing Management Association Charities of Los Angeles. Since to the profession. I received what I think is a great career. (LOMA), because they were I no longer have a company a Lifetime Achievement a great professional resource to be concerned about, I can for me and my employees. At now focus on those who are in one time I was president of much need—the poor and the How did your experiences fighting in Italy help you as you the Los Angeles Actuarial Club homeless. moved forward in a long and successful career as an African- because I felt I had something American businessman? to offer as a company actuary. I volunteered with the Los Fighting as an African- some crazy reason, I learned Angeles Urban League because American soldier in the much about people, about it was devoted to preparing infantry in Italy was an suffering, about being happy, experience that is forever and about being proud of engraved in my mind. I have accomplishments in the face said to my family and friends of tremendous odds. You that nothing worse could learn there is always a way ever happen to me. Yet, for of attaining your goal.

Houston at the Cinquale Canal on the western edge of the Gothic Line. IVAN J. HOUSTON J. IVAN

MAY | JUN.14 CONTINGENCIES 27 Black Warrior CONTINUED

supply ammunition at Seravezza. I knew he had been hit in a Right, 92nd Division troops period of heavy fire, but I was unaware until later that he had enter newly liberated Genoa. died. The battalion suffered 70 casualties in just one day, and Below, members of a mortar there were scores of men suffering from battle shock and fatigue. company of the 92nd Division I was probably in shock but did not know it. pass ammunition to bombard the Germans. The company is credited with liquidating several Official Recognition machine-gun nests. On Oct. 17, the regimental commanding officer reported that Maj. Gen. Edward M. Almond would inspect the battalion at 1300 hours. Maj. Gen. Al- mond (1892-1979), who was the commanding officer of the 92nd Infantry Division, believed in segregation and opposed integration of the armed forces. Maj. Gen. Almond appeared promptly and marched up and down our formations. Col. Clar- ence W. Daugette and each company commander went with him. The general stopped in front of me and asked how long I had been with the battalion. He talked to my commanding officer, Capt. Hugh D. Shires, and with Col. Daugette and ordered them to award me the Combat Infantryman’s Badge “for ex- emplary conduct in action.” I guess the award was for trying to get ammunition onto the hill above Seravez- za and for surviving almost two months of continuous ARCHIVES NATIONAL U.S. combat. At any rate, I did receive the much-sought- after badge and $10 more in pay each month. After the war, all together, kept the assault echelons well cared for in food, who had received the Combat Infantryman’s Badge were entitled ammunition and other essentials to combat. to a Bronze Star upon request. I received my Bronze Star medal The record made by Combat Team 370 is enviable and years later from the War Department. is one to which we, as the first colored Combat Team in the On Nov. 4, 1944, Combat Team 370 was dissolved and re- European Theater, can well point with pride. turned to the 92nd Infantry Division. Col. R.G. Sherman, commanding officer of the combat team, issued the following Men who were killed in action and could be identified be- General Order: came the responsibility of the regiment’s graves registration officer. His responsibility was to arrange for temporary burial. As this Combat Team passes into history, I, who have had There would be every effort to identify the body and to send it the privilege of commanding it, desire to review, with you, back to temporary burial sites well behind the lines. Later those some of the highlights of its brief, but extremely active life. men who had died in action were gathered, and their burial Consisting of selected officers and men, this Combat Team place became the U.S. Military Cemetery in Florence. was designated for immediate combat duty in an active Today, that cemetery honors 4,402 soldiers, sailors, and air- theater and sailed from the United States, 15 July 1944, men. I have been there three times, most recently in 2013. Few for the Italian Theater. In addition to its Combat Mission, places I know of are more beautiful than Tuscany, and in a tiny Combat Team 370 was charged with the duty of preparing corner of that stunning region of Italy lie 400 African-Americans, the way for the remainder of the 92nd Infantry Division, descendants of slaves, who marched, fought, and died fighting and soon to follow in our footsteps. defeating the great evil of Nazi Germany. The blood of Buffalo Sol- Three weeks after landing in Italy, Combat Team 370, diers mingles in historic soil with the blood of the ancient Romans. then a member of the famous 5th Army, found itself fight- The names of another 1,409 men fill a Wall of the Missing. ing at the front as a team-mate of the old and experienced One of them was the last African-American infantry officer killed 1st Armored Division. Never have two units worked more during our tenure in combat. Why his body is listed as missing in in harmony or with better results—across the Arno River— action I don’t know. That was Lt. John M. Madison from Com- over Mount Pisano—into the Gothic Line defenses near pany I, winner of the Silver Star, Bronze Star, and Purple Heart. Bagni di Lucca—armor, infantry and artillery, each assisting He is listed on the wall as missing in action, yet he appears in our the other, while their respective supply units, also working

battalion journal as wounded then killed on April 5, 1945. CEMETERY PHOTOS BY DIANE AND BUD SCHWARZBACK MILITARY U.S.

28 CONTINGENCIES MAY | JUN.14 WWW.CONTINGENCIES.ORG Documenting

My last visit to the Florence cemetery occurred in the pro- Buffalo Soldiers cess of making a documentary film about my book and the remarkable gratitude the Italian people of Tuscany have shown • toward the Buffalo Soldiers (see left). In his book, Black Warriors: The Unheralded Heroism Buffalo Soldiers of World War II, Ivan The early days of December were clear and cold. The 3rd Bat- Houston describes his battalion’s Sept. talion was ordered almost 30 miles east and attached to the 6th 4, 1944 capture and liberation of the South African Armored Division’s 11th Armored Brigade at Cas- 15th-century Villa Orsini. The current tel di Casio. This sector was deep in the Apennines, northwest owner of the villa, Mattea Piazzesi, of Florence and north of Pistoia along Highway 64. came across Houston’s book when The South Africans had fought with the British 8th Army she was updating the website for and defeated Field Marshal Erwin Rommel’s Afrika Korps in the bed and breakfast that she runs the North African desert in 1943. We remained alongside the there. Piazzesi contacted Houston South Africans through December and January. At first we were about using excerpts from his book and invited him to visit the villa, now housed in a castle, but we later moved to a small factory and then named the Villa LaDogana. Houston took her up on the to a farmhouse in the mountains. offer and, accompanied by his family, returned to Lucca in The 3rd Battalion was now operating alongside Brazilians September 2012. He was honored in nine towns and villages and South Africans as part of an international force. that his division had liberated in World War II. On Dec. 23, we saw the first heavy snow cover the North “I was astounded at the reception and gratitude given to Apennines, and the air was cold and windy. Some of our troops me by the Italians in many villages and towns in Tuscany,” were issued white snow uniforms. It seemed unreal to me that Houston said. “They kept saying that the Buffalo Soldiers— African-American troops from the American South were wearing African-American infantry troops—gave them their freedom!” snow-white uniforms and fighting in 10-foot-deep snowdrifts. During that trip, Houston discovered that the city of From our position 30 miles to the east, along Highway 64 Lucca commemorates its World War II liberation by Buffalo leading to Bologna, we learned that the Germans had attacked Soldiers every year in September. In 2013, Houston returned to lead the celebratory procession. our division before dawn on Dec. 26 at several points on a six- Accompanying him on that trip was a filmmaker, who mile front along the Serchio River. shot footage for a documentary about the Buffalo Soldiers of During a German attack that day, 26-year-old Lt. John R. Fox, World War II. A 12-minute trailer for the documentary, which an artillery observer with the 366th Infantry’s Cannon Compa- is expected to be completed in 2014, can be viewed at ny, was killed after calling down artillery fire on his observation www.pacificfilmfoundation.org. post, the second floor of a house in Sommocolonia. The 366th

The grave of Capt. “The armed forces in which I served Jesse Jarman, relegated most African-Americans 370th Infantry Regiment, 92nd to service units in support of the Division combat forces but never really wanted to place them in direct combat. We of the 92nd Infantry Division were one of the few exceptions. We fought the Nazis and the Fascists with honor, face- to-face in the rugged mountains of Italy. We suffered hundreds of Wearing the sweater casualties and in the end defeated vest Grandma made the Nazi proponents of a master in December 1944 race and their allies. Yet the heart of America did not change toward its African-American soldiers or its African-American citizens. When we returned, we encountered the same segregation and discrimination that had existed since the end of the Civil War. Nothing had changed.” —Ivan Houston—Black Warriors The American Military Cemetery in Florence, Italy, 2007 U.S. MILITARY CEMETERY PHOTOS BY DIANE AND BUD SCHWARZBACK MILITARY U.S.

MAY | JUN.14 CONTINGENCIES 29 Black Warrior CONTINUED

Infantry was the regiment commanded on the Ligurian Sea, and I went through the city several times by African-American officers that Maj. without noticing the water. As a result of the shrapnel wound, I Gen. Almond did not want to accept was awarded the Purple Heart. into the 92nd Division. Fox was recom- mended for the Distinguished Service Fighting Fascism and Jim Crow Cross at the time, but his widow did not At 1920 hours on May 2, the battalion received word that the war receive it until May 15, 1982—38 years in Italy was over. The battalion journal notes, “Finito la Guerra later! The posthumous citation noted in Italy.” The night the war ended, there was much celebration SHUTTERSTOCK PURPLE HEART: that his body was found among those of in battalion headquarters and even more out in the streets of “approximately 100 German soldiers.” Pontremoli. Partisans and others were firing guns, and crowds Another 15 years passed before Presi- were drinking wine. The whole scene was wild. The Italian dent Bill Clinton awarded him the Medal of Honor. citizens of Pontremoli called for our commanding officer, Col. There were many other instances of heroism. On April 7, we Daugette, to come out onto the balcony of our headquarters and established battalion headquarters at Querceta; the 3rd Battalion greet the civilians. The colonel was somewhat reluctant to do was put in regimental reserve. We heard that Lt. Vernon Bak- that because the Italians were really wild at the end of the war SHUTTERSTOCK er, Company C, 370th Infantry, in leading his weapons platoon and were shooting everywhere in their jubilation. In fact, some on April 5 and 6, had encountered the enemy near Massa and, of them shot against walls, and the bullets ricocheted and hit the in a series of heroic actions, had killed nine German soldiers; person who had fired. However, Col. Daugette did eventually destroyed three enemy machine-gun positions, an observation step out onto the balcony, where he was cheered passionately post, and a dugout; then covered the evacuation of several of his by the Italians. Just a few days later, on May 7, at 1630 hours, wounded comrades. Later we learned that Lt. Baker had actually I noted in the battalion journal, “The war in Europe is over!” fought his way into Massa and radioed headquarters that he was During the war, the performance of the 92nd Infantry Divi- there. He was not believed and had to fight his way back to our sion had been criticized by senior officers. That criticism was lines. For his action that day, Baker received the answered by Lt. Col. Marcus H. Ray, who com- Distinguished Service Cross. Fifty-two years later, manded the 600th Field Artillery Battalion. Ray, he was awarded the Medal of Honor by President an African-American, in speaking of young Afri- Bill Clinton. can-American officers said, “Therefore, I feel that Early on the morning of April 9, I moved with those who performed in a superior manner and other battalion headquarters personnel by truck those who died in the proper performance of their across the Cinquale Canal. We crossed on a Bai- assigned duties are our men of the decade and all ley bridge built by our engineers and moved into a honor should be paid them. They were Americans very large villa. As we approached the villa, we saw before all else. Racially, we have been the victims fresh vehicle tracks, and inside we found food still of an unfortunate chain of circumstances back- on the table. Apparently the Germans had left only grounded by the unchanged American attitude as minutes before. As I was standing in the doorway, Lt. Col. Marcus Ray regards the proper ‘place’ of the Negro [sic]. . . .” (shown here as a facing inward, a loud explosion blew me 10 feet civilian) commanded I believe Col. Ray’s comments are an excellent inside. Explosions continued all around. I was on the 600th Field summary of what happened to the 92nd Division. the floor and felt my entire back stinging. I slowly Artillery Battalion However, the colonel wrote as an artillery officer, of the 92nd Infintry examined myself. All my arms and legs were still in Division. and I write as a (then) corporal in the infantry place, but I discovered that a small piece of shrap- who was present when the actions that resulted nel had entered my right shoulder. The battalion medical staff in much of the criticism occurred. Ray lays much of the blame was close by, so I took myself to the medical officer, Capt. Young. on the “unchanged American attitude” concerning the proper He took off my combat jacket, shirt, and undershirt, gave me a place of African-Americans. shot of tetanus, and poured sulfa powder over the wound after His comment is correct but polite. I agree with those African- removing the shrapnel. Then he wrapped me up and told me to American leaders at the time who said it was Jim Crow and not get dressed. I looked around the large medical aid station and saw a lack of education or adequate training that affected our divi- wounded men lying all over the floor. They had been brought to sion’s performance. We were fighting the Nazis and Italian Fascists the aid station and just left there. The more seriously wounded with one hand and Jim Crow with the other. Many of us from the were later evacuated while others like me were sent back to their North, East, and West had never before encountered the kind of units. That day I looked out from the aid station and was amazed racial discrimination and segregation we faced in the army. Sol- to see the Ligurian Sea. We had fought very close to the sea for diers from the South knew what segregation and discrimination many months, but I did not know it was right there. Viareggio is were really about, and many of those rural young men with low OF THE ARMED FORCES 1940-1965 PROJECT GUTENBERG EBOOK OF INTEGRATION

30 CONTINGENCIES MAY | JUN.14 WWW.CONTINGENCIES.ORG Walking in the little shops that dot the beachside, we came to an artist’s studio. Philippa, an artist herself, said, “Let’s go in.” The artist was there; and as we looked around, I said to him in Italian, “I was here in 1944 and 1945.” He was a big, gruff-looking Italian, and he said, “Tu Buffalo.” I said, “Si.” He started hugging and kissing me with the great emotion common to Italians. He opened his wallet PURPLE HEART: SHUTTERSTOCK PURPLE HEART: and pulled out an old card that identified him as a partisan. His name was Bruno Tintori, and he described how he had helped us carry ammunition over the mountains. He took

The seaside resort of Viareggio, Italy, has miles of sandy beaches, shops, us next door to a bar, introduced us to his friends, and we and restaurants. talked and drank grappa the rest of the afternoon. Bruno Tintori is now dead, but I later learned that test scores who formed our ranks felt they were often being sent he had become one of Italy’s most famous contemporary art- on suicide missions. We were hobbled by stragglers, yes, but we ists. Bruno Tintori’s expression of gratitude for what the Buffalo SHUTTERSTOCK fought on and in the last weeks of the war achieved a remarkable Soldiers had done for Italy, fighting in the rugged North Apen- victory with our 65-mile march through the Apennines from Barga nine mountains and freeing them from the yoke of Fascism and to Pontremoli. We defeated the Nazis and Italian Fascists, causing Nazism, will always be remembered. To the Italians we were thousands of them to surrender, but we did not conquer Jim Crow. first class. To the Italians we were heroes. In 1978, Philippa, my wife, and I visited Italy for the first time since the end of the war. We rented a car in Paris and drove to IVAN J. HOUSTON, a member of the Academy, retired in 1990 as the chairman of Golden State Mutual Life Insurance Co., Italy. Naturally we stayed in Viareggio, since that had been the in Los Angeles. He is the author of Black Warriors: The Buffalo headquarters of the 92nd Division. Soldiers of World War II. PROJECT GUTENBERG EBOOK OF INTEGRATION OF THE ARMED FORCES 1940-1965 PROJECT GUTENBERG EBOOK OF INTEGRATION

MAY | JUN.14 CONTINGENCIES 31 Drilling own Demographic and Geographic Differences in Retirement Plan Participation DBy Craig Copeland

S AN INCREASING NUMBER OF BABY BOOMERS approach or surpass the traditional retirement age of 65, the financing of retirement in the United States is forcing its way into the national zeitgeist. Boomers, born between 1946 and 1964 and now ages 50 to 68, currently total slightly more than 75 million people, according to the U.S. Census Bureau. As it has from birth onward, this cohort will alter the nation’s demographics as it continues to age. The resulting Asharp rise in the U.S. elderly population will make it much more expensive to support programs, such as Social Security, that are geared for the elderly. Under current law, a retiree beneficiary turning 65 can As a result, if workers hope to maintain their prere- expect Social Security benefits to replace approximately tirement standard of living even without any changes 30 percent to 50 percent of preretirement income, de- in Social Security benefits, they may need othersources pending upon his or her earnings history. (For families of income in retirement. Because an important other with one earner meeting the spousal benefit criteria, these source of income is an employment-based retirement replacement rates would increase by 50 percent, because plan, understanding the percentage of workers currently the nonworking spouse could qualify for a benefit equal participating in those plans provides critical insight into to 50 percent of the working spouse’s benefit. Therefore, retirees’ future financial status. on a family basis for one-earner couples, the replacement rates would range from about 45 percent to 75 percent.)

SHUTTERSTOCK

32 CONTINGENCIES MAY | JUN.14 WWW.CONTINGENCIES.ORG Where you live, your gender, race, and educational level, and who you work for are all predictive of whether you will participate in an employer-sponsored pension plan.

Demographic and Geographic Differences in Retirement Plan Participation

An analysis of participation levels by workers in public- and workers), the sponsorship rate is 53.4 percent, and the frac- private-sector employment-based pensions or retirement plans, tion participating is 44.2 percent. Separating these wage and based on the U.S. Census Bureau’s March 2013 Current Popula- salary workers into public and private sectors shows that 70.5 tion Survey (CPS), yields interesting findings about worker and percent of the public-sector workers participated in an employ- employer characteristics, as well as geographic locations, that ment-based retirement plan, compared with 39.1 percent of the appear to predict retirement plan participation. private-sector workers. Another definition of the workforce that most closely re- Demographic Characteristics sembles the workers who generally must be covered by an Among the 156.5 million Americans who worked in 2012, 76.0 employment-based retirement plan in accordance with the million worked for employers or unions that sponsored a pension Employee Retirement Income Security Act of 1974 (ERISA) is or retirement plan, and 61.6 million participated in a plan (see full-time, full-year wage and salary workers ages 21 to 64. Under Figure 1). This translates into a sponsorship rate (the percentage this definition, 60.4 percent of workers worked for employers of workers working for an employer or union that sponsored a sponsoring a plan, and 53.5 percent of the workers participated plan) of 48.6 percent and a participation level of 39.4 percent. in a retirement plan. This measure of the workforce, however, contains the un- The percentage of workers who participate in a retirement incorporated self-employed and those younger than age 21 and plan increases with age (see Figure 2). For those ages 21 to 24, older than age 64. For wage and salary workers ages 21 to 64 16.2 percent participated in a plan, compared with 49 percent (excluding only unincorporated self-employed, as incorpo- of those ages 45 to 64. Overall, male workers are slightly more rated self-employed workers are considered wage and salary likely to participate in a plan than females, but female full-time,

MAY | JUN.14 CONTINGENCIES 33 Drilling Down CONTINUED

FIGURE 1 Share of various workforces working for an employer that sponsored a retirement plan, and the proportion participating in a plan, 2012 Full-time, full-year wage Wage and salary workers Private-sector wage and Public-sector wage and and salary workers ages All workers ages 21–64 salary workers ages 21–64 salary workers ages 21–64 21–64 (millions) Worker category total 156.5 130.4 110.0 20.5 92.2 Working for an employer 76.0 69.6 53.3 16.3 55.7 sponsoring a plan Participating in a plan 61.6 57.6 43.0 14.6 49.3 (percentage) Worker category total 100.0% 100.0% 100.0% 100.0% 100.0% Working for an employer 48.6% 53.4% 48.5% 79.3% 60.4% sponsoring a plan Participating in a plan 39.4% 44.2% 39.1% 71.5% 53.5% Source: Employee Benefit Research Institute estimates from the 2013 March Current Population Survey

FIGURE 2 Share of specific workforces working for an employer that sponsored a retirement plan and the proportion participating in a plan, by various characteristics, 2012 Full-time, full-year wage Full-time, full-year wage and salary workers and salary workers All workers ages 21–64 All workers ages 21–64 Sponsorship Percentage Sponsorship Percentage Sponsorship Percentage Sponsorship Percentage Age rate participating rate participating Annual earnings rate participating rate participating 20 or younger 21.3% 4.1% Less than $10,000 21.3% 6.6% 25.9% 16.9% 21–24 32.9% 16.2% 42.7% 28.7% $10,000–$19,999 28.1% 14.6% 26.8% 16.7% 25–34 47.1% 36.1% 55.2% 45.7% $20,000–$29,999 41.9% 30.5% 45.1% 34.0% 35–44 52.7% 45.4% 60.9% 54.6% $30,000–$39,999 53.6% 45.0% 57.9% 49.3% 45–54 55.5% 49.1% 64.9% 59.7% $10,000–$49,999 62.4% 55.5% 65.4% 58.8% 55–64 55.6% 48.9% 64.5% 60.5% $50,000–$74,999 68.1% 63.0% 71.7% 66.6% 65 or older 41.4% 31.6% $75,000 or more 70.4% 67.0% 74.1% 70.8% Gender Occupation Male 48.2% 39.8% 58.9% 52.3% Management, business and 57.1% 51.2% 66.3% 61.2% Female 49.1% 38.9% 62.4% 55.0% financial Race/ethnicity Professional and related 64.0% 55.1% 72.1% 66.2% White 52.4% 43.3% 65.2% 58.5% Service 30.8% 21.0% 44.4% 36.3% Black 48.4% 36.9% 59.4% 51.0% Sales and related 40.1% 28.9% 53.1% 45.7% Hispanic 33.1% 24.4% 41.9% 34.3% Office and admin. support 55.1% 43.2% 65.3% 56.7% Other 46.4% 38.5% 57.5% 51.4% Farming, fishing, and forestry 13.8% 8.8% 18.7% 15.9% Education Construction and extraction 32.8% 27.1% 42.8% 37.3% No high school diploma 20.9% 12.0% 29.2% 21.4% Installation, maintenance, 52.8% 44.5% 61.1% 52.8% High school diploma 42.4% 32.8% 53.1% 44.9% and repair Some college 47.6% 36.7% 61.0% 53.0% Production 50.9% 40.4% 59.1% 49.7% Bachelor’s degree 59.4% 51.2% 68.0% 61.9% Transportation/material 42.4% 31.9% 51.5% 43.4% Graduate/professional degree 67.4% 61.4% 74.4% 70.6% moving Marital status Employer size Married 53.8% 46.9% 63.5% 58.2% Fewer than 10 employees 14.0% 11.2% 20.8% 17.7% Widowed 46.1% 34.9% 61.1% 51.4% 10–49 employees 29.7% 22.7% 37.5% 31.5% Divorced 51.3% 42.6% 62.1% 54.4% 50–99 employees 44.1% 34.5% 52.1% 44.0% Separated 41.9% 31.9% 52.5% 43.4% 100–499 employees 54.2% 42.7% 61.9% 52.9% Never married 39.0% 26.7% 52.8% 42.6% 500–999 employees 59.2% 47.3% 66.4% 57.6% Work status 1,000 or more employees 64.9% 51.3% 73.6% 64.6% Full time, full year 57.3% 50.6% 60.1% 53.5% Public sector 77.6% 68.9% 84.2% 80.2% Full time, part year 40.0% 27.6% Sector/industry Part time, full year 29.8% 16.4% Private sector 43.7% 34.4% 55.7% 48.2% Part time, part year 25.1% 8.8% Agriculture, mining, and 28.7% 23.4% 38.7% 33.1% construction Manufacturing 61.3% 52.4% 67.9% 60.3% Wholesale and retail trade 44.1% 30.9% 54.5% 45.6% Transportation, utilities, 55.5% 47.5% 64.4% 58.2% information, and financial Professional services 46.8% 37.7% 58.5% 50.6% Other services 24.3% 14.8% 34.3% 25.9% Source: Employee Benefit Research Institute estimates from the 2013 March Current Population Survey Public sector 77.6% 68.9% 84.2% 80.2%

34 CONTINGENCIES MAY | JUN.14 WWW.CONTINGENCIES.ORG FIGURE 3 Share of all workers who participated in an employment-based retirement plan, by work status and gender, 2002 and 2012 70%

■ Male 60% ■ Female 56.2% 57.4% 50% 52.5% 49.1% 40%

35.3% 30% 30.2% 30.4% 27.6% 25.3% 20% 18.8% 18.4% 15.4% 12.8% 10% 10.7% 9.6% 7.5% 0% Full-time, full- Full-time, part- Part-time, full- Part-time, part- Full-time, full- Full-time, part- Part-time, full- Part-time, part- year worker year worker year worker year worker year worker year worker year worker year worker 2002 2012 Source: Employee Benefit Research Institute estimates from the 2013 March Current Population Survey full-year workers participated in a plan at higher levels than did FIGURE 4 male full-time, full-year workers. Share of all workers who participated in an Being white, having attained a higher level of education, or ermployment-based retirement plan, by annual earnings being married also are associated with greater probabilities of and gender, 2012 participating in a retirement plan. Among white workers, 43.3 80% percent participated in a plan, compared with 24.4 percent of 70% Hispanic workers. Twelve percent of workers without a high 69.3% school diploma participated in a plan, while 61.4 percent of 60% ■ Male 62.6% those holding graduate or professional degrees participated. 50% ■ Female The higher a worker’s earnings are above $10,000, the more 40% 46.7% likely he or she is to participate in a plan. Less than one-sixth 30% 37.5% (14.6 percent) of workers who had annual earnings of $10,000 20% to $19,999 participated in a plan, compared with 67.0 percent of those earning $75,000 or more. Furthermore, full-time, full-year 10% 11.8% 8.8% workers were by far the most likely type to participate in a retire- 0% Less than $20,000 $20,000–$49,999 $50,000 or more ment plan (50.6 percent versus 27.6 percent for the next highest Source: Employee Benefit Research Institute estimates from the 2013 March work status category). Those working in professional and related Current Population Survey occupations have the highest probability of participating in a retirement plan, at 55.1 percent. In comparison, workers in farming, fishing, and forestry occupations have the lowest, at 8.8 percent. Digging Deeper Workers of larger employers are more likely to be retire- A number of other demographic breaks also are significant: ment plan participants than are those of smaller employers (see ■■ Gender—Female workers overall are found to have a lower Figure 2). Among workers of employers with fewer than 10 em- participation level in an employment-based retirement plan ployees, 11.2 percent participated in a plan. This percentage than males. However, among full-time, full-year workers, steadily increased for each larger group of employers by number females have a higher rate of participation. In fact, across of workers, reaching 51.3 for workers of employers with 1,000 or all work-status categories, females were more likely to more employees. The sectors and industries of the employers also participate in a retirement plan than males (see Figure 3). had an impact on the likelihood of participating in a plan. Workers Furthermore, the proportion of females participating in a in the manufacturing industry and the transportation, utilities, in- plan is higher than males at each earnings level (see Figure formation, and financial industries have the highest probability of 4). As a consequence, female workers’ lower probability of participating, while those in the other-services industry have the participation in the aggregate is a result of their overall lower lowest probability. Public-sector workers are significantly more average earnings and lower rates of full-time work in com- likely to be participants than are private-sector workers. parison with males.

MAY | JUN.14 CONTINGENCIES 35 Drilling Down CONTINUED

FIGURE 5 Share of all workers who participated in an employment-based retirement plan, by race/ethnicity, with Hispanic detail and annual earnings, 2012 70% 66.1% 66.2% ■ White 60% 61.2% 61.6% ■ Black 57.3% 50% ■ Other ■ Hispanic 45.2% 44.1% 40% 51.2% ■ Hispanic—Native Born 40.2% 37.4% 30% ■ Hispanic—Non-native Born 29.5% 20% 23.1%

10% 12.1% 11.2% 9.2% 7.9% 6.1% 4.7% 0% Less than $20,000 $20,000–$49,999 $50,000 or more Source: Employee Benefit Research Institute estimates from the 2013 March Current Population Survey

■■ Race/Ethnicity—Analysis of race/ethnicity shows that His- panic workers are significantly less likely than both white and FIGURE 6 African-American workers to participate in a retirement plan. Share of all workers who participated in an However, two important characteristics—birth location and employment-based retirement plan, by age and income, average earnings—play into these differences. Hispanics who 2012 were not born in this country have persistently lower prob- 80% abilities of participating in a retirement plan, while U.S.-born 70% ■ Less than 45 ■ 66.7% Hispanics have participation levels closer to those of white 60% 45 or older 62.8% and African-Americans at each earnings level (see Figure 50% 5). Consequently, the overall differences by race/ethnicity 40% 46.1% are largely driven by the relative earnings levels between 38.9% the groups, except for those Hispanic workers not born in 30% the U.S., who have lower participation levels regardless of 20% earnings. 10% 15.8% ■■ Firm/Size—Employees of smaller firms, those with fewer 0% 7.7% employees, were significantly less likely to participate in a Less than $20,000 $20,000–$49,999 $50,000 or more retirement plan. This holds true for workers at each age group Source: Employee Benefit Research Institute estimates from the 2013 March Current Population Survey and earnings level. Even among workers making $75,000 or more, a considerable disparity exists—just 25 percent of those in that income category working for the smallest employers However, younger workers are less likely to be retirement participated in a plan, compared with 78 percent of those plan participants than older workers at each earnings level working for employers with 1,000 or more employees. (see Figure 6). It’s likely that lower retirement plan participa- ■■ Education—Workers with lower educational attainment have tion by younger workers is a result of it being a less pressing lower levels of retirement plan participation. Educational at- issue than of income differences. tainment has a strong positive correlation with earnings, but across each earnings level those with the least education (no Geographic Differences high school diploma) still had significantly lower levels of Certain worker/employer demographic characteristics are asso- participation than those with at least a high school diploma. ciated with different likelihoods in workers’ participation in an Specifically, 37.6 percent of those without a high school diploma employment-based retirement plan. Workers’ geographic loca- who were making $75,000 or more participated in a retirement tions within the United States are also associated with different plan, compared with 71.5 percent for those with a graduate or participation levels. Workers living in states in the South and professional degree. Consequently, the education level of work- West, such as New Mexico, Florida, Nevada, Texas, and Arizona, ers clearly plays a role in the likelihood of participation in a are less likely to participate in a plan. In contrast, workers living retirement plan beyond determining earnings levels. in Midwestern, Mid-Atlantic, and Northeastern states (Iowa, ■■ Age—Younger workers’ significantly lower likelihood of Minnesota, District of Columbia, Wisconsin, and Maryland) participating in a plan could be caused by lower incomes. have higher participation levels.

36 CONTINGENCIES MAY | JUN.14 WWW.CONTINGENCIES.ORG This holds true for the reported consolidated statistical areas (CSAs) identified in the CPS, where CSAs Johnson City-King- sport-Bristol, Va., and Los Angeles-Long Beach-Riverside, Calif., Defining Terms which are located in the South and West, respectively, have the lowest retirement plan participation levels. Workers from the The term sponsorship rate is defined as the Appleton-Oshkosh-Neenah, Wis., CSA, which is located in the Midwest, have the highest participation level. percentage of workers in the specified workforce who worked for an employer or union Parsing Participation that sponsored a plan in a given year for any The trend in the percentage of workers participating in an em- of its employees, though not necessarily for ployment-based retirement plan has been essentially stable from the worker in question. The term percent- 1987 to 2012. The participation level for all workers went from 37.6 age of workers participating in a plan is not percent in 1987 to 39.4 percent in 2012, while the participation level synonymous with the standard retirement for full-time, full-year workers went from 58.4 percent in 1987 to plan term participation rate, which is gener- 53.5 percent in 2012 (see Figure 7). The share participating across ally understood to mean the percentage of each demographic category was similarly stable from 1987 to 2012. eligible workers who participate in a plan. Furthermore, the magnitudes between the categories of the demo In contrast, the terms participation level or graphic variable for the most part also were relatively stable. percentage participating refer to the frac- The one significant exception to the overall result is the closing of the gap in the participation levels between male and tion of the workforce participating in a plan, female workers. In 1987, the proportion of male workers par- regardless of plan eligibility. Consequently, ticipating in a retirement plan was 40.9 percent, compared with participation rate is not used. 33.8 percent for female workers (see Figure 8). This was a gap of 7.1 percentage points. This divergence gradually closed so that by 2009, the percentage of female workers participating

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MAY | JUN.14 CONTINGENCIES 37 Drilling Down CONTINUED

FIGURE 7 Share of all workers who participated in an employment-based retirement plan, 1987–2012

65%

60%

55%

50%

45%

40%

Full-time, full-year wage and salary workers ages 21–64 35% All workers

30% 1987 1992 1997 2002 2007 2012 Source: Employee Benefit Research Institute estimates from the 2013 March Current Population Survey

FIGURE 8 Share of all workers who participated in an employment-based retirement plan, by gender, 1987–2012

48%

46%

44%

42%

40%

38%

36%

Male 34% Female

32% 1987 1992 1997 2002 2007 2012 Source: Employee Benefit Research Institute estimates from the 2013 March Current Population Survey

38 CONTINGENCIES MAY | JUN.14 WWW.CONTINGENCIES.ORG FIGURE 9 Number of those working for an employer that does not sponsor an employment-based retirement plan and number of workers not participating in an employment-based retirement plan, by various demographic and employer characteristics, 2012 Working for an employer not Working for an employer not Characteristics sponsoring a plan Not participating in a plan sponsoring a plan Not participating in a plan Millions (Share of total) Total 80.5 94.9 100.0% 100.0% Self-employed (not wage and salary) 8.9 9.0 11.0% 9.5% Net wage and salary 71.6 85.9 100.0% 100.0% 65 years old or older and 25 years old or younger 19.1 23.5 26.7% 27.4% Not full time, full year 32.6 40.0 45.5% 46.6% Less than $20,000 in annual earnings 25.1 30.4 35.1% 35.4% Fewer than 100 employees 40.2 43.6 56.2% 40.8% Source: Employee Benefit Research Institute estimates from the 2013 March Current Population Survey

exceeded that of male workers. After that year, however, the Macroeconomic Factors Also Matter disparity returned, reaching a 0.9 percentage point gap in 2012. The share of workers who participated in an employment-based retirement plan varied significantly across various worker char- Number Without a Plan acteristics and the characteristics of their employers. Being To create a complete picture of the employment-based re- nonwhite, younger, female, never married; having lower edu- tirement-plan landscape, you need to consider not just the cational attainment, lower earnings; not working full time, full percentage of workers with an employment-based retirement year, and working in service occupations or farming, fisheries, plan but also the number of workers who aren’t participants and and forestry occupations were all associated with lower levels of the number of those who work for employers/unions that don’t participation in a retirement plan. In addition, those working for sponsor a plan. Statistics about the numbers of workers with smaller firms, private-sector firms, or firms in the “other” (not certain demographic and employer characteristics who are not professional) services industry also were less likely to participate participating in a plan offer important information for gauging in a plan than their comparison groups. Another factor in the the potential effectiveness of any legislation that is drafted to likelihood of workers’ participation in a retirement plan was geo- target certain workers or exempt others in order to boost retire- graphic location, with workers in the South and West less likely ment plan participation. to participate in a plan than those in other regions of the country. In 2012, 80.5 million people worked for an employer/union While individual factors are important, retirement-plan par- that didn’t sponsor a retirement plan, and 94.9 million workers ticipation by workers also is strongly tied to macroeconomic didn’t participate in a plan (see Figure 9). This includes the 80.5 factors such as stock market returns and the labor market. The million who worked for employers/unions that didn’t sponsor stronger macroeconomic conditions of the late 1990s resulted in a plan plus 14.4 million who worked for employers that spon- higher levels of participation, while less positive macroeconom- sored a plan but who didn’t participate in the plan for whatever ic conditions of the 2000s led to lower levels of participation. reason. Regardless of the current direction, this trend has important Of these workers, 8.9 million (11.0 percent) were self-em- implications for workers, because having more opportunities ployed. Therefore, the number of wage and salary workers who to participate in an employment-based retirement plan greatly worked for an employer that did not sponsor a plan was 71.6 increases the amount of money they are likely to have available million. to them when they retire. Of those 71.6 million, 19.1 million (26.7 percent) were ages 25 CRAIG COPELAND is senior research associate with the or younger or 65 or older. Almost 33 million (45.5 percent) were Employee Benefit Research Institute. not full-time, full-year workers, and 25.1 million (35.1 percent) had annual earnings of less than $20,000. Furthermore, 40.2 mil- Resources Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability lion (56.2 percent) worked for employers with fewer than 100 Insurance Trust Funds, The 2013 Annual Report of the Board of Trustees of the Federal employees. The percentages aren’t cumulative because some Old-Age and Survivors Insurance and Disability Insurance Trust Funds, May 31, 2013. workers could fall into more than one of these categories. For www.ssa.gov/oact/TR/2013/tr2013.pdf Copeland, Craig, “Employment-Based Retirement Plan Participation: Geographic example, 18.4 million of the 40.2 million working for companies Differences and Trends, 2012.” EBRI Issue Brief, No. 392, Employee Benefit Research with fewer than 100 employees make less than $20,000 in annual Institute, November 2013. earnings. And 6.9 million of these employees of small employ- VanDerhei, Jack, and Craig Copeland, “The EBRI Retirement Readiness Rating™: Retirement Income Preparation and Future Prospects,” EBRI Issue Brief, No. 344, ers are either younger than 25 years old or 65 years old or older. Employee Benefit Research Institute, July 2010.

MAY | JUN.14 CONTINGENCIES 39 B:16.5” T:16.25”

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ONTINGENCIES could have been the first word to flash into people’s minds when I told them that I was preparing to cross the Atlantic Ocean in a rowboat, solo. I can’t say for sure because most people had just a blank stare, an incredulous look. C As actuaries, we are used to blank stares (“what is it that you do exactly?”). As actuaries, we also are used to visualizing, planning, preparing, and executing—exactly what I did to row an ocean. It took me four years to prepare, the same number of years it took me to complete my actuarial exams after I graduated from university. My journey started in July 2004 when a friend invited me for dinner. At some point during the evening, he said: “You have to see what I just bought.” We went in the garage, and he showed me his new toy, a kayak. He told me about his weekend outings, and I said I would like to try it. Right away, I felt the appeal of water. I bought my first kayak a few weeks later and began browsing the Internet for interesting stories about adventures in kayaks. I stumbled upon a book written by Hannes Lindemann, Alone at Sea. He had crossed the ocean twice in the 1950s, once in a dugout canoe and once in a kayak. I became fascinated by the idea of crossing an ocean in a small human-powered boat. In March 2010, I read the story of Katie Spotz, a young American woman who had just rowed solo across the Atlantic in a high-tech boat. Immediately, I understood that this was how I would make my own crossing. I started to research additional information. I found several books written by ocean rowers, including Roz Savage, Tori Murden, Maude Fontenoy, and Kevin Biggar. I read 15 books on the subject, leaving some haphazardly around the house and suggesting to my wife that she might like to read one. The big marketing ploy was under way. Bold Man and the Sea The year he turned 60, he realized his dream of rowing 2,600 nautical miles solo across the Atlantic Ocean.

Sauriol, post-journey PIERRE LEVERT Bold Man and the Sea

Bold Man and the Sea BY JEAN-GUY SAURIOL The year he turned 60, he realized his dream of rowing 2,600 nautical miles solo across the Atlantic Ocean.

Maple, photographed mid ocean by Uwe Gehring aboard catamaran Callisto on Dec. 13, 2013 to theCanaryIslands. boat, packing the food, and getting her ready for our road trip Plymouth. Tony andIspentthree days there working onthe I flew into London and took the train down to Tony’s home in was forthemtogreet meinBarbados attheendofmy journey. coming withmetotheCanaryIslands forthelaunch. Theplan enough. I said goodbye to my wife and my son, as they weren’t I alsohitthegymforstrength training two tothree timesaweek. did uptothree sessionseachday, rowing from two tofourhours. ton, Ontario, rowing onPresqu’ile Bay, just offofLake Ontario.I I spentasmuchtimepossibleatourcountryhomeinBrigh - Plymouth. the trip, whichIboughtonlinefordelivery toTony’s homein still had a few bits and pieces to buy, including all my food for into thefinalmonthsofpreparation for my grand adventure.I for about six of those hours and sleeping two nights in her berth. ready. At thattime, Ispentabout36hoursontheboat,rowing in Plymouth,England.There, we devoted aweek togettingher able totake delivery ofMaple per year, andhestarted mineinJanuary 2013. By July 2013, Iwas ocean rowing boatbuilder in the world. He builds only two boats Ireland, I contacted Jamie Fabrizio. Jamie is arguably the best wide, and the better ones are in England). Upon my return from (there are onlyalimited numberofreputable buildersworld- tice most ofthemare thebrainchild ofEngland’s PhilMorrison built. Andwhilethedesignhasevolved over theyears, inprac 2012 andIstill didn’t have aboat.Oceanrowing boatsare custom success ofmy adventure. He becamemy technicaladviserandwas instrumental inthe my triptoIreland gave metheopportunitytogetknow Tony. come, whichalready hadbeenrowed across theAtlantic once, out aboat,Positive Outcome. WhileIdidn’tPositive buy Out - drove toDingleonthesouthwestern coast ofIreland tocheck ing. Imet Tony at the Dublin airport in August 2012, and we person whocouldhelpmewithallthelogistics ofocean row the trade winds route that Christopher Columbus had followed. decision: Iwould row across theAtlantic from east towest using leaving. Upon my return from theCanaryIslands, Imademy crossing in its purest form—taking a boat tothewater and simply would participateintherace, buteventually Idecidedtodomy rowing race thatisheldevery two years. Initially, Ihadthought I tian ontheislandofLaGomera isthestarting pointforanocean cussed my doingthesameinarowboat. cruise across theAtlantic. Aswe traversed thewaves, we dis- September 2010. Laterthatsameyear, my wifeandItooka mitment, camewhenIboughtanindoorrowing machinein My first concrete step, becauseitinvolved afinancial com- Planning andPreparing 44 CONTINGENCIES The timeformy departure, Nov. 14, 2013, camequickly At thatpoint,my prioritybecametraining fortheexpedition. When I returned to Canada at the end of July 2013, I moved My preparations were moving forward, butitwas mid-August Someone hadgiven methenameofTony Humphreys asa In November 2011,Iwent totheCanaryIslands. San Sebas- Bold ManandtheSea and transport her toTony’s home MAY | JUN.14 CONTINUED - - the dock,Ihuggedmy friend Jean-Louis andshookhandswith tell herIwas leaving. It was ashortbutvery emotionalcall.On to fourdays soastocleartheislands).Icalledmy wife, Lucie, to gave (Ineededafavorable theall-clear weather window forthree to do. By latemorning, Iwas ready togo. Tony, my weather guru, the day afterourarrival toserviceit. on theboat.Jim from Mactra Marine was scheduledtocome to drinkable water, was themost importantpieceofequipment maker. The water maker, which took salt water and converted it affect theboat’s efficiencyinthe water, andserviceits water slows thegrowth ofbarnaclesandotherorganisms thatcould needed totouchuptheboat’s hullwithanti-foul paint,which where afriendofmine, Jean-Louis, hadrented anapartment. time in Gran Canaria, Tony and I stayed in Puerto de Mogán marina inPuertoRicoontheisland’s eastern coast. Duringour morning Nov. 21.Upon arrival, we drove thecardirectly toa to catchtheferryLasPalmas onGran Canaria. western coast, nolaterthan5p.m. onTuesday ifwe were going France andintoSpain.We hadtobeinCádiz,onSpain’s south- ing aboat—over right-hand highways leadingdown thelengthof car setupfordrivingontheleft-hand sideoftheroad—and tow and Spain.Tony didmost ofthedriving, expertly maneuvering a early thenext morning, we begananonstop trek through France night ferry to the French portof Roscoff in Brittany. Arriving OnthemorningofSunday, Nov. 24, Ijust hadabitofpacking Our first task was toget the boat ready for launching. We We madetheferryandarrived inLasPalmas onThursday Leaving PlymouthonSunday Nov. 17, we embarked onthe carbohydrates, proteins, andfat. the right typeof sugar andthecorrect combination of was because Iate alot of sports energy barsthat contain I ate only between 3,500and4,000calories aday. This 90 days of rowing, 5,000aday. Ifound, however, that In provisioning theboat, Iallocated 450,000calories for Fueling theMachine ■ ■ ■ and hotchocolate. included chips, chocolate, fruit cake, peachesinsyrup, ■ ■ ■ Two flapjacks, totaling 900calories (equivalent of a 10 or 11energy bars,totaling 2,300calories; Dehydrated high-protein porridge breakfast, muffin, cake, or brownie). totaling 1,800calories; dehydrated mainmeal, anddehydrated dessert, The 5,000daily calories that Iplannedconsisted of: Other snacksthat weren’t counted intheabove total WWW.CONTINGENCIES.ORG -

ENERGY BAR: SHUTTERSTOCK. TOP LEFT: LUCIE COSSETTE

JEAN-GUY SAURIOL ENERGY BAR: SHUTTERSTOCK. TOP LEFT: LUCIE COSSETTE

JEAN-GUY SAURIOL ocean: These are theelectronic aidsthat kept Maple Electronic Equipment ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ A waterproof cameratotake pictures andvideos. A GoPro totake videos; A PLB(personal locator beacon) incasetheEPIRB isn’t An EPIRB (emergency position indicating radio beacon) in A laptop computer tosendandreceive emails, blog, etc.; Two iPods tolistenmusic; A miniiPad toread books, listentomusic, messageusing A two-way satellite SMSmessengerandtracker, tosendtext Two satellite phones, tomake voice calls andconnect tothe functional or isunavailable; case of trouble; Bluetooth, look at satellites, linkwith GoPro, andstargaze; messages, theboat’s position, tweet, andposton Facebook; Internet, usingthemasmodems; tion between my boat andsurrounding vessels. Theprocedure identification system), agadgetthatsent and received informa- the time, I was alerted to their presence by my AIS (automatic ney toward Barbados inearnest. changed inmy favor. On Dec.13, Iwas abletoresume my jour Fortunately, nothing lasts forever, and eventually the conditions ing pushedby contrary southwest windsandnortherncurrents. looped around closetotheislandsfrom whichI’d departed,be vance forapproximately two weeks. During thosetwo weeks, I it was the start of aweather system that would cripple my ad - woke toaflatandnoiselessocean. It was eerie. Unfortunately, sickness forthenext two tothree days, butonFriday, Nov. 29, I up forwhathadbeenashortday ofrowing. Isuffered from sea- past sunset.Duringthenight, Iwent backtotheoarsmake That first day, I rowed untilIbegantofeelseasick. It was just Barbados Bound Tony andJean-Louis watched asIdisappeared behindthewaves. going. Ipicked uptheoarsandmademy way outofthemarina. Tony. Gettingontheboat,Iknewthere was noturningback.Iwas While Iwas closetotheislands, Isaw several ships. Most of safe on thebig - - music ever written. phony No. 2. Ithinkthethird movement isthemost beautiful my Rachmaninoffmoment.Isatonthedeck, listening to Sym- in the water. Also, on a very calmnightwitha full moon, I had was cleanandIdidn’t have tospendmore timethannecessary ter tocheckthehullofboat forbarnacles. Luckily, the boat three days. Iusedthetimetocleanboatandwent inthewa- encountered contrary conditionsthatkept mefrom rowing for I averaged in excess of50milesperday. Inmid-January, Iagain cal miles. Thiswas thestart ofagoodstretch. Until mid-January, special moment,amagicalmoment. on my satellite phone from the middle of the ocean. It was a newscasters sang“Happy Birthday, whileIlistened Jean-Guy” day. Onthatday, Ialsowas interviewed live, andthethree I was planningtoarrive onFeb. 22. 90 days. Duringalive TVinterviewby satelliteonDec.25, Isaid Christmas, Iacceptedthefactthatcrossing would require vain toextricate myself from theadverse weather system. By began regaining my strength. Ihadexhausted myself tryingin cabin whileIwaited fortheoceantocalmdown. capsizing, I didn’t row for two days, opting instead to stay in my the two times the boat capsized while I was sleeping. Still, after mess afterward. Ialsohadahelmettowear, whichprotected me an ankleleashwhenever Iwas ondeck.But thecabinswere a and foodthatI’d brought ondeckfortheday. Fortunately, Iwore caused ittorightitselfwithinsecondsofacapsize. planned, theairincabinsandboat’s low centerofgravity cabins, storage intheforward andlivingquartersinthestern. As sleeping insidetheboat’s cabin.Theboathad two watertight whileIwas ondeckrowingtimes—once andtwicewhileIwas coming from all directions. On Dec. 17, my boat capsized three east. In the process, those winds created big seas with waves around me. Thewindschangedfrom southtowest tonorth er system thatwould eventually rotate 360degrees clockwise they went ontheirmerryway. each other. Theyasked mewhetherIneededhelp. Isaidno, and distance ofabout150feet—close enoughthatwe couldspeakto people aboard know Iwas there. Thatboatpassedby meata from me, I became concerned.I fired off a whiteflarethe tolet any answer. By thetimesailboatwas abouthalfamileaway anything onthesystem. IcalledontheVHFradio butdidn’t get be aimingstraight forme. Ilooked atmy AISandcouldn’t see ditions improved. At adistance Isaw asailboatthat seemedto a smallspeckonvery bigocean. AIS was just oneofmany devices thatkept mefrom beingjust ask themwhethertheycouldseemeontheirradar orAIS. The marine radio, explain thatIwas asmalloceanrowing boat,and was always thesame:Iwould calltheotherboatonmy VHF On Jan. 1,Ihadmy best day uptothatpoint,rowing 56nauti- I had planned to be on the ocean on Dec. 31, my 60th birth- Finally Ibegan making forward progress. I also gradually In the first capsize, I lost a few items, such as water bottles The changeofconditionsonDec.13was partofaweath- Ihadmy first maritimescare onDec.13, theday thatcon- MAY |JUN.14 CONTINGENCIES 45 Bold Man and the Sea CONTINUED

The Home Stretch With three weeks to go, I started to be afraid of everything. Obviously, this was just my mind Rowing for a Cause playing games with me. I think it had to do with Jean-Guy Sauriol dedicated his trip two things. First, I was expecting big seas over to raising money for the Actuarial the next several days, with possibly the stron- Foundation of Canada and the gest winds and highest waves to date. Second, so Breakfast Club of Canada. close to the end, you know that if you don’t finish, It’s never too late to donate. it’s because something has gone terribly wrong. You will find more information Luckily, nothing unfortunate happened over the at www.maplelyssolo.com. next several days. Instead, I reconciled myself with the ocean and became comfortable again. On the day of the biggest waves, the ocean was as white as it had been to that point. I marveled at its beauty, a symphony for the eyes. I was very happy to be there, and I kept this feeling until the end. During the final 10 days of rowing, the ocean slowed down. To maintain forward progress, I worked overtime, increasing the time I rowed and reducing the a ship or some landmark of Barbados. It was still there when I duration of my breaks. The last few days, I started to send track- decided to try to get some sleep. When I woke up in the middle ing information every 30 minutes and tweet the number of miles of the night, it was gone. to go at sunset and sunrise. My last night on the ocean, I had 31 I first sighted the island of Barbados when I had about 10 miles to go at sunset. I expected the boat would drift 18 miles miles to go. It was lost in the clouds. I was moving well that day, overnight. The next morning I started the day with only 12 miles energized by the thought that within a few hours I would be to go. My last night on the ocean, I didn’t sleep well. I could see seeing my wife and son. With about one nautical mile to go, I a light at a distance. I wasn’t able to determine whether it was made contact with Tony, who had hired a boat and was coming to escort me for a safe landing. On that boat with Tony were my wife, my son, and my brother-in-law. I arrived at Port St. Charles, Barbados, to the cheers of my family and many onlookers, in- Sleeping Safely cluding Alex and Harry, two younger men from England who had arrived in a pairs’ rowboat just a few days earlier. We had Before going to sleep, I would position the rudder so that the boat would stay on course as much as possible. met on the ferry to Las Palmas. If I expected that the wind would carry the boat in the I stumbled onto the dock and hugged my wife and son. I was wrong direction, I set up a sea anchor in order to slow the greeted by two journalists, who wrote about my adventure in boat’s drift. I also had equipment that sounded an alarm an article that appeared in the local newspaper the next day. I and woke me if a ship was approaching my boat. spent about an hour clearing immigration. I then spent the next several minutes, hours, and days eating pizza, resting, cleaning, and preparing Maple to ship back to England to its new owner. From the beginning, my goal was to cross the Atlantic from the Canary Islands to Barbados in 75 days or less. I arrived after 74 days and three hours, just a few hours before the start of the 2014 Winter Olympics. This makes me the oldest as well as the fastest Canadian to row solo across the ocean. As I sit here trying to write this article, I realize that the most difficult aspect of spending four years to prepare for and actually row an ocean is that eventually it must come to an end. I took pictures and videos along the way, but the most indelible memory is simply that I did it. Everyone has an ocean to row, just not in the literal sense. I urge you to find your ocean and experience the exaltation of crossing the finish line.

JEAN-GUY SAURIOL, a fellow of the Canadian Institute of Sleeping quarters on Maple Actuaries, is the founder of SeclonLogic in North York, Ontario, Canada. PHOTOS, CLOCKWISE FROM TOP LEFT: LUCIE COSSETTE, TONY HUMPHREYS, JEAN-GUY SAURIOL LUCIE COSSETTE, TONY HUMPHREYS, CLOCKWISE FROM TOP LEFT: PHOTOS,

46 CONTINGENCIES MAY | JUN.14 WWW.CONTINGENCIES.ORG PHOTOS, CLOCKWISE FROM TOP LEFT: LUCIE COSSETTE, TONY HUMPHREYS, JEAN-GUY SAURIOL

13.0328

or e-mail Call formore information: would, competitivecomparisonsandbenchmarkingresearch. for You canuseittoassesstheimpactofvariousscenariosjustasan A.M. Bestanalyst U.S. 3,000singleandgroup approximately BCAR scorefor property/casualtycompanies. usedby online accesstothesamebasemodelanddata A.M. the Besttocalculate The financial outcomes. aninsurer’s affect test theimpactofscenariosthat leverage. A.M. to usethiscalculation Bestanalysts review ofaninsurer’s underwriting, financialandasset Best’s Capital (BCAR) isanintegrated Adequacy Ratio Adjustment System Adequacy Ratio Best’s Capital Measure same company. respectby The Output isnotguaranteedorwarrantedinany A.M. Best. internal purposesonly, BCARscorethat orbeconsistentwiththeofficial notmatch andsuchOutputmay A.M. the Best publishesfor NOTE: useofthe by The results oroutputcreated BCAR Adjustment System BCAR Adjustment

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Impact

Revitalizing Reinsurance Capacity SINCE THE FINANCIAL CRISIS OF 2007–2008, U.S. life insurance companies have been buffeted by several powerful forces, all of them combining to create serious insurance capacity problems. First, the crisis adversely affected the solvency and reputation of the banking industry, dissuading investors from participating in capital market ventures that could be tapped to spread the risk of loss. Second, the U.S. Federal Reserve’s handling of Life insurers the economic disaster has contributed to a protracted period can’t continue of low interest rates that have eroded insurers’ investment re- to wait for turns. Finally, multiple regulatory interventions in the United the markets States and the European Union have forestalled the development of innovative risk transfer methods because of concerns to resolve the over enhanced scrutiny and skepticism. These developments impact the constrain life insurers with few options to spread risk other financial crisis than reinsurance capacity, which remains tight. has had on This dour scenario is vastly different from the robust en- their capacity. vironment of a decade ago, when banks were in the thick of New ideas are developing insurance-linked securities and catastrophe bonds needed. with values driven by insurance loss events. For life insurers, the instruments served to spread their risk; for investors, they provided an investment uncorrelated with other asset classes. BY JEFF BURT Marketed as offering generally modest returns, the instruments largely performed well for investors. They certainly served as a vital risk-spreading mechanism for insurers. But while these instruments didn’t default during the crisis, they were adversely affected by illiquidity and couldn’t easily be sold or exchanged for cash without a substantial loss in value.

BONOTOM STUDIO, INC. | SHUTTERSTOCK MAY | JUN.14 CONTINGENCIES 49 Revitalizing Reinsurance Capacity CONTINUED

This last took a toll on the instruments’ reputation, effectively curtailing their continuation. Investors who backed them in the past no longer have the appetite, compelling banks to largely pull away from the market. Given banks’ thorny challenges in the post-recession era, this isn’t surprising. The ability of banks to fund increases in assets and to meet obligations as they come due without incurring unacceptable losses is under duress. It has created a liquidity crisis that has compelled many banks to restrict even traditional products like letters of credit. The life insurance industry has its own financial problems, returns for investors. Most important, it could set the stage with some large investors now debating whether or not to con- for a return to the partnerships that existed among banks and tinue investing in the companies because of the low return on reinsurance companies in the pre-financial crisis period. The capital. A case in point is the pressure applied last year by major difference this time around would be that the reinsurance in- shareholder and hedge fund manager John Paulson, who sits dustry would be taking the lead. on the board of Hartford Financial Services Group, to split the The concept is bold: Rather than banks becoming reinsurers, company’s life and property/casualty units. The insurer as in the pre-financial crisis period, the roles are reversed. subsequently sold its block of 700,000 individual Unlike banks, which didn’t necessarily specialize life insurance policies to Prudential Finan- or concentrate on insured risk as much as cial Inc. in a reinsurance transaction for on other asset-backed classes, reinsur- $615 million in cash. ers are experts in this regard. They The Hartford is not alone in underwrite only those exposures this decision. The Allstate Corp. that they believe to be actuarially is selling its Lincoln Benefit Life sound. The capital for this pool Co. to Resolution Life Holdings The concept is bold: of reinsurance capacity could Inc., reducing the regulatory- come from many of the same required capital in Allstate Rather than banks becoming reinsurers, sources that invested in bank Financial by approximately as in the pre-financial crisis period, products prior to the financial $1 billion. In addition, the the roles are reversed. Unlike banks, crisis. The difference, how- company announced it would reinsurers are experts in this regard. ever, would be a heightened discontinue issuing fixed an- degree of visibility into the nuities. These decisions were They underwrite only those exposures underlying risks and the conse- based on its strategy to serve dis- that they believe to be quent higher comfort level that tinct customer segments in which actuarially sound. this transparency could provide. it enjoyed a competitive advantage. Before I offer arguments for why Other insurers, like Aviva, have exited this is a prudent investment, it might be the life business in certain markets, as well. worthwhile to explore more fully the fac- Obviously, these developments don’t bode tors that gave rise to the need for such a solution. well for life and health insurance underwriters in the United States. The companies are unable to source adequate Regulatory Changes reinsurance capacity to spread risk, they are stymied by a com- The array of complex global regulations promulgated in the bination of regulatory and economic factors in achieving a aftermath of the financial crisis created difficult financial con- decent return on investments, and they are pressured by lower ditions for banks. From a historical standpoint, strict regulations demand for products as a consequence of the recession’s effect are common following a crisis. During times of bank distress, on personal income. governments often intervene in the activities of banks, as well Few traditional options exist to overcome what appear to be as provide capital support to reduce bank risk taking. This in- insuperable financial challenges. But necessity is the mother of tervention, in turn, affects a bank’s liquidity creation, restricting invention. I would like to propose a structure that could sup- the availability and cost of credit. port a potentially large source of risk-spreading capital for life Several regulations governing bank liquidity and the risk- and health underwriters. Given the mortality exposures at risk, based capital of insurance companies either have been executed it would be hinged to the development of a more transparent, or are in the process of implementation on both sides of the Atlan- stable, and long-term instrument offering solid risk-adjusted tic. These new rules include Basel 3, the Dodd-Frank Wall Street

50 CONTINGENCIES MAY | JUN.14 WWW.CONTINGENCIES.ORG The challenge in a capitalist Reform and Consumer Protection Act (particularly the so-called Volcker Rule), Solvency II, the Solvency Modernization Initiative environment is to of the National Association of Insurance Commissioners (more promote market specifically the requirement that U.S. insurers routinely conduct competition to an “Own Risk and Solvency Assessment,” known as ORSA), and bring prices down. the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame), drafted by the Interna- If safeguards tional Association of Insurance Supervisors. are overly strict, Without venturing into the specifics of each of these new rules, the forces of it’s enough to say that in combination they represent a heightened competition focus on risk transparency and management, and require more skin in the game, i.e., a greater level of capital held in reserve. dissipate and One can’t fault the regulatory agencies for this intervention— previously robust when awful things happen, the judicious response is to execute market solutions conservative safeguards to prevent them from happening again. may disappear. As always, there is a delicate balance in determining the proper inflection point between acceptable risk and adequate safe- ty—a satisfactory level of capital reserves versus an ill-advised amount, for instance. Without this balance, society comes to a point where every child under 16 years of age is pinned to a car seat by a 10-point harness. Extreme safeguards may create market bottlenecks that add cost to the system. While a certain amount of friction is understandable, the challenge in a capitalist environment is to promote market competition to bring prices down. If the safeguards are overly strict, the forces of competition dissipate and previously robust market solutions may disappear. This is the situation in which many banks and reinsurance companies now find themselves. Investment capital to absorb risk has dried up, families from the financial impact of their deaths, jeopardizing in no small part because of the regulatory environment. their well-being. In the life insurance industry, this dilemma has effectively put more insured risk on insurance companies’ balance sheets. Banks A Convergent Solution that readily absorbed a portion of this risk and shared it with their For life insurers and their investors, these developments cry out investors no longer have this appetite or the interest of the invest- for a solution. Although many insurers believe the markets even- ment community. They effectively have abandoned the provision tually will regain lost ground and return to historical norms, and of capital market insurance-linked instruments. At the same time, regulators trust that the friction caused by their interventions the global reinsurance industry, which has a vastly smaller capital ultimately will ease, there are no guarantees this will happen in base to leverage than global banks, is finding that more stringent the near term. Given the difficult business conditions confront- regulations are hurting its ability to increase the capacity it tradi- ing the life insurance industry, its customer base, and society at tionally supplied, much less maintain that capacity. large, inertia isn’t the answer. The combination of more stringent regulations and continu- From a commercial perspective, the objective should be the ing economic uncertainty is forcing life insurers to retain more development of a sound financial instrument in which inves- risk on their balance sheets, at a time when sales are lagging, and tors put their capital at risk to absorb clear, transparent, and traditional investments remain challenged by the historically quantifiable risks aggregated in a new investable class. While low interest rate environment. this instrument contains the same insured risks marketed a de- Society pays a price here: If the purchase of life insurance is cade ago in the capital markets, the difference is a better, more uneconomic, more people will pass on the opportunity. Rather efficient, and inherently safer structure. Most important, it re- than absorb the credit risk of the insurance company, they will quires a convergent solution by the same industries—the capital simply self-insure. Many individuals can’t do this, of course, and markets and reinsurers—that put their balance sheets at risk of will fail to save enough money to protect themselves and their insurance exposures before the financial crisis surfaced.

MAY | JUN.14 CONTINGENCIES 51 Revitalizing Reinsurance Capacity CONTINUED

I’m not promoting the formation of dubious risk-based capi- If both markets converged in a solution in which the banks tal instruments for life insurance companies and investors. Nor brought their investors to the table to absorb insured risks in am I calling for a revival of something that was tried and that instruments for which reinsurers would provide a return, the failed. Rather, I’m suggesting the creation of an efficient risk- benefit for the investors would be twofold: They would invest in bearing investment vehicle involving both the reinsurance and a security in which the underlying risks are actuarially assessed capital markets, with the ultimate aim of increasing global re- and quantified by reinsurance actuaries, and these securities insurance capacity to spread insured risks. would represent a diversified class of investment, one that is This efficient structure is predicated on investor interest arguably safer and more predictable from a return standpoint in participating in a market in which investors bear a portion than what has been marketed in the past. Why? Because few of insured risks in return for a payback on their investment. entities understand underlying liabilities better than reinsurers, To encourage investment, backers must be able to understand, which routinely assume these risks from direct insurers. assess, quantify, and digest the insured risks they would be as- The opportunity to develop this new form of risk-based suming. They would further need an easily comprehensible way capital investment is substantial. A recent report by the rating to invest, such as an insurance-linked security or a catastrophe agency Moody’s, for example, estimates the current financing of bond. Reinsurers would insure the bond or security and provide the insurance markets to be as high as $600 billion. This works a specified return to the investors over a long-term period. The out to an approximate $60 billion annual run rate, assuming an capital would then be utilized to assume insured risk. average 10-year liability duration from a risk-taking These instruments may sound like the same standpoint. If reinsurers are able to augment issuances that led to the financial crisis. their financial capacity, the direct insur- The difference is that when the capital ance markets will buy this capacity. markets provided these asset-backed securities, they were not necessar- Tweaking the Concept ily developed under the guidance Other potential solutions are of principal risk takers and percolating, including so-called underwriters—financial pro- What if both the bank and the risk takers sidecars that allow investors to fessionals who deal with the take on the risk and return of economic impact of risk and took part in the solution together rather a book of business written by uncertainty on a daily basis. than playing separate roles as before? an insurer or reinsurer, earn- At that time, few inves- The reinsurers would acquire and even ing the risk and return that tors questioned the soundness insure the insurance-linked instruments arise from that business. An- of the underlying liabilities. other solution has been floated Even fewer understood that the while the banks would provide by the private equity and hedge risks were fragmented into mul- the funding necessary to fund markets, which are focusing tiple pieces that defied calculated support the issuance. on their particular value-added skill appraisal and valuation, were then re- sets, i.e., they would open the door assembled into tranches, and ultimately wider to providing asset management were packaged up into CDOs and CLOs (col- services to the insurance industry. I believe lateralized debt obligations and collateralized loan mine is the best solution because it addresses the obligations, respectively). Unlike reinsurers, the banks that con- societal implications of the insurance capacity squeeze. structed these instruments enjoyed mammoth balance sheets What if private equity and hedge funds, as well as pension and virtually could print money. They also were selling products funds and family offices, invested in this solution? Investors with long-term horizons, and, in only a few cases, retained any would fund the instrument, and reinsurers would provide a fair of the underlying risk. return for the assumed risks over a long time horizon. Insurance What if both the bank and the risk takers took part in the solu- actuaries would model and price the underlying risks over time tion together rather than playing separate roles as before? Here’s to ensure all interests are aligned. And reinsurers would be repo- how such a collaborative venture would work: The reinsurers sitioned as a financial guarantor on the insurance-related assets. would acquire and even insure the insurance-linked instruments The transparency of the underlying risks, coupled with the while the banks would provide the funding necessary to support promise of more predictable risk-adjusted returns, would en- the issuance. This would solve the problem of not having balance courage investors to reconsider insurance-linked securities. sheets large enough to assume higher levels of risk. Despite the headwinds buffeting the captive space, it might

52 CONTINGENCIES MAY | JUN.14 WWW.CONTINGENCIES.ORG still make sense for the invested capital to reside in offshore or JEFF BURT, a fellow of the Society of Actuaries and a member onshore captives or in special-purpose vehicles. This helps iso- of the Academy, is executive vice president, financial solutions, late the individual liabilities for underwriting purposes, while for Hannover Life Reassurance Co. of America in Orlando, Fla. increasing investor transparency. Reinsurers also can assemble these instruments without This article is solely the opinion of its author. It does not express the official banks as an intermediary presence, collecting the risk takers policy of the American Academy of Actuaries; nor does it necessarily reflect and putting all the pieces of the puzzle together in a more cost- the opinions of the Academy’s individual officers, members, or staff. effective, direct approach. In another scenario, reinsurers could buy a large portion of the ultimate issuance and then sell off the Resources remaining pieces to other investors. This concept is enticing “Allstate Announces the Sale of Lincoln Benefit Life Company,” Wall Street Journal, since reinsurers’ capital reserve requirements are built specifical- July 17, 2013. http://online.wsj.com/article/PR-CO-20130717-911231.html ly to support long-term risk taking (although careful analysis still must be weighed). Despite this added flexibility, a more robust De la Merced, Michael, “After Pressure From Paulson, Hartford Puts Units Up for Sale,” New York Times, March 21, 2012. http://dealbook.nytimes.com/2012/03/21/ solution is to have banks continue to serve in their traditional in- after-pressure-from-paulson-hartford-puts-units-up-for-sale/ termediary capacity, as this is where the capital sourcing resides. Mercado, Darla, “The Hartford Makes 180-Degree Turn With Reorganization,” What is clear is that waiting for the markets to iron out the many InvestmentNews, Oct. 7, 2012. http://www.investmentnews.com/article/20121007/ wrinkles produced by the financial crisis may prove to be in vain. REG/310079973

Certainly, no one forecasts an immediate reinvigoration of bank Thomas, Denny, and Sumeet Chatterjee, “Update 1—Aviva May Exit India Life appetite for insured risks or a substantial increase in reinsurance Insurance Business—Sources,” Reuters, Aug. 5, 2013. http://www.reuters.com/ capacity. The time has arrived for truly innovative solutions. article/2013/08/05/aviva-india-idUSL4N0G61X220130805 SAve the DAte September 15-17, 2014

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Insight Decision Solutions Milliman Milliman 3424 Peachtree Road, Suite 1900 1301 Fifth Avenue, Suite 3800 Inc. Atlanta, GA 30326 Seattle, WA 98101 8920 Woodbine Ave. Suite 205 CONTACT: Don Beall CONTACT: Brian Reid Markham, ON L3R 9W9 Canada PHONE: 800-404-2276 / 404-254-6752 PHONE: 206.504.5895 CONTACT: Claudia Wetzel EMAIL: [email protected] EMAIL: [email protected] PHONE: 905-475-3282 x 232 WEB: milliman.com/Arius WEB: milliman.com/integrate EMAIL: [email protected] WEB: www.insightdecision.com Arius™ Integrate™ Arius is the next step in the evolution of reserve Integrate is a cloud-based financial projection solu- Insight Enterprise analysis solutions. Arius combines our 20+ years of tion that is offered by Milliman as Software as a Insight Enterprise is a BI system developed by IDS providing the most widely used deterministic tools Service (SaaS) for the life insurance industry. Inte- specifically for life and health insurers and reinsurers with our industry-leading research into using multi- grate offers end to end workflow automation, complete with data management tools and integrated ple models to simulate loss distributions and reserve assumption management, collaboration, full gover- applications. The wide range of embedded applica- variability. Arius’ full spectrum of exhibits and projec- nance & control, and virtually unlimited computing tions includes experience studies, sales and marketing tion methods help eliminate tedious number capacity necessary to support emerging production analysis, operational performance, business profiling, crunching and reduce review time. Eleven different modeling requirements. Integrate utilizes the Micro- actuarial applications and financial analysis. The sys- stochastic reserving models help estimate distribu- soft Windows Azure public cloud platform to provide tem enables companies to make faster and better tions of possible outcomes on both an ultimate and a highly available services and MG-ALFA is the actu- decisions, provide confidence in data and enable staff one-year Solvency II basis. You can make more effec- arial calculation engine at the core of Integrate. to focus on analysis. tive decisions about reserves, capital allocations, and Integrate services are supported by an expert actuar- One advantage of Insight Enterprise is that experience reinsurance; you can also incorporate volatility as a ial and technology support staff and Service Level study systems usually have limitations around the key input into strategic decisions about premium and Agreements that are able to reliably support top tier flexibility of the study. Results are normally available profit targets, and into ERM projects. business critical applications. at a pre-determined level of aggregation for a limited Arius is also customizable—you can set up your Integrate has three components that are available as a number of attributes, due to the sheer volume of data analysis to support your preferred work flow, rather package or in various combinations: generated in processing the study. Insight Enterprise than having to live with a pre-defined approach. has been designed to remove such limitations by using Integrate Financial Projections—Modeling automa- data warehouse technologies to calculate and analyze tion, assumption management, collaboration, and studies. For example, its dimensional model allows governance & control studies to be carried out over the full range of mortal- Integrate Model Development—Business logic release ity factors and other attributes available. management, collaboration, and governance & control Integrate Compute—Virtually unlimited computing capacity

54 CONTINGENCIES MAY | JUN.14 WWW.CONTINGENCIES.ORG Great software is only part of the solution

Next generation applications like ARCVAL and Prophet provide insurers with the tools needed to manage and understand their business. ARC’s experienced sta of actuaries, analysts, and IT professionals have been trusted partners for insurers for more than 25 years. In addition to supporting our software products, our capable team of consultants can provide sta augmentation when resources are tight, a specialist to ll in a knowledge gap, or an expert to perform a peer review. • Financial Projections and Analysis for all product lines • Appointed Actuary Services • Product Development & Pricing • Experience Studies and Assumption Development • Audit Support and Peer Review • Principle-Based Reserving • Modeling, ALM, Cash Flow Testing • Custom Programming or Data Management • Long Term Care Expertise • Reinsurance Analysis • Federal Income Tax Issues • Expert Witness Testimony For more information about our available consulting services, please 913.451.0044 contact us at [email protected] or (913) 451-0044. www.arcval.com

Consulting Ad_9-13.indd 1 9/30/13 1:57 PM Special Section: 2014 SOFTWARE SHOWCASE

PolySystems, Inc. Towers Watson Life, Health 30 N. LaSalle Street, Suite 3600 Chicago, IL 60602 and Annuity Software PHONE: 312-332-5670 TAI Life Reinsurance Systems 10727 Winterset Drive Solutions CONTACT: Bob Keating Orland Park, IL 60467 175 Bloor Street East EMAIL: [email protected] PHONE: 708-403-7775 South Tower, Suite 1701 WEB: www.polysystems.com FAX: 708-403-7801 Toronto, Ontario, Canada M4W 3T6 Since 1970, PolySystems has provided production- CONTACT: John Carroll, CEO CONTACT: Holly Starkey PHONE: 416 407 3812 grade actuarial software and consulting services to EMAIL: [email protected] WEBSITE: www.taire.com EMAIL: [email protected] life, health and annuity companies. Our integrated WEB: towerswatson.com software suite offers comprehensive valuation, model- With more than 100 successful installations in the U.S. Managing products with embedded guarantees, designing ing and experience study capabilities. It is used by and Canada, TAI is the leading provider of life rein- hybrid products, making financial reporting a more efficient actuaries to calculate reserves and capital, perform surance reporting solutions. The new third-generation process with actuarial industrialization—our consultants are asset/liability projections for cash flow testing and release of the System—Version 3xx—features new at the forefront of innovations in the industry. It’s this combi- planning, set assumptions, carry out sensitivity and source code, expanded field sizes and increased pro- nation of experience, intellectual capital and powerful software stochastic analyses, manage inforce profitability, price cessing functionality. products and much more. capabilities that enables us to offer comprehensive solutions The System is a reinsurance reporting solution for life, for risk and financial management: Headquartered in Chicago, we have over 90 actuaries critical illness, long-term care, disability income and RiskAgility FM is a new, flexible software solution that enables and IT professionals working to meet our clients’ ac- annuity products. It features fully-automated process- life insurers to run financial models that accurately reflect their tuarial software needs at both the product and ing that facilitates internal analysis as well as external company’s products and to run them in ways that are easily enterprise level. Our data extract professionals seam- reporting to reinsurers. The System is designed to adapted to their business processes. MoSes models can be im- lessly integrate PolySystems with your data handle assumed, ceded and retroceded business. It ported into RiskAgility FM, and comprehensive out-of-the-box architecture. Our actuarial consultants are invaluable interfaces with one or more policy administration functionality is available with RiskAgility FM U.S. Library ap- partners when designing complex models or perform- systems for retention management and automated plications. ing attribution analyses. continuation processing. The System is available on two platforms: Web-based TAI.NET and in a Main- RiskAgility EC provides real-time risk analytics that fully re- With a unique combination of flexibility and out-of- frame version. flect the nature of your business for continuous solvency the-box functionality, our software can handle new monitoring and risk management. product development and complex assets and is con- TAI X-PRESS—This stand-alone communication tinuously updated for the latest regulations and application transmits electronic reinsurance reporting Towers Watson is a leading global professional services com- product features. Partner with PolySystems, leave the and claims information quickly and cost effectively pany that helps organizations improve performance through actuarial programming to the experts, and free your from insurance companies to reinsurers and reinsur- effective people, risk and financial management. With more actuaries to do what they were meant to do. ers to retrocessionnaires, using secure https transfers. than 14,000 associates around the world, we offer consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management.

Towers Watson Property & WinTech WySTAR Global Retirement Casualty Software Solutions Winklevoss Technologies, LLC 71 South Wacke r Drive, Suite 2600 Two Greenwich Office Park Solutions 9210 Corporate Blvd. Chicago, IL 60606 Greenwich, CT 06831 Suite 300 CONTACT: Tom Hettinger CONTACT: Colin Gilbert Rockville, MD 20850 PHONE: 312-201-5438 PHONE: 203-861-5504 PHONE: 800-505-9076 EMAIL: [email protected] WEB: www.winklevoss.com/wintech FAX: 800-344-1258 WEB: towerswatson.com EMAIL: [email protected] WEB: www.wystar.com/solutions/software Capital adequacy measurement and allocation, rein- E-MAIL: [email protected] surance analysis, asset-liability optimization, product Comprehensive Windows®-based software featuring strategy and business planning—our consultants have and sample lives, online documentation, flexible report- a wealth of knowledge and expertise to help you im- WinTech’s flagship product, ProVal is the DB and ing, and input from various media. prove business performance. Towers Watson offers the OPEB industry standard for valuation and projection P&C industry’s widest range of analytical software software. ProVal has thousands of users worldwide DBVAL™—Multiple decrement valuation for DB products designed to bring competitive advantage to among more than 250 leading actuarial consulting plans. Complete flexibility for benefits, payment users: firms and investment advisory firms. Powered by forms, actuarial methods, assumptions; gain/loss by ProVal, ProVal PS is a graphical toolkit offering ad- source; valuation and FAS reports. Radar supports the rate selection process using inter- vanced financial sensitivity and asset allocation active scenario testing. DBVAL WEB PROJECTIONS™—Plan participants modeling. project benefits. Emblem builds robust predictive models of customer behavior. DCVAL™—Balance forward recordkeeping for DC plans, ESOPs and leveraged ESOPs. Igloo is a powerful, flexible capital modeling software with an extensive library for financial reporting and ProAdmin, built on the ProVal platform, is a compre- OPEVS™—Values post-employment benefits for capital calculations. hensive suite of DB administration tools. ProAdmin FASB, GASB and statutory accounting standards. Trends, attribution methods, sensitivity analysis, mul- ResQ is an industry-leading loss reserving system. delivers significantly reduced implementation time over traditional approaches. Other suite components tiple decrement assumptions. Towers Watson is a leading global professional ser- are ProAdmin Server, a scalable calculation engine TESTWYZ™—Compliance testing for DB and DC vices company that helps organizations improve that integrates into existing infrastructures, and Pro- plans. performance through effective people, risk and finan- Admin Online, a complete content management cial management. With more than 14,000 associates system and a secure participant self-service portal around the world, we offer consulting, technology and with real time calculations. solutions in the areas of benefits, talent management, rewards, and risk and capital management.

56 CONTINGENCIES MAY | JUN.14 WWW.CONTINGENCIES.ORG © 2014 Ernst & Young LLP. All Rights Reserved. ED 1-6-15 As a top actuary, you’ve got vision you’ve actuary, As top a and Insurance Join EY’s and drive. AdvisoryActuarial Services team and become member an integral of people full of an practice insurance helping passion for your who share Unite potential. their reach clients our leading of national power the with yourAdvisory give and team, we’ll career wings. Find out more at ey.com/us/insurance Dannenbergor contact Richard at [email protected]. Wanted: actuariesWanted: with vision Workshop BRIAN ROBINSON

Life in the Fast Lane— Proxy Techniques and Risk-Based Decisions

INSURANCE COMPANIES ARE IN THE BUSINESS of taking on the liabilities. Although this proved use- risks, and it has become increasingly important for senior managers to ful, there were clear limitations with the technique. Considerable expert judg- understand the implications of these risks for their business. ment was required, and it was difficult The ability to monitor real-time change The Business Case for Proxy to construct a replicating portfolio that and carry out what-if analysis quickly and Techniques accurately captured the dynamics of easily is what lies at the heart of risk-based Mainstream use of proxy techniques more complex liabilities. In addition, the decision making. Managers need to be able was introduced in the life industry to technique could only be used for assess- to assess the impact of risks across a com- support enterprise risk management ing the effect of market risks. plex portfolio of assets and liabilities so (ERM) and internal economic capital With the arrival of Solvency II, many they can determine what actions to take. assessment. Its growth was boosted by life insurers that chose to implement an In addition, regulations such as Solvency rating agencies and the emergence of internal model started to adopt curve II are putting an increasing emphasis on market-consistent financial reporting fitting, which calibrates a mathematical business application, requiring a demon- such as generally accepted accounting function that aims to replicate the un- stration of how key metrics are being used principles (U.S. GAAP) for variable an- derlying liabilities. In recent years this in running the business. nuities and market consistent embedded technique has evolved to least squares Proxy techniques are a valuable tool values (MCEV). The first technique to Monte Carlo (LSMC), which is becoming in helping management better under- gain traction was replicating portfolios, more prevalent as firms seek improved stand risk exposure and make more in which a collection of assets was con- accuracy for more complex portfolios, informed business decisions. structed to imitate the characteristics of including both assets and liabilities.

ENABLING RISK-BASED DECISION MAKING

Complex Models Proxy Function(s)

e.g, Y= F(x1,x2...)

Proxy Techniques

MIN MAX SPEED

EXAMPLE: COMPLEX ALM CASH FASTER TO COMPUTE AND CAN SUPPORT RISK- FLOW MODEL BASED DECISION MAKING SOURCE: AUTHOR

58 CONTINGENCIES MAY | JUN.14 WWW.CONTINGENCIES.ORG There are a wide range of business capture this path dependency and bet- the outputs from proxy functions are applications for proxy techniques. As ter inform management regarding its sense-checked, i.e., that the results are touched on earlier, economic capital as- impact, especially under stress and sce- in line with expectations. Sometimes sessment was an early driver, particularly nario testing. they can throw up unexpected results. for life insurance companies. Many life Hedging increasingly is an area in Further analysis might be necessary to companies have embedded options and which management is beginning to see understand what is happening before guarantees within their liabilities (with the power of proxy techniques. Here accepting those results. profits, variable annuities, etc.) that cre- managers can assess the effectiveness of ate a “nested stochastic” problem for hedging strategies, calculating the hedg- The Future of Proxy Techniques Monte Carlo capital using a marketing gain/loss over the projected runoff Proxy techniques are here to stay. Exist- consistent balance sheet. The major of liabilities. Firms also are looking at ing methods such as LSMC will evolve as challenge with the nested stochastic how they can reduce their capital reinsurers fine-tune their application. But problem is that it requires millions of quirements by allowing for the planned we can’t rule out the introduction in the scenarios to be calculated using the as- management actions associated with future of more sophisticated practices set liability management (ALM) models. their hedging strategy. that address specific complexities or new These ALM models were designed areas of application. primarily for accurate balance sheet Communicating Complicated Rather than any single procedure be- calculations and are too slow to cope Practices ing the silver bullet, it’s likely that the with being run millions of times for There’s no denying that some complex toolkit of proxy techniques will grow as Monte Carlo capital. More broadly, ex- mathematics lie at the heart of these alternative methodologies support dif- isting ALM systems aren’t sufficiently practices. It’s important that senior man- ferent business applications. Approaches equipped to meet the increasing de- agers understand why these techniques being developed for hedging, for exam- mands of risk-based decision making are being used, how they are being ap- ple, may not be appropriate for capital because of the run times involved. plied, and any limitations they present. modeling, and vice versa. As insurers have become more com- From the perspective of business Technology is an increasingly impor- fortable with these proxy techniques, a applications, education clearly is important tool for harnessing the benefits of broader range of business applications tant. Understanding the sophisticated proxy techniques. There are many pro- has come to light. The proxy functions mathematics will probably be a step too cesses involved, including significant used for capital modeling also can be far for many senior managers, so how can data manipulation, and robust software used in assessing balance sheet sen- we make them comfortable with these is necessary to manage these processes sitivity, both for the impact of market complicated techniques? Validation and efficiently and reduce operational risk. movements and for what-if analysis. communication of limitations make a While the use of proxy techniques These techniques also can be ex- good starting point. The aim of validation continues to evolve, insurance compa- tended to project key metrics over time, is to show that the proxy functions repli- nies are becoming more comfortable whether for own risk and solvency as- cate the existing complex models within with their application. Senior managers sessment (ORSA) business planning, an acceptable tolerance. Communicat- are able to carry out previously impossi- U.S.-type runoff reserves, or MCEV. ing limitations should ensure that senior ble analyses that support their risk-based Clearly, projecting capital is a challenge management is aware of instances when decision making. And the interest in given the difficulties encountered for proxy functions are being applied inap- broader applications, for business plan- t=0 capital calculations. But it’s not just propriately or are at the boundaries of ning and assessing hedging strategies, projecting the capital that’s difficult— their use. for instance, is growing as well. While allowing for path dependency when Common sense also plays a role. Se- proxy techniques have their limitations, projecting a market-consistent bal- nior managers understand the dynamics as long as they are understood and ac- ance sheet also is problematic. In fact, of their business, and it’s important that knowledged, there’s no reason they path dependency can have a significant won’t become an integral part of every impact on the projected balance sheet This article is solely the opinion of its author. senior manager’s toolkit. It does not express the official policy of the and should not be underestimated, es- American Academy of Actuaries; nor does it BRIAN ROBINSON is director—ERS pecially when being used for business necessarily reflect the opinions of the Academy’s individual officers, members, or staff. insurance for Moody’s Analytics. planning purposes. Proxy functions can

MAY | JUN.14 CONTINGENCIES 59 Tradecraft RUSS BINGHAM

Best Practices in Insurance Financial Modeling

ADVANCES IN COMPUTING, the evolution of enterprise risk man- timing of all cash flows, from the poli- agement (ERM), and more sophisticated approaches to dealing with cy’s inception until the final transaction risk and return are compelling insurance companies to refine how they related to that policy period occurs. In long-tail-claim lines of insurance, the measure, monitor, and report financial and operational success to man- final transaction can be decades in the fu- agement, shareholders, and regulators. ture. The valuation must reflect interest rates and the time value of money, based Progress has been uneven. But inter- focuses on pricing, the best practices I on discounted cash flows and net present est in improved reporting picks up in the will outline offer companies the ability value calculations. wake of certain situations, including: to develop financial models that span ■■ Risk control—Sufficient risk capi- ■■ Periods of high inflation and interest the full range of financial analysis, from tal must be assigned and maintained to rates; pricing to reporting. The information control the potential effect of under- ■■ Major financial market shocks; this yields is based on a consistent, uni- writing risks on the company’s financial ■■ Catastrophic events; fied approach to dealing with risk and position. In the insurance process, risk ■■ Increased rating agency focus on return throughout the entire company, a results from variability in the amount ERM; goal that often is difficult to achieve. and timing of cash flows over the full life- ■■ Regulatory pushes such as we are time of the policy, from inception until currently experiencing with Solvency Essential Elements the last transaction settlement. It is im- II and own risk solvency assessment Technical elements that any insurance portant that risk capital be maintained (ORSA). financial model must contain to meet in proportion to the level of insurance li- Although many com- abilities and risk exposure panies are improving that remains at any point their financial modeling, over this same time frame. the return of economic ■■ Risk-based realiza- growth, higher interest tion of profits—The rates, regulatory pressure, risk-based nature of in- and escalating competi- surance pricing requires tion very likely will speed that insurance profits be up innovation in this area. realized in relation to in- Insurance company surance risk exposure success seldom is achieved over time. Essentially, without a disciplined un- this principle ties the re- derwriting operation, lease of profits (i.e., the particularly in the long economic dividend) to the run. Pricing methodology resolution of risk as insur- and models play an essen- ance liabilities diminish tial role in this process—pricing based best-practice standards include the over time (the basis of the risk exposure), on prospective cash flows that reflect following: in much the same way that risk capital is the linkage between risk and return over ■■ Policy period orientation—To price controlled. The initial underwriting in- the lifetime of the policy is critical. While insurance in which revenue and expense come or loss that occurs when writing at the industry employs many approaches, are properly matched, a policy period combined ratios below or above 100 must I plan to focus on current best financial rather than a calendar period is essential. be amortized in the same way. This par- modeling practices that encompass pric- All prospective expected cash flows per- allels the “effective interest method” of ing and financial valuation throughout taining to the policy period in question, amortization that is used in investment the company. from both underwriting and investment, accounting to treat any initial bond pur- Executives are hungry for value- must be assessed. chase premium or discount. added information on the performance ■■ Economic accounting—The valu- The combination of policy period,

of their companies. While what follows ation must reflect the magnitude and economic accounting, and the risk-based THINKSTOCKPHOTOS

60 CONTINGENCIES MAY | JUN.14 WWW.CONTINGENCIES.ORG Editor’s note: This article is the first in a series of articles on insurance accounting. In the next article, the author will look at the risk-based amortization of rules for controlling capital and profit underwriting income (or loss) and how it parallels the effective interest method of recognition is the means by which the amortizing the bond premium or discount, essentially analogous to insurance sell- shortcomings found in the application ing above or below 100 combined ratios. This is a critical step that links the charge of conventional income accounting to in- for risk with the risk exposure over time and serves to overcome one of the limita- surance are overcome, and which allows tions of conventional accounting. for comparison among lines of insurance regardless of the time frame they span. ■■ Separation of underwriting and in- is appropriate during valuation of the en- internal rate of return, dividend yield, vestment risk and return—Financial tire insurance company. investment yield, economic value added, results in insurance are derived primar- Additional elements of a best practice and embedded value. Any metric or per- ily from underwriting and investment financial model that broaden its useful- spective that enhances a model’s ability activities. Underwriting pricing must ness and allow it to integrate smoothly to support financial dialogue within the consider specificunavoidable risks, gen- with traditional accounting and finance company should be made available. erally estimable when insurance is sold. perspectives include the following: These are related to uncertainty in the ■■ Full complement of integrated bal- A Single Unified Risk/Return amount and timing of premium, loss, and ance sheet, income, and cash flow Framework expense, but also to investment income statements—This provides an impor- The development of pricing models resulting from an essentially risk-free tant link to the accounting and finance containing all the elements I have listed investment strategy. Underwriting risk areas within the company. The exis- here is considered best practice. Togeth- equity is needed to support such risks in tence of a fully integrated set of financial er, they provide the necessary technical the same way that rating agencies assign statements also offers a higher level of elements needed to establish a sound capital charges to underwriting based modeling integrity. All too often, mod- economic and risk-based pricing capa- on balance-sheet insurance liabilities els don’t differentiate between written, bility. More to the point, actuaries can that originate from the various lines of earned, and collected premium, or they help build a bridge to other accounting insurance sold. base investment income on loss reserves and financial areas within the company The company may undertake riskier rather than on actual invested assets de- by speaking a common language. The investment strategies when the funds rived from cumulative cash flows. creation of a unified financial valuation provided by underwriting are invested ■■ Calendar period reporting capabil- framework that encompasses activities, to generate an additional lift in income. ity—Financial activity created for each beginning with initial product pricing These are voluntary, avoidable risks that calendar period over a policy’s lifetime and ending with a measurement of com- are the responsibility of the investment using conventional accounting rules panywide financial results that emerge function and are a separate risk/return provides a further opportunity to link to in subsequent reporting, is extremely decision beyond the domain of under- reported calendar period financials. By powerful. The ability to deal with un- writing. The increased riskiness of such layering successive policy period mod- derwriting and investment activities activity requires additional risk equity to els in a triangular fashion, similar to the separately, but consistently, enhances a support it, much as rating agencies apply Schedule P loss reserve structure, calen- company’s ability to compare lines of in- increased capital charges to riskier asset dar period financials can be constructed surance and investment actions within a classes when they appear on the balance that align with accounting results. Main- single, unified risk/return framework. sheet. taining historical experience on a RUSS BINGHAM, a principal of A best practice for measuring and policy period basis, with reconciliation Benchmark Risk Return LLC, has more managing financial performance in an to reported calendar financials, is an in- than 40 years of insurance industry insurance company is to separately ap- valuable analytical tool. expertise, including developing and ply a consistent methodology (including ■■ Full complement of financial met- implementing the models used to risk and return elements) for both un- rics—All financial metrics in common price, plan, and monitor risk and derwriting and investment operations. use within accounting and financial ar- return throughout the property/ While riskier investments should be ex- eas should be calculated and presented, casualty operations of a major national cluded for insurance pricing purposes, ensuring a consistent, reconcilable ba- insurance carrier. He can be reached at their inclusion as an incremental add-on sis. This can include return on equity, [email protected].

MAY | JUN.14 CONTINGENCIES 61 Cryptic Puzzle TOM TOCE

Silver Screen

BECAUSE OF THE MAGAZINE’S PRODUCTION SCHEDULE, my deadline for writing this puzzle co- incided with the annual Academy Awards (the other Academy, the one based in Beverly Hills). As a result, I had Best Picture winners on my mind. I memorized all of them a few years back, as I was preparing for my appearance on Jeopardy! With a little searching, I was able to find the last few—to make sure this puzzle included one from every decade since the awards started in the late 1920s.

The following sonnet contains the anagrammed names of decade since the 1920s, and because that makes 10, four decades 14 Best Picture movies. The anagrams are of either one or two are represented with two winners. words. The two-word anagrams always involve consecutive If you’re a movie buff, or if you happen to be preparing for words. The other words in the poem are meaningless, at least a quiz show, please try to get them all without consulting any as far as clueing goes. references. If you do, let me know your time: I’ll send you a per- Unlike the “Hurricane” puzzle last year, there isn’t any over- sonalized email response of congratulations and list you in the lapping. It’s one movie per line. next issue! For those of you, most I’m sure, who do not happen My favorite movie of all time is a Best Picture winner: The to know that The Life of Emile Zola won in 1937 or even that The Best Years of Our Lives, which won in 1946. I would love to have Lord of the Rings: The Return of the King won in 2003 (neither title put that one in, but I found it impossible to anagram in just one is used in this puzzle, for obvious reasons), I recommend glancing or two words. A big hint for you, then, is that most of the movies at Wikipedia’s page on Academy Awards for Best Picture for help. I chose for the puzzle have short titles. There’s one from every Thanks to Eric Klis and Bob Fink for test-solving and edito- rial suggestions. Solutions may be emailed to [email protected]. In order to make the TOM TOCE is a senior manager for actuarial services with Ernst solver list, your solutions must be & Young in New York and a member of the Jeopardy Hall of received by May 31, 2014. Fame.

Indie Director Shoots Action Film I sacrifice and suffer for my art. I never know which way my moods The gator laid an egg right on the may swing. set. L’il Marni, an ecdysiast I know, We misperceived the danger in its Says bubbeleh, we either live or die. threat. I want to live! To pant! To buy her bling! In tacit praise, at least she didn’t fart. To give my bun her ranch in Mexico, My biopic on Plato touched the heart, A mojo nest, with lots of stimuli. But it’s been one long dearth, and I’m in debt. The money guys have failed to halt me yet! My gut performs wild stunts at each day’s start.

62 CONTINGENCIES MAY | JUN.14 WWW.CONTINGENCIES.ORG Previous Issue’s Puzzle—Cryptic Acrostic 2.0 1 2 3 3 4 5 6 7 T H E C R E A 8 9 10 11 11 12 13 13 I apologize for forgetting to put letters as well as numbers inside the boxes in the dia- T O R O F T gram for this puzzle. It was a short quote, though, so I hope it didn’t slow you down too 14 15 17 16 17 18 19 20 much. For this puzzle I needed to get in touch with Scott Adams, to ask for the exact H E U N I V E source of the quote. There are numerous collections of Dilbert, and I wanted to cite 21 22 23 26 24 25 26 27 the proper collection’s title. I found his contact info at his website, and I was gratified R S E W O R K 28 31 29 30 34 31 32 33 by how quickly Scott replied to my inquiry. He said the proper source would simply S I N M Y S be “Dilbert,” not one of the collections. That was fortunate, in a way, because a long 34 35 36 37 38 39 40 45 title would have led to many more short words—no “chrysanthemum” or “makeshift.” T E R I O U S 41 42 43 44 49 45 46 47 Clues W A Y S B U T S C O N E 48 49 50 51 52 53 A. Coens pitching for some 33 4 25 68 74 quick bread. H E U S E S C H R Y S A N T H E M U M 53 54 49 55 56 57 58 53 B. Plant crazy rhythm cues, man 62 48 5 43 28 54 30 8 2 15 31 16 75 A B A S E O U T E R 59 60 61 62 63 64 65 C. Peripheral route developed 85 90 13 6 36 T O N E T E N C O U N D. One whole step towards New 34 63 17 82 66 67 68 69 70 70 71 72 England T I N N Y T I N G S Y S 73 74 75 77 76 77 78 80 E. Cheap little number entering 66 80 89 61 32 A B U S E R T E M A N D F. Someone who mistreats 56 92 46 53 3 21 79 80 81 82 83 86 84 85 Lincoln embraces our objective, right? L I K E S R O 86 87 88 91 89 90 91 92 D U N K G. Losing grates, Dunkirk’s 78 86 65 27 U N D N U M B center’s shot 93 94 95 A S S E S S E R S H. As sisters use every other 7 51 22 60 40 95 symbol to evaluate M A K E S H I F T L. INVITE—“agaIN VITEbsk” I. Married adult, kinky from the 91 76 81 35 70 14 67 12 1 get-go, with peculiar fetish, M. LIEN—Homophone of “lean” quick and dirty N. BOGUS—GO (“relieve oneself”) inside S A U T E S SUB (“U-boat”) reversed (“making a J. Cooks with suet as fluid! 72 42 39 47 93 83 U-turn”) D E W Y ERROR—R (“run) + OR (“operating K. Youthful and fresh, we say no 88 52 24 71 O. need to ask us twice room”) after ER (“emergency room”) I N V I T E P. RUBE—RU (“are you IM’ing”) + BE L. Provoke again Vitebsk in the 29 77 19 37 73 49 (“Ben endlessly”) central region Q. TWOS—Homophone of TOO L I E N M. Shouting, “Lean right!” 79 18 58 87 (“excessively”) + S (“ultimately tedious”) B O G U S N. Relieve oneself inside U-boat 55 9 69 50 44 making a U-turn in the dark Solvers E R R O R Michael and Jina Accardo, Dean Apps, Karl Baker, O. Run to operating room after 23 10 94 11 84 Jack Brauner, Andrew Buckley, Bob Campbell, emergency room mishap Lois Cappellano, Jonathan Currier, Todd Dashoff, R U B E Francis De Regnaucourt, Mick Diede, Micahel Dolan, P. Are you IM’ing Ben endlessly 26 64 45 20 Sean Donohoe, Patrick Donovan, Dave Dougherty, at Yahoo? Stephen Drake, Greg Dreher, Mathew Eberhardt, Deb T W O S Edwards, Bob Fink, Laura Forbes, Nick Franceschine, Q. Twain’s excessively 59 41 38 57 Bruce Fuller, Phil Gollance, Sandy Gruhlke, Timothy speechifying and ultimately Grusenmeyer, Paul Haley, Walter Haner, Rich tedious Harder, Jason Helbraun, Pete Hepokoski, Wade Hess, J and J Holloman, Ruth Howald, Ruth Johnson, A. SCONE—Anagram of “Coens” G. DUNK—“Dunkirk’s”—IRKS (“losing Brian Klimek, Eric Klis, Paul Kolell, Ken Kudrak, George Levine, Tim Luker, Jeanette Manning, B. CHRYSANTHEMUM—Anagram of grates”) Liz Matlack, Jeffrey McLane, Lee Michelson, Jon “rhythm cues, man” H. ASSESS—Odd letters in “As sisters use” Michelson, Brett Miller, Becky Moody, Philip Morse, C. OUTER—Anagram of “route” I. MAKESHIFT—M (“married”) + A Jim Murray, Jim Muza, Ray Niswander, David D. TONE—TO (“towards”) + NE (“New (“adult”) + K(“kinky from the get-go”) + Olsho, Joshua Parker, David and Corinne Promislow, England”) “fetish” (anagram) Alan Putney, Joe Rakstad, Daniel Rhodes, Jay Ripps, E. TINNY—TINY (“little”) with N J. SAUTES—Anagram of “suet as” & Gaetan Ruest, Steve Ruiter, Mike Schenk, Leon Schmerhold, Craig Schmid, Jason Schultz, Bill Scott, (“number entering”) literally Marty Simons, Sally Jane Smith, Doug Szper, David F. ABUSER—AB(US)E (“Lincoln embraces K. DEWY—Homophonic pun on “do we!” Treble, Jon Turnes, Howard Wachspress, Dave our objective”) + R (“right’) (“no need to ask us twice”) Wallman, Jim Wickwire, John Zalewski, Frank Zaret

MAY | JUN.14 CONTINGENCIES 63 Bridge Puzzle EDITH McMULLIN Leading Trumps

YEARS AGO, a friend asked me to give her husband’s bridge game a order in which he discards. If he plays quick upgrade. They were planning a trip to the Caribbean with friends: high-low (called an echo), he has an even scuba diving by day and bridge every night. I knew their friends were number; up-the-line, an odd number. So even when you are just throwing junk better players and that the man was (still) proud of his IQ and his Ivy away, give pard info as soon and as often League education. A fun time was going to be had by all! as you can. It is good to draw trumps ASAP, but I was teaching a course called Im- Puzzle for expert players you can’t afford to give up the lead yet or prove Your Social Bridge (the precursor Puzzle 1: Bloom where you are planted. they would have four immediate winners. to my Easybridge! 1 book,) and I told So take a chance. Play the ♦A, finesse NORTH her I’d give it a try—shorthand bridge ♠K94 (lead low toward the ♦J and pray. If the rules, big strokes. Eight weeks later they ♥AQJ74 Jack wins, play the ♦K and pitch spades set sail. The one lesson I knew they’d ♦J4 in dummy. NOW draw trumps! learned was leads against suit contracts ♣K82 and its corollary: Unless otherwise indi- SOUTH Experts ■■ cated, lead a trump against a part score ♠QJ10876 Puzzle 1—Win the ♥A and return the (a non-game-level contract). ♥K2 ♠ K, killing dummy’s side entry. Watch Upon returning, my friend called ♦AKQ3 partner’s count signal in diamonds, and and said they’d not only won the overall ♣A hold off long enough to kill the dummy. week’s score, but amazingly, had won ev- ■■ Puzzle 2—When you discover that the Contract is 6♠. Opening lead: ♥10. ery night as well. (Uh-oh.) I asked about clubs are 5-3 from East’s failure to echo, Your play? the other couple’s reaction. She replied, discard a diamond at trick two. Ruff the “Well, they didn’t say anything until the Puzzle 2: We have some big third club, draw trumps. Finesse in dia- third or fourth night, when one of them guns working on these puzzles. monds. East doesn’t have a club left. said, ‘Boy, you sure lead trumps a lot!’” I promised a couple of them a If playing a duplicate pairs game challenge! You do not have to solve (matchpoints), ruff trick two. You risk Puzzle for social players this to have your name included in being set, but make an overtrick on West: This is your hand. the mag. Enjoy! many layouts. West’s overcall also sug- ♠A63 gests the ♦K. If you did trump the second NORTH ♥KQ94 club, draw just three rounds of trump. ♠K74 ♦9852 Finesse the diamond, losing. Ruff right- ♣32 ♥A987 ♦A9743 hand opponent’s (RHO) third club. Now SOUTH WEST NORTH EAST ♣Q run the red suits. RHO can trump when 1♣ Pass 1♦ Pass WEST he wants. He has only red suits to return. 1♠ Pass 2 ♠ All pass ♠QJ103 ♥4 OK, West: Tell me three things. How Solvers ♦J106 many points does pard have? How many ♣108652 Geoff Bridges, Igor Pogrebinsky, trumps? What do you lead? (Try the first SOUTH David Promislow, Dave Forbes, Joe expert puzzle, too.) ♠A2 Liuzzo, Mark Kinzer, Lee Michelson, ♥KQJ1062 You will improve your game 100 per- Jeff Schwarze, Hank Youngerman, ♦K52 cent if you always answer the first two Allen Pinkham, Timothy Luker, ♣KJ questions before you decide what to lead Richard Newell, David Llewellyn, Alan against any suit contract. North/South reach a 6♥ contract with Finkelstein, Steven Berman no opposition bidding. EDITH McMULLIN is a former Opening lead: ♠Q ? Your best play? Solutions may be emailed to American Contract Bridge League official and tournament director. She [email protected]. In Previous Issue’s Puzzles: order to make the solver list, is the author of Easybridge! The Comic your solutions must be received Social players Book (Baron Barclay/Amazon) and other by May 31, 2014. I asked how East could know how many books suitable for social and tournament diamonds his pard had. Answer: by the players and teaching.

64 CONTINGENCIES MAY | JUN.14 WWW.CONTINGENCIES.ORG THANK YOU! The Actuarial Foundation thanks its top-level 2013 corporate sponsors for their generosity and support!

rence Confe of es ri TM C tua onsulting Ac

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2013 Corp Thank You Ad_CON_2.indd 1 1/16/2014 11:58:51 AM Puzzles LENNY SHTEYMAN

Passover Special

AS I WRITE THIS, my favorite holiday, Passover, is only a week away. A unit square is divided into many It’s a celebration of freedom, a holiday that commemorates the mi- other squares of possibly uneven size. Consider a set of smaller squares that raculous exodus of the Jews from Egypt. It’s also a story that leads to have non-zero intersection with the many, many questions. Actually, part of the Passover tradition is to en- main diagonal of the unit square. courage questions. One of the questions that mathematically minded Is it possible that the total perimeter people might ask is why did it take Moses and the Jewish people so of the squares in this set is larger than 40? long to cover a fairly shortly distance?

This isn’t the puzzle for this issue, restrictions on the shape of the detours Previous Issue’s Puzzle and if you submit an answer, you won’t you can take? This question is more in- Solutions get your name published. A related Pass- teresting mathematically, but way too Cover it up over question: Is it possible to construct a general for the scope of this column. ■■ Puzzle 1: Take the largest magazine trip from A to B, so that the total distance Instead, here’s the real puzzle for this with area A1. Next, add the magazine that traveled is much longer than distance issue. I hope you will be able to see the provides the greatest incremental area from A to B? What if there are additional connection with long-distance travel. A2, in addition to A1. Clearly, A2 < area of THINKSTOCK THINKSTOCK

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MAY | JUN.14 CONTINGENCIES 67 End Paper BY ROBERT J. RIETZ

Mortality

IT WAS A DARK AND STORMY NIGHT many years ago. I arrived Travel is a priority for many reasons, home after a long, hard day at work and reached fearfully into the and I’ve been able to visit five continents mailbox. I knew this day was coming, and the mail confirmed that to- with a sixth planned for 2015. However, my grandson Joey admonished Nancy day was the day. There it was, nestled among the usual collection of and me for skipping Antarctica. “Almost bills, magazines, and junk mail. The bright red, white, and blue envelope all the continents? Really?” I followed belied its contents. I had just received my invitation to join AARP, docu- the saga of the MV Akademik Shokalskiy menting that I was about to turn 50. trapped in Antarctica’s summer ice last January, and I’m not sure I want to risk Despite the abundance of Carolina that. blue skies in the summer, there’s another Physical deterioration affects all of dark and stormy night in my immediate us, sooner or later, but I’ll try to slow future. I’m becoming more reluctant that down by having a few more sal- to trudge down to the mail station to ads and not so many beers. Medicare pick up our mail. Older readers already will make it more convenient and less know the reason for my reluctance, and expensive to identify and stay on top younger readers may have guessed it. of upcoming physical ailments. Men- I’m about to become eligible for Medi- tal deterioration follows a similar glide care, which means that within three path, and I’m trying to slow that down months I’ll turn 65. by learning Spanish. Another recom- The Social Security website tells me mended mental exercise is learning a that my life expectancy is 19 years. The musical instrument, but I was the only actuaries who developed the RP-2000 sixth grader who failed choir tryouts, so Mortality Table are more optimistic, I have enough trouble remember- I’ll stick with Spanish. telling me that my white-collar life ex- ing, let alone trying to determine what Giving back is a priority. My service pectancy is 20 years. I like their opinion I want to be remembered for. A good fa- on the ABCD is only a down payment on better. As a member of the Actuarial ther, but could have been better. A good what I owe the actuarial profession. I’m Board for Counseling and Discipline husband, but ditto. A good actuary, but repaying Michigan State University as an (ABCD), I am particularly sensitive to some would argue that. Faithful readers adviser to its burgeoning actuarial science complying with actuarial standards of will note that I did not include being a program. I’m teaching a continuing edu- practice (ASOPs). ASOP No. 35, Selection good golfer (“In Search of Good Golf,” cation program on retirement planning at of Demographic and Other Noneconomic July/August 2011 Contingencies). Being UNC-Asheville. There’s a charity in down- Assumptions for Measuring Pension Obli- a good Spartan alumnus might be one town Detroit that I continue to support. gations, instructs me to project decreases of the few accomplishments that I don’t I work on being a better husband in future mortality rates, so my life ex- feel the need to disclaim. A success that I every day, but that report card remains pectancy stretches to 21 years. That’s not can favorably reminisce about is mentor- confidential. very long. ing some very capable actuaries. Mike, I’m reminded again of the Bernie Bill Clinton won his first presidential Mark, Jason, Tim and the rest—you Hoffman quote, “If I were to ask you 20 election 22 years ago. Hillary Clinton is know who you are. years from now, ‘Are you happy?’ what being mentioned as a potential presi- In his song “My Next 30 Years,” Tim would you have done in that time that dential candidate, shrinking the gap McGraw catalogues all the changes that would make you answer ‘Yes!’” Being a between 1992 and today. My first grand- he wants to make going forward, includ- better golfer is not my answer. son, Grant, was born 18 years ago. I ing, “Have a few more salads and not so ROBERT J. RIETZ, a fellow of the remember changing his diaper and go- many beers.” The actuarial statistics tell Society of Actuaries and a member of ing on weekend errands together. He’s me it’s unlikely that I’ll have another 30 the Academy, is retired from Deloitte entering college this fall. I know time years, but the point of the song is still val- Consulting LLP and lives near Ashville, flies, but does it have to cruise at super- id. How do I want to change in my next N.C.

sonic speeds? (I hope) 21 years? THINKSTOCKPHOTOS

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