Our Nation’s Neglected Infrastructure - Princeton...

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AMERICAN ACADEMY OF ACTUARIES SEP | OCT 2015 Our Nation’s Neglected Infrastructure

Transcript of Our Nation’s Neglected Infrastructure - Princeton...

A M E R I C A N A C A D E M Y O F A C T U A R I E S ■ S E P | O C T ■ 2 0 1 5

Our Nation’s Neglected Infrastructure

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ContentsFeatures

■ S E P | O C T ■ 2 0 1 5

24 Our Nation’s Neglected InfrastructureContinued unwillingness to address the funding gap of critical national systems will have devastating consequences.By Emily Feenstra

COVER ILLUSTRATION: RANDY LYHUS

30 From the Actuarial Office to the C-SuiteThe skills you learn as an actuary can prepare you for a career at the top of the executive ladder.By Jeff Reeves

34 One WayImproved vehicle technology is changing the casualty market—here’s how to prepare for the new reality.By Thomas Gage and

Richard Bishop

40 Communicating Longevity RiskLongevity risk seems to take on a diff erent meaning depending on the context—but a common framework is essential for understanding.By Liaw Huang and Tom Terry

Richard Bishop

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DepartmentsINSIDE TRACK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Back to SchoolEric P. Harding

PRESIDENT’S MESSAGE . . . . . . . . . . . . . . . . . . . . . . 8Assessing Uncertainty in a (Mostly) Gradually Changing WorldMary D. Mil ler

LETTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10ACADEMY INSIGHTS . . . . . . . . . . . . . . . . . . . . . . . 12Pension Actuaries Stand Ready to Serve the Public

COMMENTARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Unleashing the Creative PotentialLessons learned from managing the Goldenson Center for Actuarial Research

Jay Vadiveloo

UP TO CODE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Don’t Be ‘That Actuary’John Stokesbury

SPECIAL SECTION . . . . . . . . . . . . . . . . . . . . . . . . . . 46SOA Annual Meeting and Exhibit

WORKSHOP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54Keep Up With Public Policy Developments at the Academy’s Annual MeetingCraig Hanna

BOOKLINKS . . . . . . . . . . . . . . . . . . . . . . 56Social Security Works! Why Social

Security Isn’t Going Broke and How Expanding It Will Help Us AllBy Nancy J. Altman and Eric R. KingsonReview by Thea Cardamone

TRADECRAFT . . . . . . . . . . . . . . . . . . . 60A Security Framework for a Healthy NetworkDan Bonnet

CRYPTIC PUZZLE . . . . . . . . . . . . . . . . . . . . . . . . . . 64Web DesignsTom Toce

PUZZLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662 + 2 = 2 x 2Stephen Meskin

END PAPER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68Walk, Walk, WalkBob Rietz

Published by

PRESIDENTMary D. Miller

EXECUTIVE DIRECTORMary Downs

DIRECTOR OF COMMUNICATIONS David J. Nolan

EDITOREric P. Harding

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Opening Doors for Actuaries Globally

Alex HarperSarah Price Kathie SpencerDeborah Turner Amy BaxterLisa Evans Debbie Fine Hillary Steele

Back to School

MY SON STARTS KINDERGARTEN THIS MONTH. This bittersweet occasion is made more palatable by

the opportunity/obligation to shop for those most magical of educational implements—school supplies.

For me, shopping for school supplies always signaled pos-sibility. These notebooks will hold a year’s worth of knowledge (in color-coded, tabbed folders, of course). That box of unsharp-ened No. 2 pencils will write fantastical stories of derring-do and adventure—and fi ll in tiny bubbles on Scantron test sheets. This will be the year I learn what that rigid, transparent semicir-cle is for. The aisles of supplies were untapped potential, waiting to be stashed in my desk or bag until called upon for assistance. (For his part, my son is justifi ably most excited about showing off his Teenage Mutant Ninja Turtles backpack.)

Even after our school days are behind us, though, our learn-ing is never complete. And this issue of Contingencies off ers a few avenues of discovery for you to pursue.

In our cover feature, “Our Nation’s Neglected Infrastructure” (page 24), Emily Feenstra of the American Society of Civil En-gineers casts a critical eye at the systems that connect and power the United States—transportation networks, waterways, energy grids—and issues a document you’ll re-member from your school days: a report card. The na-tion’s infrastructure systems are in bad shape, and their disrepair is already costing you in signifi-cant, measurable ways. Continued unwillingness to address the funding gap of these critical national systems will have devastating consequences—but she concludes with a glimmer of hope in the form of proposals to create a sustainable infrastructure network that drives economic prosperity.

Driving is the subject of “One Way” (page 34)—computer-aided driving, that is. Thomas Gage and Richard Bishop explore the rapidly chang-ing world of vehicle technology, from crash avoidance systems already on the road to fully autonomous vehicles of a not-too-distant

tomorrow. These emerging technologies are bound to disrupt the personal motor insurance marketplace, but well-educat-ed executives can position themselves to weather the coming storm—and even take advantage of new opportunities.

The subjects of “From the Actuarial Offi ce to the C-Suite” (page 30) certainly took advantage of such opportunities in their careers. Contributor Jeff Reeves interviewed four top execu-tives from global insurance and fi nancial services companies, all of whom started their careers in the actuarial department. They shared their experiences climbing the corporate ladder, discussing how the skills they developed as actuaries prepared them for success in the upper echelons of management. Their words of advice should be required reading for actuaries who would follow similar paths.

Our fi nal feature this month, “Communicating Longevity Risk” (page 40), is the fi rst in a two-part series about

a sometimes confusing topic. It seems that the meaning of the phrase “longevity risk” shifts

slightly depending on who’s using it, and in what context. Authors Liaw Huang and

Tom Terry investigate four diff erent types of longevity risk, providing a

common framework for under-standing this slippery topic—a vital step as individuals con-template solutions to address these issues.

Your foray back to school wouldn’t be complete with-

out some homework, and new puzzles co-editor Stephen

Meskin provides a deceptively complex set of puzzles in the initially

simple “2 + 2 = 2 x 2” (page 66). Eyes on your own papers, please.

I hope you enjoy this issue of Con-tingencies. If you need me, I’ll be in the highlighter section, comparing primary colors to pastels.

Inside Track ERIC P. HARDING

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President’s Message MARY D. MILLER

Assessing Uncertainty in a (Mostly) Gradually Changing World

WE LIVE IN AN UNCERTAIN WORLD. Change, the proverbial constant, can move slowly, like a glacier, or

ramp up swiftly, like a flood or an earthquake. Along with change often comes risk, which is something actu-

aries are charged with assessing, whether in natural or manufactured settings. Indeed, actuaries are uniquely

positioned to offer impartial analysis and objective insights in this still-developing space.

A July New Yorker magazine feature story that received wide-spread circulation—and raised some alarm—detailed the potential risks the Pacifi c Northwest faces from a potential off shore earth-quake. The author wrote that scientists found there have been 41 subduction-zone earthquakes off the Northwest coast in the past 10,000 years, or an average of one every 243 years.

The timing of the most recent one, in the year 1700—more than 300 years ago and prior to the birth of the United States—was determined by everything from geological evidence to Japanese tsunami records and multi-generational word-of-mouth stories from Native Americans. So after talking with experts, including geologists, the author concluded the area is due, and put the chances of an earthquake occurring in the next 50 years at one in three—and for a large mega-quake at one in 10.

While seemingly sudden, such an event would be the result of years, or centuries, of the Earth’s plates slowly and steadily push-ing against each other until one day they give way, causing the dramatic tectonic shift that produces a quake and often results in a tsunami. That is, a long period of slow change fi nally reaches a breaking point. Not surprisingly, the story outlined potential dam-age and risks associated with the eventuality of such a cataclysmic event, including to schools, roads, homes, and of course, people.

Such careful study seems actuarial by its nature, and is in line with what we do in our profession. Sizing up such disaster-related risks also includes the ongoing study of climate change, which has been progressing at slightly faster than a glacier’s pace over the past 20 years. According to a 2012 U.S. Environmental Protection Agency report, seven of the 10 warmest years on record have oc-curred in the lower 48 states since 1990.

Like the changing Earth, climate change—and discussion and action on it—also has been slow in developing, in part due to well-documented political and economic roadblocks. Physicists and other scientists theorized about a natural “green-house eff ect” as far back as the 19th century, and the first cal-culations of the eff ects of carbon dioxide on the atmosphere were completed just before 1900.

But the world seems to be reaching consensus on the need for near-term action. In December del-egates from about 200 countries,

including the United States and China, will gather in Paris to dis-cuss potential new climate-change agreements developed by the United Nations. Those discussions will include the thorny subject of the developing versus the industrialized world, and who will pay—and how—to mitigate future warming trends.

And the actuarial world is taking steps to address climate change as well. The Academy is part of a group of other North American actuarial organizations that are jointly developing the Actuaries Climate Index (ACI), which is focused on mea-suring the frequency and intensity of extremes in key climate indicators based on controlled observational data of tempera-ture, precipitation, drought, wind, sea level, and soil moisture.

While the ACI initially will cover the United States and Can-ada, it could later be expanded to other parts of the world, where reliable data are available. A follow-up initiative, the Actuaries Climate Risk Index (ACRI), will assess who and what is at risk because of climate change—and it will quantify that risk. The ACRI will review where people live and the surrounding in-frastructure, and look for relationships between climatic and socioeconomic factors. Both indexes will function as useful tools for actuaries, policymakers, and the general public.

These are important issues for casualty actuaries especially because of the potential multiple-billion-dollar damages from extreme weather events, such as Hurricane Katrina in 2005 (which resulted in more than $100 billion in damages) and Su-perstorm Sandy in 2012 (almost $70 billion). A 2012 report by

Munich Re showed that the number of weath-er-related loss events in North America

grew by a factor of five in the past 30 years. That compared with a

four-fold increase in Asia and slower rates of increase on other

continents.There are no certainties in as-

sessing risk, whether it be weather, climate change, or a sudden event like

an earthquake. While actuaries cannot prevent these things from happening, we

can help to quantify the risk and potential dam-age from extreme events that can occur in our

world. Perhaps this knowledge will re-sult in more eff ective risk mitigation

eff orts. Time is of the essence. SH

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Agency report, seven of the 10 warmest years on record have oc-curred in the lower 48 states since 1990.

Like the changing Earth, climate change—and discussion and action on it—also has been slow in developing, in part due to well-documented political and economic roadblocks. Physicists and other scientists theorized about a natural “green-

But the world seems to be reaching consensus on the need for near-term action. In December del-

er-related loss events in North America grew by a factor of five in the past

30 years. That compared with a

continents.

sessing risk, whether it be weather, climate change, or a sudden event like

an earthquake. While actuaries cannot prevent these things from happening, we

can help to quantify the risk and potential dam-age from extreme events that can occur in our

world. Perhaps this knowledge will re-sult in more eff ective risk mitigation

Representation vs. Reality?

I have been in the profession a long time—some 30-plus years. During that

time, I have been pleased to note the increasing number of female actuaries. While I have not run a count per se, I believe women now form a significant percentage of the profession. Further, I also note the current president of the Academy is female.

Now, with those observations, I am in possession of the most recent issue of Contingencies (July/August 2015). I have looked at the illustrations accompanying each article, not to mention the striking cover. I note two—only two—features/departments that are accompanied by illustrations or pictures of females. One (Up to Code) includes one woman along with three adult males and one juvenile male. The other (Cryptic Puzzle) includes a female of roughly age 4 to 6. There may be a female in the picture accompanying Inside Track, but it is hard to make that

assessment accurately. However, in the other articles/sections with illustrations included (not pictures), there are six ad-ditional males, ignoring those repeated on the cover and in the Table of Contents.

I believe the ratio is inappropriate. Now, I am well aware that you cannot control the specifics of the advertisements accepted for publication in Contingencies, but there is no need for the illustrations accompanying articles to similarly under-represent women.

As you may have seen, there is increasing

emphasis on encouraging females to consider careers in STEM fields. But presentation often colors perception. I remember introducing my 3-year-old daughter to an academician colleague of mine: “Heather, this is Dr. Growney”—only to have my daughter respond with, “You mean Mrs. Growney?” Other than me, she had never met a female math professor.

May I respectfully suggest that a more balanced choice of illustrations would reflect well on the actuarial pro-fession, and communicate that women are actuaries too.

Sincerely,Joan P. Ogden, MAAA, FCA

Joan Ogden Actuaries

Salt Lake City, Utah

Editor’s note: Thank you for writing, and for pointing out the disparity of gender representation in our magazine. This is an issue I care deeply about, so I’m chagrined to learn we’ve fallen short. I’ll take steps to correct the gap in the future. —EPH

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Academy InSights

Pension Actuaries Stand Ready to Serve the Public

THE ACADEMY’S MISSION STATEMENT IS A SIMPLE ONE: “The American Academy of Actuaries’ mission is to serve the public

and the United States actuarial profession.”

One initiative that aims to fulfi ll the fi rst part of that statement—serving the public—is the Pension Assistance List (PAL), a pro bono service the Academy provides to the public to help clarify the complicated technical issues that go into planning for retirement.

PAL was founded in the late 1990s as a response to questions from the pub-lic about pension-related matters amid increasing complexity in the pension arena. Initially, such questions were fi elded by the Academy’s senior pension fellow, Ron Gebhardtsbauer, who always saw opportunities for the Academy to be a helpful resource for the public. As re-quests grew, he began referring questions to pension volunteers on an ad hoc basis.

Eventually the Academy formalized the program in the form it exists today.

More recently, the Multiemployer Pension Reform Act of 2014 has changed the landscape for many pension plan par-ticipants, and they understandably have questions about their benefi ts. The vol-unteers of the PAL provide an unbiased actuarial perspective on these thorny questions—and they do it all without charge.

But why do volunteers do this, you may wonder. In addition to the person-al satisfaction they derive from helping people understand the complexities of their pensions (see sidebar), they also get a fi rsthand look at the concerns that consumers have about their pension plans—and that understanding helps them be better pension actuaries.

The Pension Assistance List is regu-larly looking for volunteers. Although consumers will always have questions about their plans, as the Baby Boomer generation surges toward retirement there will likely be an increased op-portunity to help them as they ponder important decisions. If you’re inter-ested in becoming a PAL volunteer, you can sign up online at http://www.actuary.org/content/volunteer-pal. If you need more information, please call 202-223-8196.

Keeping an Eye on the ‘End Game’By Eric Atwater

I have been a member of the Pension Assistance

List (PAL) program for about two years and have

encountered questions of varying degrees of

complexity. The typical questions are mostly

related to determining the benefit payable.

A simple question I encountered was a

participant wondering whether his benefit

was properly reduced for early retirement.

Another question related to PBGC-guar-

anteed benefits for a participant whose

employer was terminating the plan. I’ve also

helped answer more complicated questions

where participants have retained legal counsel and

are seeking a certified actuarial opinion.

People often ask, “Why do you provide your expertise for

free?” In fact, I’ve asked myself that exact question when I’m

reading pages of plan documents on the weekend at the park

with my kids. However, I always think back to why

I signed up for the program in the first place.

I wanted to use my knowledge and exper-

tise to help others.

The PAL program provides an im-

mediate, human encounter and helps

me remember how important our work

is, and how it affects people’s lives. It’s

easy to get caught up in valuing and

designing retirement plans, and you can

lose track of the “end game.” One of the

key benefits to being an actuary is using

your expertise to solve problems and help

others. For me, the PAL program allows me to

use that expertise to solve other people’s problems—

and doing so helps me remember the “end game.”

ERIC ATWATER, MAAA, EA, FCA, FSA , is a

volunteer for the Pension Assistance List.

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Commentary JAY VADIVELOO

Unleashing the Creative PotentialLessons learned from managing the Goldenson Center for Actuarial Research

HUMAN PRODUCTIVITY is a well-studied area in academia and

business organizations. Every organization strives to maximize individ-

ual and team creativity with its employees, but for a variety of reasons,

many of these human resource and management efforts fail.

Over the past year as full-time direc-tor of the Goldenson Center for Actuarial Research, I have been fortunate to be able to work with students at the Uni-versity of Connecticut and learn, from experience, six important lessons on how to maximize individual and group creativity:1. Complete freedom in thinking is nec-

essary to unleash the creative process. 2. Students are the best resources to

utilize for projects requiring creative thinking.

3. Students adapt and learn quickly from one another.

4. Students are extremely responsible when they are given total ownership of a project.

5. Students are naturally self-governing as a group.

6. Once all of the above ideas are incor-porated, work becomes a totally fun and gratifying exercise.Clearly, all my fi ndings are student-

centric because the Goldenson Center works exclusively with students, and my one year as full-time director makes for a limited sample size. However, by replac-ing “students” with “employees,” some of these lessons can be applied to fi t in with the more varied and complex nature of the work force population.

Any effort to stimulate individual and group creativity in an organization would reap the benefi ts of a highly pro-ductive and motivated work force where everyone strives to maximize their po-tential, both individually and collectively as a team.

This article describes the history leading to these insights.

BackgroundI worked for more than 25 years as a practicing actuary with major insurance companies and consulting fi rms, and I have always been fascinated about what drives the creative process in an indi-vidual. In particular, having served in a management role for most of the past 25 years, I have also been interested in un-derstanding the group dynamics of the creative process. A group of creative indi-viduals may not necessarily be creative as a group; on the other hand, a group com-posed of mainly non-creative individuals may turn out to be extremely creative at the group level.

In the past year I have begun to un-derstand how the creative process can be maximized—on both the individual and group levels. This understanding happens to coincide with the period in which I started managing the Goldenson Center on a full-time basis. The Golden-son Center has been in existence since 2008, and I have played the role of di-rector since its inception. However, until June 2014, I had a dual role as director of the center in addition to holding a full-time position in industry. While it was a

great learning experience for me to jug-gle both these responsibilities, I could not fully appreciate creative potential in the context of group dynamics until fos-tering it become my sole responsibility.

Rebranding the Goldenson CenterThe lessons I have learned about cre-ativity come from working with various teams of students on truly challenging and impactful projects from industry. The Goldenson Center has always had one overriding mission since its in-ception—to focus on applied actuarial research projects, which serve the needs of industry in the region. An advisory board of industry leaders helps the Gold-enson Center stay true to its mission and provides most of the research projects undertaken by students at the center.

One of the fi rst things I had to accom-plish when I started on a full-time basis as director was to clearly articulate the Goldenson Center’s brand. With the as-sistance of a small team of students who served as my marketing team, we fi rst created a logo and slogan for the Gold-enson Center, as shown above.

We then put together a more detailed document outlining the new brand of the Goldenson Center in the spirit of our new logo and slogan. In particular, we focused on the Goldenson Center’s capabili-ties of undertaking innovative research projects. Once we laid this framework, I turned to the advisory board members to provide us with the appropriate projects.

Project ChallengesYou know the expression “Be careful what you wish for”? I never expected to get such a surge of support from the board members, and I now had an un-expected new problem—we had too many projects to handle. Not only did we get several projects, but also each

Janet and Mark L. Goldenson Center for

Actuarial ResearchIlluminating Industry Innovation

14 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

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project was highly challenging, requir-ing complex modeling and sophisticated analytical thinking. Even global actuarial consulting fi rms with their vast resources of experienced actuarial consultants and analysts would have considered these projects challenging. Here I was, with my makeshift team of actuarial students with no real-life experience whatsoever, pledging to tackle these projects. Besides assembling the right team for each proj-ect, I also had to learn how to eff ectively manage anywhere from three to fi ve of these projects simultaneously.

Here are a couple of examples of the challenging projects we took on during my fi rst year as full-time director of the Goldenson Center. Both examples re-quired sophisticated skills in using R, SAS, Excel, and VBA software.■ Create an optimal lifetime individ-

ual financial planning model that combined pre- and post-retirement phases, with diff erent insurance and fi nancial products at each phase used in the optimization process. In ad-dition, the model had to be sensitive to the individual’s level of financial dependencies, savings, and spending patterns. The fi nal model was a com-bination Monte Carlo-Markov Chain (MC-MC) stochastic model. This sto-chastic model was then used to create an analytical generalized linear model to closely approximate the MC-MC model, which could then be used by a financial planner to immediately generate the optimal pre- and post-retirement fi nancial planning strategy.

■ Optimize the staffing requirements for a call center. The optimal staffi ng requirements varied by the hour each day and by day as well. The optimi-zation criteria were probabilistic in nature, requiring a prescribed service effi ciency criterion to be attained with a given level of certainty. The model that we created was a combination statistical and Monte Carlo stochastic model. Using historical data on num-ber of calls coming in, call handling times, abandoned calls, and call waiting times, appropriate statistical models had to be created to fi t the data. These

statistical models were then used in the fi nal Monte Carlo stochastic model to determine the optimal staffing lev-els. In the process of working on this project, we created several innovative algorithms to speed up the optimiza-tion process as compared with using a purely exhaustive approach.

The Transformation ProcessSo how did I transform young, inexpe-rienced students into a group capable of tackling these huge projects? In short, I had to use all my years of management experience to create a working atmo-sphere that would maximize both the individual and group creativity of my student teams. Here is what I did:1. Every project was done by a team of students. Most team members were graduate students in actuarial science, but depending on the project, I brought in students in statistics and undergradu-ate students in actuarial science as well.2. Teams were generally overstaffedto accommodate the transient nature of student resources—they do graduate even-tually—and to expose as many students as possible to real-life client projects.3. Students were each paid a fl at amount per project by the center, independent of the number of hours it took or the dif-ferent levels of responsibilities of each

team member. Students were motivated by the experience they obtained on these projects and the company exposure and visibility they received. 4. Students were involved in every stepof the project process. Although I was re-sponsible for initiating the call with the board member to discuss a potential proj-ect, the student team was brought in at the start of the proposal stage. The students, as a team, were put in charge of the week-ly client calls, client presentations, interim and fi nal reports, model testing, and docu-mentation. The students were given total autonomy in deciding how to delegate in-dividual roles and responsibilities.5. I met with each student team at least weekly and more frequently as the proj-ect neared completion. 6. Every project ended with a face-to-face presentation with the client that was orchestrated entirely by the student team.

Lessons LearnedHow did these steps maximize individual and group creativity? My personal refl ec-tions are as follows:1. Complete freedom in thinking is necessary to unleash the creative pro-cess. While every student team member varied in modeling and project man-agement skills, there was absolutely no hierachy among team members. Everyone received the same stipend and everyone was working toward the same common goal of meeting the client’s expectations. As a consequence, the thinking process at our internal meetings was completely free and open. We had animated discus-sions where we expressed our thoughts and opinions without any reservations. In the process, solutions to some seem-ingly insurmountable problems started to emerge. 2. Students are the best resources to work with for projects requiring cre-ative thinking. Students are in that phase of their lives where their focus is largely related to school issues; their thinking process is not constrained by the broad range of responsibilies faced by working individuals. If Lesson No. 1 is adhered to, then students will embrace it fully with-out fear of any consequences.

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3. Students adapt and learn quickly from one another. This may be one at-tribute that is unique to students. They are quick learners, particularly when it comes to software and modeling skills, and they learn best from one another. In selecting team members, it was rare that any individual student possesed all the skills required for the project. However, I made sure that each team possessed all the required skills. Then, the students worked together and learned from one another to complete the project. 4. Students are extremely responsible when they are given total ownership of a project. In the working world, entry-level positions have entry-level responsibilities, and generally, workers have to “pay their dues” before taking charge of a major project. No single stu-dent was placed in charge of the entire project, but the team collectively had that responsibility. The students had to ensure that the client’s needs were met. Once students were given this respon-sibility of total autonomy, they never failed to live up to their obligations in any project. 5. Students are naturally self-govern-ing as a group. Once students realized they were completely responsible for the success of the project, they worked among themselves to determine individu-al roles and responsibilities with minimal intervention on my part. When we were stuck on key issues, some of the biggest breakthroughs came from students fi g-uring out the solution on their own as a group and then sharing it with me at our next internal meeting. This lesson is pos-sibly the secret to unleashing the group creative potential, which comes from providing total autonomy to the group members and letting them govern them-selves. It is the main reason I have been able to manage several signifi cant proj-ects at the same time—the management responsibility is largely delegated to the students as a team.6. Once all of the above ideas are incor-porated, work becomes a totally fun and gratifying exercise. It is everyone’s dream that work should be fun, but this is not often achieved in the work force.

For a limited period in a student’s life, we have managed to make the work process enjoyable and fulfi lling. Indeed, the more challenging the project, the greater the level of intensity among team members. Plus, students get immediate gratifi cation during the weekly calls, when they share their progress on the project directly with the client. Their ultimate fulfi llment comes from the fi nal face-to-face meeting with the client, where every team mem-ber is part of the presentation.

My RoleSo if the team has total autonomy on the project, what then is my role? I con-sider myself akin to the conductor of an orchestra of potentially talented but amateur musicians. The players start off unable to perform any music, and my role is to ensure that at the end of the project, the orchestra will be able to perform a symphony that captivates the audience.

I am responsible for negotiating with the client company to obtain the initial project. Then, the students take charge, and my job is a delicate balancing act of not stifl ing the creative process that I want to unleash, while ensuring that the client’s needs and the highest pro-fessional standards are met. I have an

open-door policy and students can stop by anytime with questions, to share ideas, or just chat.

While every decision is made by the team, in the event of a choice of ap-proaches, I generally make the final decision. Any fi nal decision I make may be a variation of the team’s decision, but is never made to assert my authority as director of the center. It is largely based on my years of working experience in be-ing able to better understand the needs of the client. (By the same token, the team has often come up with alternatives to solutions that I have suggested that turned out to be better.)

ConclusionOn a personal level, the most reward-ing experience has been seeing how my students grow in knowledge and confi -dence over the duration of the project. These students can stand up to any gru-eling interview process because they have experienced every step in a highly significant project and participated in every major project decision. Typical in-terview questions like, “What are your strengths?” and “How do you function in a team environment?” can now be mean-ingfully answered in the context of an actual major project on which students have worked.

Can the Goldenson Center model be replicated in the corporate world? It would be possible if the reward pro-cess in a corporation recognized both individual and team accomplishments. Otherwise, a hierachical process would emerge that would make it difficult to maximize individual and group creativ-ity. Small businesses, which are generally less structured in their management philosophy, may be the best fi t for this approach. However, some aspects of team management I have shared here could be adopted even in the corporate world, such as encouraging a free ex-change of ideas, greater autonomy, and ongoing feedback.

JEYARAJ (JAY) VADIVELOO is

director of the Janet & Mark L.

Goldenson Center for Actuarial Research

at the University of Connecticut.

I consider myself akin

to the conductor of an

orchestra of potentially

talented but amateur

musicians. The players

start off unable to perform

any music, and my role

is to ensure that at the

end of the project, the

orchestra will be able to

perform a symphony that

captivates the audience.

18 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

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Up to Code JOHN STOKEBURY

Don’t Be ‘That Actuary’

I’VE BEEN IN THE PENSION CONSULTING FIELD for over 30 years.

Most of the countless actuaries I’ve encountered over the years have

exhibited skills and behaviors that I strive to emulate. But others have

fallen short of my expectations. From time to time, I reflect on those

encounters, and remind myself that I don’t want to be “that actuary.”

One actuary—actually, more than one—failed to renew membership in one of the actuarial organizations. Maybe it was not seeing the email dues notifi ca-tion, or maybe it was changing jobs and not even getting the email notifi cation, or maybe even thinking your administrative; assistant was going to take care of it (OK, I admit it, that one happened to me, and I have the battle scars to prove it). So what’s the big deal? Well, Precept 12 of the Code of Professional Conduct talks about ap-propriate use of credentials—and if you let your membership lapse and are no longer a member of a credentialing organization, then you shouldn’t be using that organi-zation’s credential. So, at the turn of each calendar year, I remind myself what a hassle it would be to update everywhere I show my credentials, and I take the neces-sary steps to make sure my credentials are current. I don’t want to be “that actuary.”

Another actuary had not completed

the continuing education (CE) require-ments laid out in the Qualification Standards for Actuaries Issuing State-ments of Actuarial Opinion in the United States (USQS). I mean, we’re all pretty smart; we aren’t going to get stupid over-night. What’s the harm? Well, actuaries must comply with the USQS before is-suing a Statement of Actuarial Opinion (SAO); the USQS and the Code of Pro-fessional Conduct are very clear on this matter. Failure to complete the CE re-quirements makes you unqualified to sign SAOs—period. I’ve seen actuaries having to fi nd a colleague (who did satisfy the USQS) to co-sign—or even to redo—a valuation report. I really don’t want to be “that actuary” and have to explain all of that additional eff ort to my client.

What if the actuary simply forgot to attest that he had satis� ed the SOA’s Continuing Professional Development (CPD) require-ment?1 No big deal, right? Wrong. Even

though this actuary had satis� ed the USQS requirements, if the actuary appears as “non-compliant” with his or her CPD requirement in the Actuarial Directory—which would happen if he or she simply forgot to attest—another actuary may be concerned that he or she may not have satis� ed the continuing ed-ucation requirements of the USQS. To avoid any such appearance of noncompliance with the USQS, each February, I check that I have satis� ed my USQS continuing education re-quirements for the year and that my listing in the Actuarial Directory is up to date—just to make sure there are no misunderstandings. I don’t want to be “that actuary.”

OK, these examples are really not all that controversial; we all know the right thing to do to maintain our credentials and our continuing education. It just means paying attention to details. But there are other actuaries that I recall from time to time…

I remember one actuary with signifi -cant experience consulting in pensions. But none of this actuary’s clients had ever gone through settlement account-ing. How hard could that be? The actuary came up with an accounting treatment that seemed to make sense and presented it to the client. The client accepted it and prepared fi nancials on that basis. Sounds good, right? Again, not so fast … pension accounting has some very specifi c rules for how to account for settlements. And while the approach proposed might have seemed logical, it was actually not consis-tent with the accounting literature. Now we’re talking about Precept 1 (and An-notation 1-1), providing actuarial services with skill and care.

This one actually keeps me awake some nights. How do I know what I don’t know? If I do something that seems logical and makes sense to me, isn’t that good enough? I wish it were. As actuaries, we often practice in areas that are regulated or where rules are provid-ed by others for us to follow. We need to J

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Up to Code CONTINUED

know those rules. And if we don’t know the rules, or don’t understand them, we need to ask someone to help us out. It might be as simple as asking the actu-ary in the next offi ce, or someone you met at a conference, or even a member of the Actuarial Board for Counseling and Discipline through the Request for Guidance process. I fi nd myself going back to source material all the time to make sure I know what the rules are—and talking with my peers if I’m not sure. It would be really embarrassing to miss a rule and have to explain that to a client. I don’t want to be “that actuary.”

And then, there was an actuary—years ago, around when the RP-2000 mortality table was published. In this case, the cli-ent was refl ecting the much older GA-51 mortality table in fi nancial statements. When asked why the actuary had never updated this assumption, and with the client on the phone, the actuary replied,

“Because the client never told me to.” While the assumptions reflected in fi-nancial statements may be prescribed by the client, I’m not sure the client ap-preciated that the assumptions might have needed to be updated. Was there a specifi c Precept that addresses this? Per-haps not. And, at the time, the actuarial standards of practice did not have the ex-pectation for actuaries to assess certain prescribed assumptions. Still, I really would want to be proactively educating my clients on changing trends (even if it is a message they may not want to hear) and not be “that actuary.”

These examples are certainly the out-liers. As I stated at the outset, the vast majority of actuaries that I’ve met and worked with are outstanding role mod-els. I am proud to be their peer.

But there are … these other actuaries. And that’s when I have to deal with the tough responsibilities of Precept 13. It’s

not easy to reach out to another actuary and discuss such matters. You are putting the actuary on the spot, and the actuary may naturally become a bit defensive. For the most part, though, the actuaries in these examples were embarrassed by the events and worked quickly to resolve the matter. At the end of the day, they actually did appreciate having the discussion with me and assured me that they really did not want to be “that actuary” either.JOHN STOKESBURY is a member of

the Actuarial Board for Counseling and

Discipline.

Notes1. Although there are diff erences between the CAS and the SOA CPD requirements and the USQS continuing education requirements, both the CAS and the SOA accept fulfi llment of the USQS requirements as fulfi llment of their CPD requirements. By contrast, compliance with CPD does not necessarily indicate that you have satisfi ed the USQS and are therefore qualifi ed to issue an SAO.

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BY EMILY FEENSTRA

AMERICA’S INFRASTRUCTURE IS IN BAD SHAPE. It is underfunded and largely ignored, as it’s an “out of

sight, out of mind” issue that never rises to public attention until something goes wrong—a bridge is closed,

a blackout shuts down power at your house or workplace, or water doesn’t come out of the faucet.

Every four years the American Society of Civil Engineers (ASCE) assembles a team of infrastructure experts across 16 major sectors of infrastructure to evaluate the current condi-tion of our nation’s infrastructure and the amount of investment needed to keep it working for us and for our economy.

An advisory council oversees the data analysis and develop-ment of the report and then turns this into an easy-to-understand format that you’ll remember from your school days—a report card. Seen as a national indicator, the report provides a snap-shot in time of infrastructure conditions and funding needs for each sector.

A report card tells you whether you’re doing well or if you need to improve, and as any good teacher would, it gives you recommendations for how to raise your grades.

The 2013 Report Card for America’s Infrastructure (see page 26) issued a cumulative grade of D+, as our nation’s roads, bridg-es, and other infrastructure systems are in serious need of repair and modernization.

We continue to see categories of infrastructure that sim-ply are not seeing the maintenance or investment to improve day-to-day performance and save money in the long term. The backlog of projects needed to maintain and modernize our in-frastructure keeps growing.

To determine the grades, we look at condition, capacity, funding, future need, operations and maintenance, public safety, resilience, and innovation. There is work to be done in almost every category. The overwhelming majority of the grades are D’s, and two of these were near-failing D- grades—levees and inland waterways.

In spite of the bad grades in many sectors, there are a few bright spots.

We saw noticeable and tangible improvements in six of the sectors evaluated: roads, bridges, solid waste, drinking water, wastewater, and rail.

Communities across the country are collaborating to address some of their most critical infrastructure challenges. We saw

greater private investment in several categories, targeted efforts led by cities and states, and several categories benefited from short-term boosts in federal funding. 

The other big news to come out of the report card is the amount of investment needed for our nation’s infrastructure. To raise the D+ GPA to a B, or what we consider a state of good re-pair, the United States would need to spend $3.6 trillion between 2013 and 2020. We see projected funding of only $2 trillion in that time frame, meaning we have a funding gap of $1.6 trillion, or about $200 billion per year. The bulk of the investment gap is due to surface transportation needs—including roads, bridges, and transit systems—which require an estimated $846 billion.

TransportationOver 200 million trips are taken daily across deficient bridges in the nation’s 102 largest metropolitan regions. In total, one in nine of the nation’s bridges is rated as structurally deficient, while the average age of the nation’s 607,380 bridges is currently 42 years. The Federal Highway Administration estimates that to eliminate the nation’s bridge backlog by 2028, we would need to invest $20.5 billion annually, while only $12.8 billion is be-ing spent currently. In addition, 42 percent of America’s major urban highways remain congested, costing the economy an es-timated $101 billion in wasted time and fuel annually.

Our inland waterways and rivers are the hidden backbone of our nation’s freight transport system. They carry the equiva-lent of 51 million truck trips each year, easing congestion on our roads and bridges. Our inland waterways require dredging to their authorized depths, and repair, maintenance, and in some cases replacement of the locks that regulate the waterways. More than half of our locks are more than 50 years old. Barges stop for hours each day, prompting unscheduled delays and pre-venting goods from getting to market. There are about 52 service interruptions a day through the system.

The federal government collects diesel tax in a trust fund to pay for dredging of our waterways, or removing the sediment

Our Nation’sNeglected Infrastructure

24 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

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buildup to ensure waterways are deep enough for cargo ships to operate. But all that money being collected isn’t being spent. Now, as the Panama Canal expands to allow larger cargo ships to pass, there’s concern that they won’t be able to access U.S. ports and waterways. We gave inland waterways a D-, and ports a C.

The importance of the nation’s ports should not be underes-timated. They serve as an entry point and connect with roads, rail, and airports to export goods and deliver billions of dollars of trade goods to households and businesses.

The Unites States has more than 300 commercial ports and 600 smaller harbors. To fully understand the critical role they play, consider this: The U.S. Army Corps of Engineers estimates that more than 95 percent (by volume) of overseas trade pro-duced or consumed by the U.S. moves through these ports.

In the past fi ve years, the average size of vessels calling at U.S. ports has increased by 9 percent in anticipation of the Panama Canal expansion project, which will allow much larger ships known as “Post Panamax” ships through the canal. The U.S. International Trade Commission estimates that trade volume through ocean ports will more than double between 2012 and 2021, and double again shortly after 2030.

The navigation channels coming into the ports need to be in most cases 45 feet deep in order to accommodate the new larger ship sizes. Many port harbors in the U.S. are simply too shallow for these ships. Most West Coast ports can accommodate these larger vessels due to their naturally deep harbors. Some ports on the East Coast such as Savannah, Baltimore, and Miami have made signifi cant investments in their facilities to keep pace, but the needs are daunting.

WaterDrinking water earned a grade of D in the 2013 Report Card. It’s not for the quality of the water, but for the quality of the pipes bringing the water from the source to the users. Some of those pipes are 100 years old. We get about 240,000 waterline breaks in the United States each year, which can shut down roads, fl ood areas, and close businesses and schools. We’re living on the in-frastructure that our grandparents and great-grandparents built.

Wastewater also got a D. We have 700,000 to 800,000 miles of public sewer lines in the United States, and most of them were installed right after World War II. Due to overloading, cracks, and breaks, these systems discharge almost 900 billion gallons of untreated sewage each year into our rivers.

At the dawn of the 21st century, much of our drinking water and wastewater infrastructure is nearing the end of its useful life. Assuming every drinking water pipe would need to be replaced, the cost over the coming decades could reach more than $1 trillion, according to the American Water Works Association. We estimate capital investment needs for the nation’s wastewater and stormwa-ter systems at $298 billion over the next 20 years. Pipes represent the largest capital need, making up three-quarters of total needs. Fixing and expanding the pipes will address sanitary sewer over-fl ows, combined sewer overfl ows, and other pipe-related issues.

In addition, many regions in the United States are juggling competing needs for water between municipal and domestic users, agricultural and industrial users, and the environment. Population growth, urbanization, and climate change will con-tinue to stress water resources and accelerate the need for new solutions to conserve, supply, treat, store, and distribute water.

EnergyAmerica relies on an aging electrical grid and pipeline distribu-tion systems, some of which originated in the 1880s. Investment in power transmission has increased since 2005, but ongoing permitting issues, weather events, and limited maintenance have contributed to a growing number of failures and power inter-ruptions. While demand for electricity has remained level, the availability of energy in the form of electricity, natural gas, and oil will become a greater challenge after 2020 as the population increases. Although about 17,000 miles of additional high-voltage transmission lines and signifi cant oil and gas pipelines are planned over the next fi ve years, permitting and siting issues threaten their completion. Energy received a grade of D+ in the 2013 Report Card.

The main sectors of energy consumption in the United States are electric power generation, which is the largest at 40 percent of the total, followed by transportation at 28 percent, industry at

Our Nation’s Neglected Infrastructure CONTINUED

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2013 REPORT CARD FOR AMERICA’S INFRASTRUCTURE

Aviation D

Bridges C+

Dams D

Drinking Water D

Energy D+

Hazardous Waste D

Inland Waterways D-

Levees D-

Ports C

Public Parks and Recreation C-

Rail C+

Roads D

Schools D

Solid Waste B-

Transit D

Wastewater D

America’s Cumulative G.P.A. D+

TABL

E 1

A = Exceptional

B = Good

C = Mediocre

D = Poor

F = Failing

Each category was evaluated on the basis of capacity, condition, funding, future need, operation and maintenance, public safety, resilience, and innovation

ESTIMATED INVESTMENT NEEDED BY 2020: $3.6 TRILLION

SOURCE: AMERICAN SOCIETY OF CIVIL ENGINEERS

20 percent, and residential at 11 percent. The primary sources of fuel used to create this energy are petroleum, natural gas, and coal, although the fuel source mix is continually evolving.

The challenge for the industry will be to help the grid respond to this evolving mix of energy sources, including renew-ables, and incorporate new technologies that can lower overall energy use, such as smart meters. We will also need to add to the network by building and permitting new energy generation facilities, considering that new transmission lines will be needed to move energy from new sources to where it’s needed.

Economic ImplicationsSo you might ask, “Why do these grades matter? What does a D+ mean for our country?” We have found that America’s infra-structure grades have an impact on our bottom line.

Whether the inland waterway system, our ports, or the electrical grid—America is connected by infrastructure. And the consequences of neglecting these issues play out every day. We waste hours sitting in traffi c, power outages become more frequent, and we lose billions of gallons of water through leaky pipes—and these impacts cost us money.

The American Society of Civil Engineers recently complet-ed a series of studies called “Failure to Act,” which shows the

opportunity cost America is now facing if we continue to let the grades lag in the C’s and D’s. These studies look at current fund-ing levels for major infrastructure sectors, projected to the year 2020, to see what eff ect this funding gap will have on household income, jobs, GDP, and trade.

If we continue on the same path across the major infrastruc-ture sectors (transportation, water, energy, ports), we face the following eff ects by 2020:■ A projected loss of $3.1 trillion in GDP, almost the equivalent

of the 2011 GDP of France;■ A loss of 3.5 million jobs in the year 2020 alone; and■ A drop of $3,100 in disposable income per year, per household.

To take transportation as a specifi c example, we did a sep-arate analysis that just looked at those impacts in 2011. The fi ndings were alarming four years ago when ASCE released the report. Now, as we look to a fi ve-year bill with no increase in federal investment, it’s about to become a reality.

This “Failure to Act” report revealed the following ripple ef-fects if we continue status quo investment levels and allow the further deterioration of U.S. surface transportation infrastruc-ture amid deferred maintenance:■ The cost of unreliable transportation infrastructure to busi-

nesses will reduce the productivity and competitiveness of American fi rms relative to global competitors. Cumulative costs will reach $430 billion by 2020. To compensate for these increased costs, businesses will have to divert increasing por-tions of earned income to pay for transportation delays and vehicle repairs, draining money that would otherwise be in-vested in innovation and expansion.

■ Households will be forced to forgo discretionary purchases and reduce health-related purchases and other expenditures that aff ect quality of life in order to pay transportation costs that could be avoided if infrastructure were built to suffi cient levels. These increased cumulative costs to households equate to $1,060 less for discretionary spending every year until at least 2020. From 2011 to this year, it has cost your personal budget $5,300. If the status quo continues for the next fi ve years, it will cost you another $5,300.

■ The U.S. will lose jobs in high-value, high-paying services and manufacturing industries as we struggle to remain competi-tive. The only sectors seeing gains would relate to auto services.

■ Overall job losses of more than 876,000 in the year 2020 are mitigated by more people working for less money and less productively due to the diminished eff ectiveness of the U.S. surface transportation system, meaning 234,000 jobs will ex-ist only if many more workers agree to pay cuts.

■ America’s gross domestic product will underperform by $897 billion because of a decrease in exports due to defi cient trans-portation networks. Exports will drop in 79 of 93 diff erent tradable commodities, totaling a $28 billion loss.And while the investment needed to close the infrastruc-

ture funding gap may seem daunting, the real story is that we can’t aff ord not to. The U.S. puts 2.4 percent of its GDP toward

SEP | OCT.15 C O N T I N G E N C I E S 27

CUMULATIVE INFRASTRUCTURE NEEDS BY SYSTEM BASED ON CURRENT TRENDS EXTENDED TO 2020DOLLARS IN $2010 BILLIONS

TABL

E 2

Infrastructure System Total NeedsEstimated

FundingFunding

Gap

Surface Transportation1 $1,723 $877 $846

Water/Wastewater Infrastructure1 $126 $42 $84

Electricity1 $736 $629 $107

Airports1,2 $134 $95 $39

Inland Waterways & Marine Ports1 $30 $14 $16

Dams3 $21 $6 $15

Hazardous & Solid Waste4 $56 $10 $46

Levees5 $80 $8 $72

Public Parks & Recreation6 $238 $134 $104

Rail7 $100 $89 $11

Schools8 $391 $120 $271

TOTALS $3,635 $2,024 $1,611

YEARLY INVESTMENT NEEDED $454 $253 $201

NOTES 1. Data taken from ASCE Failure to Act Series published 2011-13. www.asce.org/failuretoact 2. Airport needs and gaps include anticipated cost of NextGen: $20 bil-lion by 2020 and $40 billion by 2040. 3. Total needs are federal and non-federal high hazard dams. 4. Funding only includes publicly funded remediation, not funds from private sector. 5. Total needs numbers is based on discussions with the National Com-mittee on Levee Safety. 6. Total needs and funded included all costs associated with Parks and Recreation. Funding gap is capital needs only. 7. These numbers are based on market projection and current investment trends. 8. These numbers are based on the last available national data collection and brought to current market dollars.*numbers may not add up due to rounding

SOURCE: AMERICAN SOCIETY OF CIVIL ENGINEERS

infrastructure investments each year. Europe invests 4 percent of its GDP and China invests 9 percent of its GDP in its infra-structure. They realize that they need to invest in infrastructure if they want to be competitive in the world. We seem to be sitting on past generations’ investments and not maintaining for the present or improving infrastructure for the future.

How Do We Move Forward?Engineers play a unique role in the built world—planning, ana-lyzing, designing, building, and rebuilding things that touch the planet—and therefore they have a vital and natural role in chang-ing the built environment to meet new needs.

As the nation faces a daunting backlog of rehabilitation and replacement projects, how do we ensure that we build in a more sustainable way to maximize limited resources? Solu-tions include bringing existing infrastructure to a state of good repair, using technology and non-structural methods to get more capacity out of road lanes, and managing demand through con-servation strategies.

We have a tremendous opportunity to rethink how we build the infrastructure of tomorrow. The goal is to rethink how to build, maintain, and repair America’s infrastructure with an eye toward the future.

One thing to note is that the urban environment is of increas-ing importance, as U.S. city centers become more condensed and new megaregions start appearing. Today, U.S. cities with popula-tions of at least 150,000 are home to 80 percent of Americans and generate almost 85 percent of the nation’s GDP. By 2050, the U.S. population is expected to grow to about 439 million, compared with 310 million in 2010. That is a 42 percent increase in 40 years.

Even with the enormous backlog of projects across infra-structure sectors, the 2013 Report Card demonstrates that when investments are made and projects move forward, conditions improve and the grades rise. Continuing the momentum to raise the grades will require that we seek and adopt a wide range of solutions under three main categories:1. Bold leadership and a compelling vision. America’s infra-

structure needs bold leadership and a compelling vision at the national level. During the 20th century, the federal government led the way in building our nation’s greatest infrastructure systems, from the New Deal programs to the Interstate High-way System and the Clean Water Act. Since that time, federal commitment to infrastructure projects has decreased, and the condition of the nation’s infrastructure has suffered. Currently, most infrastructure investment decisions are made without the benefit of a national vision. That strong national vision must originate with strong leadership at all levels of government and the private sector. A lot of states and local governments are stepping up to make investments, but we need leadership at

all levels to realize the scope of the problem. Our issues are too large for Congress or even governors to try and fix alone. We need our political leaders to realize that we are already paying for inadequate infrastructure. We can either invest now or pay the immense costs after our infrastructure fails us.

2. Promote sustainability and resilience. Sustainability, resil-iency, and ongoing maintenance must be an integral part of improving the nation’s infrastructure. Today’s transportation systems, water treatment systems, and flood control systems must be able to withstand both current and future challenges. As infrastructure is built or rehabilitated, life-cycle cost analy-sis should be performed for all infrastructure systems. We’ve been focused at ASCE on reducing the overall life-cycle cost of infrastructure projects. With continued constrained budgets, it is tempting to look at the upfront sticker price when choosing between project designs or even a list of projects. Our goal is to get engineers and our elected officials to look at these decisions more long term. But there are a number of barriers, including an absence of data to help predict future cost. A recent report we produced with the Eno Center for Transportation found that while most agencies and industry practitioners agree that life-cycle cost analysis is important in the planning stages, only 59 percent currently employ some form of it. Less than half of respondents to the survey set up an operations plan as part of the project planning process. So clearly there is a desire to do more, but the industry needs the tools and training.

3. Develop and fund plans to maintain and enhance Amer-ica’s infrastructure. While infrastructure investment must be increased at all levels, it must also be prioritized and executed according to well-conceived plans that both com-plement the national vision and focus on the infrastructure system as a whole.

Looking AheadInfrastructure is the foundation that connects the nation’s businesses, communities, and people, driving our economy and improving our quality of life. For the U.S. economy to be the most competitive in the world, we need a first-class infrastruc-ture system—transport systems that move people and goods efficiently and at reasonable cost by land, water, and air; trans-mission systems that deliver reliable, low-cost power from a wide range of energy sources; and water systems that drive in-dustrial processes as well as the daily functions in our homes. We must commit today to make our vision of the future a real-ity—an American infrastructure system that is sustainable and the source of our prosperity.

EMILY FEENSTRA is director of infrastructure initiatives for

the American Society of Civil Engineers.

For the U.S. economy to be the most competitive in the world, we need a first-class infrastructure system.

Our Nation’s Neglected Infrastructure CONTINUED

28 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

Wanted: actuaries with visionAs a top actuary, you’ve got vision and drive. Join EY’s Insurance and Actuarial Advisory Services team and become an integral member of an insurance practice full of people who share your passion for helping clients reach their potential. Unite with the power of our leading national Advisory team, and we’ll make your career shine.

Find out more at ey.com/us/insurance or contact Richard Dannenberg at [email protected].

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By Jeff Reeves

Top Traits of Successful Actuary Executives

As professional risk managers, actuaries are adept at thinking ahead. Whether it’s estimating property damage from future hurricanes or pre-dicting investment performance, actuaries are very much in the business of planning for the future.

But when it comes to career paths for actuaries, even some of the best in the profession find themselves in unexpected places.

And increasingly, that includes the CEO’s office.Actuarial science has moved from backrooms into the boardroom in

recent years as companies of all stripes are increasingly reliant on data to make the best business decisions. And while the most common places to find actuaries in the top job are at insurers (as you might expect), the pro-fession is playing an increasing role in the management of many different companies around the world.

That means more actuaries spending their time assessing a company’s employees and long-term strategy, and not just individual risks.

30 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

SHUTTERSTOCK

Of course, it’s hard to tell exactly when the opportunity for a leadership position will come knocking, or what form it will take when that opportunity arrives. One good example of this is Larry Zimpleman, chairman and chief execu-tive officer of the Principal Financial Group and a past president of the Academy.

After starting at Principal Financial as an intern while still attending Drake University, he finished his exams in 1976 and planned to settle in to a career as an actuary. But graduating immediately after the passage of the Employee Retirement Income Security Act, also known as ERISA, meant there would be plenty of shake-ups at Principal and the entire financial sector at large across the next several years.

Thanks to increased fiduciary responsibili-ties and new minimum standards, the entire catalog of retirement products at Principal had to be redesigned. So Zimpleman was asked to move over to the retirement business in 1977 to help the company adjust to all these changes.

“Over the next 25 years, I had increasing responsibility, including helping to build our 401(k) business, which was started in the early 1980s,” he said.

Over the next two decades, 401(k)s exploded in popular-ity. Zimpleman’s experience growing retirement products at home eventually landed him a job assisting Principal expand its international busi-ness, and then as company president in 2006.

In 2008 he was named CEO of Principal Fi-nancial, and in 2009 he had earned the title of chairman as well.

“I never had any expectation of becoming CEO,” Zimpleman said. “My only focus was to do the best I could at my current job—and I had confidence that if I did a good job, that would be recognized and I’d be given the next opportunity.”

As for what he thinks makes a good leader, Zimpleman cautions against simply relying on intelligence alone.

“Those that I see that are successful are, of course, all very smart. But they are also good lis-teners and good communicators,” Zimpleman said. It’s crucial, he said, “to take complicated topics—which actuaries deal with regularly—and explain them in clear terms to others who are not a subject-matter expert.”

“I think part of the ‘training’ for this is simply to get outside your comfort zone and use that as a development experience,” Zimpleman added.

That idea of trying new things is also what helped Andy Ribaudo rise to the level of chief financial officer at U.K.-based Marketform, a syndicate at Lloyd’s of London.

Ribaudo isn’t just an actuary with his FCAS certification, but is also a chartered financial analyst and certified public accountant after pursuing various opportunities in the financial sector over the past two decades.

“When I started out, I just waned a job where I could do math all day and get paid for it,” Rib-audo said. “I thought I would be a technical

person, but I spend much more of my time man-aging people, projects, etc. Because of my varied background, I am often asked to be involved in projects way outside my expertise, and I always enjoy the opportunity to learn something new.”

Ribaudo similarly stresses the importance of being able to communicate well with both internal partners and external clients as a key part of his professional development.

SEP | OCT.15 C O N T I N G E N C I E S 31

“I think part of the ‘training’ for this is simply to get outside your

comfort zone and use that as a development experience.”

—LARRY ZIMPLEMAN, chairman and chief executive officer of the Principal Financial Group

and a past president of the Academy

From the Actuarial Office to the C-Suite CONTINUED

“My first job out of school was a consultant, and I had to spend a lot of time on the phone and dealing with our clients. Definitely way outside my comfort zone, but it taught me that the techni-cal bit is only a small part of the job,” he said. “Learning to speak to people, to present technically difficult things to non-experts, and just to focus on the big picture were all important lessons.”

In fact, Ribaudo joked, he’s “somewhat famous” within Mar-ketform’s parent company, Great American Insurance Group, for using examples from baseball to explain arcane concepts like IBNR—that is, incurred but not reported claims.

“My biggest piece of advice is to look at the actuarial exams as the beginning, not the end, of your lifelong learning,” he said. “Too many actuaries finish the exams and are burned out on education, but if you’re willing to learn even more, you can have a lot more success.”

These stories of executives challenging themselves to try new things and see the big picture may sound like platitudes out of a self-help book. But in truth, plenty of researchers have arrived at similar conclusions.

And most important, these studies point to the power of seeing the big picture and assess-ing risk—not just frantically trying new things or fervently following a rigid vision with no room for argument (habits some tech CEOs are infamous for).

In the book Better Under Pressure, researcher and manage-ment consultant Justin Menkes studied 200 top executives seeking CEO jobs and found three common traits among the best candidates: optimism, a sense of purpose, and the ability to find order in chaos.

While optimism is hard to teach, it’s undeniable that the pro-fession teaches big-picture perspective and a tendency toward making complicated data into orderly action plans. This kind of logical and reasoned approach to the corner office is perhaps not as glamorous as Steve Jobs micromanaging Apple with a singular vision, but is much more common—and, frankly, more effective, according to most executive research.

Another interesting study that points to the importance of the actuarial mind-set is a survey of over 130 CEOs by execu-tive search firm Russell Reynolds Associates1 that cites the No. 1 trait of a successful CEO as “calculated risk taking,” followed by “biased toward (thoughtful) action.”

Notice the focus isn’t on just doing things, but doing the right things by assessing risk and moving accordingly.

All good actuaries are well practiced at organizing informa-tion, calculating probabilities, and thinking logically about the facts at hand. And those skills are some of the most powerful tools to have in your executive toolbox.

Where Luck and Opportunity MeetOf course, being calculating in your career and gunning for the corner office will get you only so far.

Ribaudo of Marketform has had many valuable experiences and boasts plenty of letters after his name, but he advises to “not un-derestimate the role of luck” and how “luck benefits the prepared.”

He tells the story of visiting another division of the parent com-pany out of state, and driving back to the offices from the airport.

“My boss told me to get in one of the cars, as the CEO was

in that one, and it would be good for me to have some face time with him” Ribaudo said. “I ended up sitting next to him in the limo, and we had a very good conversation, and he was im-pressed by some of the things I told him.”

Subsequently, Ribaudo went on to help with a stock split for the company’s parent, and worked on analyzing acquisition targets.

“Had I sat in the other car, I never would have gotten that opportunity,” he said. “Sometimes you need a little luck—and that’s OK.”

In fact, many actuaries in C-suite positions have similar sto-ries of serendipitous meetings and projects that ultimately led them to top positions—many of which they had never before imagined being on their résumé.

“Growing up, I actually wanted to be a doctor,” said Margaret Meister, executive vice president and chief financial officer of Symetra Financial. “I discovered that I couldn’t stand the sight of blood fairly early on in college and focused on math instead.”

In fact, Meister didn’t study actuary science in college and arrived at the profession later, after trying to “figure out what to do with a math degree.”

But once she settled on the actuarial profession, she was ea-ger to make the most of it.

“I moved around quite a bit, working in different areas like product pricing, financial reporting, company projects, etc.,” she said. But it was Symetra’s move from an independent company to a publicly traded one that really gave Meister the opportunity to participate in high-level assignments that were more than just the typical duties of an actuary.

She was named CFO in 2006 but has kept learning and seiz-ing new opportunities even in this top role. Meister is also the

32 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

“Your curiosity and your passion for the business much more broadly

is what opens the door to higher-level actuarial jobs or executive jobs.”

—MARGARET MEISTER, executive vice president and chief financial officer of Symetra Financial

“My biggest piece of advice is to look at the actuarial exams as the beginning, not the end, of your lifelong learning.” —ANDY RIBAUDO, chief financial officer at U.K.-based Marketform, a syndicate at Lloyd’s of London.

chief risk officer, principal accounting officer, and overseer of information technology of Symetra.

And even after nearly three decades at Symetra, Meister’s career hasn’t stopped evolving.

“Every single one of the last 27 years has been different; each has brought its own challenges, accomplishments, and new things to learn,” she said. “I think all good actuaries share an enormous sense of curiosity.”

Stay Curious, and Stay FocusedAdvancing to the highest levels of management doesn’t require any special skill, but it does require a special mind-set, she adds.

“Your technical training is the specialized skill set you bring to the table; it’s the price of entry,” Meister said. “Your curiosity and your passion for the business much more broad-ly is what opens the door to higher-level actuarial jobs or executive jobs.”

In other words, talk yourself into things and not out of them if you want to get that corner office.

She adds that even if you’re not 100 percent sure where you want to go, “If you’ve ever only considered that you want something … there’s re-ally only one answer: ‘Yes,’” Meister said. “Because that opens the door to the journey of whatever your future potential is.”

And that journey is always full of surprises, it seems. After a host of executive interviews, it seems clear that many of those at the highest levels of man-agement would have predicted a completely different career path when they first started 20 or 30 years ago.

Ed Bonach has been chief executive officer and a director of CNO Financial Group since October 2011, and admits one of the reasons he even considered joining the actuarial field was hearing about it randomly in one of many college recruiting ses-sions he attended in high school—“admittedly, at times, to get out of class.”

Bonach said he “was good in math and liked business,” and his academic adviser at college, who didn’t know much more about the profession than he did, looked into some preparation classes for actuarial exams.

Little did he know at the time the path would lead to a 39-year career, with 27 as a top-level executive in the financial industry. Bonach has done everything from leading merger ef-forts to dealing with activist shareholders.

Bonach, like other executives interviewed here, credits a willingness to take whatever came his way as a big reason for his success.

“I was always learning about and staying close to the busi-ness,” he said, advising young actuaries to do the same.

“Have curiosity, and keep learning,” Bonach advises. “Ca-reers don’t usually happen in a straight line.”

Of course, it helps to learn new things when you have a will-ing teacher, Bonach points out, and he is particularly thankful to the colleagues who helped him succeed along the way.

“I would be remiss if I didn’t also note the importance in my career of having some mentors. By mentors I do not mean in any formal or contractual sense; I mean mentors in people who, especially upon reflection, you see had interest and influence in your career and development,” Bonach said.

While working at a division of Allianz Life in Germany, Bonach said, the CEO asked him to send him a letter each month—“Skype, FaceTime did not exist” in the 1980s, he points out—to explain what he was learning overseas.

“He also committed to send me a letter each month to keep me up to speed on what was going on back at Allianz Life and in the U.S. insurance industry,” Bonach said. “I still have his letters!”

It’s important to always be on the lookout for smart people and valuable opportunities if you are serious about moving up in your career, he adds, and remember it’s ultimately up to you how far you want to go. Simply passing the exams is enough for some people—and considering the high levels of compensation and

job satisfaction for even entry-level actuaries, it’s not surpris-ing that some people feel that they have accomplished enough.

But the mentality of a successful manager and top executive is necessarily different.

“You own your career. No one is more invested, influential, or interested in it than you,” Bonach said. “Make sure you add value and do the majority of your job well, with focus and passion.”

And it always helps, he adds, when you love what you do.“While not everything anyone does is enjoyable, I strongly

believe that you need to have considerable fun along the way,” Bonach said. “You have to largely enjoy what you do and who you work with and for. If not, it is best, in my opinion, to move to something or somewhere else.”

The consensus among top-level executives who used to be actuaries, then, is deceptively simple: Keep learning even after your accreditation exams are over, and never say no to a good opportunity.

That kind of attitude will take you far—maybe even to the corner office someday.

JEFF REEVES is a financial journalist and the executive editor

of InvestorPlace.com. His work has appeared on CNBC, the Wall

Street Journal media network, USA Today and the Fox Business

Network.

Endnotes1. “Making It to the Top: Nine Attributes That Differentiate CEOs.” Found at http://www.russellreynolds.com/contentaking-it-top-nine-attributes- differentiate-ceos.

SEP | OCT.15 C O N T I N G E N C I E S 33

“Have curiosity, and keep learning. Careers don’t usually happen

in a straight line.”—ED BONACH, chief executive officer and

a director of CNO Financial Group

THE $200+ BILLION U.S. vehicle insurance industry is in the early stages

of an accelerating decline. Why? Because Advanced Collision Avoidance

(ACA) technology is making driving much safer.

For insurers, the timing isn’t this quar-ter’s challenge, but signifi cant eff ects will

begin to be felt much sooner than many ex-ecutives expect. And the magnitude of the

impact calls for action now. In this piece, we off er several steps that can be taken to improve

performance during this tumultuous transition for the casualty insurance market.

Clarifying Driver Assistance and AutomationVehicle technology is at a dramatic infl ection point. Much

of the recent press has been about vehicle automation—spe-cifi cally full automation, where you sit back and watch a movie

in the front seat. A vehicle that does the driving for you seems so far from today’s experience that many believe a leap to such technology must certainly be in the very distant future.

While it’s true that broadly available, consumer-ready, fully automated vehicles are at least a decade away, an increasing

number of vehicles on the market and on the streets already em-ploy advanced collision avoidance (ACA) systems, also known as active safety systems. These are the vehicles that are reduc-ing crashes, reducing risk, and soon will be reducing premiums.

In other words, the advent of crash reductions due to vehicle intelligence occurred yesterday.

If you’ve seen or driven in a late-model vehicle with a safety system called Forward Collision Avoidance (FCA), you’ve seen a vehicle with an ACA system. ACA systems are “always on” systems that monitor road conditions with a variety of sensors and assist the driver in potentially dangerous situations by as-suming control of key functions to avoid accidents. You are still driving, but the car is prepared to apply brakes at partial or full power if you don’t see the vehicle stopping in front of you, or steer you back into the lane if you are drifting.

Think of these types of systems as “temporary co-pilots.” They make you a safer driver and help you avoid accidents, but they don’t drive the car for you. Most importantly, it is these

How Improved Vehicle Tech Is Changing the Casualty MarketBy Thomas Gage and Richard Bishop

SEP | OCT.15 C O N T I N G E N C I E S 35

FIGURE 1

Summary of Crash Avoidance Technology and Automation LevelsThe largest effects on crash reduction will occur at Level 1, ACA Levels 2-4 will provide more automation and more convenience

TechnologyNHTSA

Automation Level System StatusTechnology

Function Driver Attention Required

Crash Avoidance (CA)Level 0: Non-automation

Always on* Warning Brain on Eyes on Hands on

Advanced Crash Avoidance (ACA)

Level 1: Function-Specific Automation

Always on*Brief

Emergency Control

Brain on Eyes on Hands on

Semi-Automated Vehicles (SAV)

Level 2: Combined Function Automation

Driver activated

Monitored Automation

Brain on Eyes on Hands off

Semi-Automated Vehicles (SAV)

Level 3: Limited Self-Driving Automation

Driver activated

Highly Automated

DrivingBrain on Eyes off Hands off

Automated Vehicles (AV)

Level 4: Full Self-Driving Automation

Driver activated or always on*

Full Auto-pilot Brain off Eyes off Hands off

*Drivers have the option of manual or “always on” at the time of turning on the vehicle and at other times.

Source: National Highway Traffic Safety Administration (U.S. Department of Transportation). Marconi Pacific clarification and additions.

systems—not semi-automated or fully automated vehicles—that will begin to significantly reduce accidents through computer control. The ultimate goal for these systems is to intervene mo-mentarily in crisis situations to completely avoid accidents. Many current systems can do this now up to a certain speed, and in some vehicles emergency braking can intervene at any speed.

But even if a system is not successful at avoiding a collision outright, the system can reduce a vehicle’s speed and turn a more severe accident into a lesser one—across the full range of highway speeds. This is simple physics: The kinetic energy of a vehicle im-pact increases exponentially as velocity increases. So if an FCA system slows a car from 75 mph to 50 mph before impacting an ob-ject, the amount of kinetic energy at impact is decreased by more than half. If the technology can slow the vehicle to 25 mph, the im-pact force is reduced 90 percent. As the technology is offered and purchased on an increasing number of new vehicles and diffuses through the vehicle fleet, many of the most common accidents will be made less severe, or avoided outright, by computer-enabled intervention in the driving task during crisis situations.

Advanced Collision Avoidance—An ExampleA lot of data already available on ACA technology prove its effectiveness.

Volvo’s “City Safety” automatic braking system has been standard equipment on the XC60 since 2010 and the S60 since 2011. This system uses a laser sensor to detect objects up to 500 feet in front of the vehicle and will pre-charge and activate the brakes if necessary to prevent or mitigate a forward collision.1 The system is able to completely avoid collisions without driver intervention at speeds up to 30 mph and significantly decrease

the severity of collisions at any speed greater than 30 mph.Data indicate that City Safety is delivering on its name. Volvo

estimates that 75 percent of all reported collisions occur at speeds of 19 mph or below, well within the capability of City Safety.2 More important, the Highway Loss Data Institute (HLDI) has analyzed claims data for City Safety-equipped Volvos and found significant reductions in frequency and severity across all claim types. HL-DI’s statistical analysis suggests that “if all vehicles were equipped with a system like City Safety, more than one-sixth of all physical damage claims and more than one-fifth of all injury claims would be eliminated.”3 This one collision avoidance system is already significantly reducing claims based on real-world data, and oth-er automakers now offer similar systems. Low-speed automatic braking represents only a single example of the array of collision avoidance systems on the market today.

A more comprehensive modeling study, performed by the Insurance Institute for Highway Safety (IIHS) based mostly on 2009 available ACA systems, looked at the various types of vehicle accidents that occur in a given year and asked how ACA systems might address each type. The findings suggested that three main ACA technologies—forward collision warning/mitigation, side view assist, and lane departure warning/prevention—could re-duce all crashes by 30 percent if implemented in all vehicles.4

It has taken time for these studies on early ACA systems to accumulate enough data to deliver conclusions about ACA effec-tiveness. But now the data are clear. Most importantly, systems currently in dealer showrooms or systems that will be avail-able in the near future far surpass the capabilities in these early systems studied. The impact of these technologies will provide even greater collision avoidance benefits.

One Way CONTINUED

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FIGURE 3

Vehicle Technology Evolution Path

CRASH AVOIDANCECrash Avoidance (CA) warns the driver of an impending crash

Advanced Crash Avoidance (ACA) intervenes to control the vehicle for a short duration to avoid an impending crash

AUTOMATIONInitially some roads and some driving environments

Evolving to all roads and all driving environments

Driver role evolves from monitoring automation (from driver’s seat) to simply being a passenger (in any seat)

In Showrooms Now at an Affordable CostWhile automakers race each other to introduce the fi rst versions of full vehicle automation, every major automaker is off ering one or more ACA systems on at least one model this year. ACA is becom-ing such a recognized and broadly available safety feature (known by many diff erent sub-brand names) that the IIHS amended its safety rating methodology last year so that only vehicles that of-fered a front crash prevention system were eligible for its highest “Top Safety Pick +” rating. In 2014, out of 68 Top Safety Picks, an impressive 43 diff erent models, from the Honda Civic to the Infi nity Q70, off ered front crash prevention systems (largely as optional equipment) and were awarded Top Safety Pick +. Fur-thermore, while Volvo has stood alone in making its ACA systems standard equipment on some models since 2010, other automakers are rapidly following suit. Mercedes has made a forward collision

prevention system standard on its entry-level CLA-class sedans, and decreasing costs will allow these systems to become standard equipment for models at lower price points in the near future.

Today’s average ACA safety package costs about $3,000 to $3,500. Marconi Pacifi c research indicates this current price is de-clining at 7 to 9 percent per year, such that by the end of the decade, prices for these ACA system packages will hover around $2,000.

As automakers implement cost savings from high-volume production and improve the software that already enables ACA functionality, an increasing number of vehicles are being manu-factured that can respond to imminent crash situations. As these systems roll out in more vehicle models, vehicle crash frequency and severity can be expected to decrease at a rate much faster than the historical average. But how fast, and when will the ef-fects begin to be felt?

FIGURE 2

Kinetic Energy Effect of Increasing SpeedThe kinetic energy generated by a 4,000 lb. vehicle. Decreasing speed by even a small amount

in a high-speed crash dramatically decreases the kinetic energy of the impact.

Kinetic Energy (Kilojoules)

2000

1800

1600

1400

1200

1000

800

600

400

200

0

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

Source: Marconi PacificSpeed (mph)

SEP | OCT.15 C O N T I N G E N C I E S 37

Diffusion FindingsACA is increasingly available as standard equipment on luxury vehicles and as optional equipment on mass-market vehicles. However, the lag between a new technology becoming avail-able and that technology having a meaningful presence in the overall U.S. vehicle fleet can be long, determined both by the pace of technology introduction and rate of consumer adoption.

Marconi Pacific has modeled a set of scenarios for ACA tech-nology diffusion using well-established patterns of technology adoption and factors specific to this technology and to custom-ers’ new-vehicle buying patterns. We have evaluated population growth, vehicle sales, estimated introduction years for increas-ingly sophisticated generations of ACA technology, component costs, regulation, consumer segments, and other factors.

We forecast that within just over a decade, fully half of all new vehicles sold will be equipped with collision avoidance technology, and nearly one-fifth of the entire U.S. passenger vehicle fleet will be enabled with at least one generation of col-lision avoidance technology, depending on the scenario.

Going a step further, Marconi Pacific analyzed and developed data on the efficacy of current and the forecast efficacy for future ACA systems to reduce accidents. We applied these findings to the model of technology diffusion. For a given percentage of vehicles on the road with ACA, what does this mean for the number of acci-dents avoided compared with a baseline of no technology? Simply put, how many crashes will this technology prevent, and by when?

While full automation will still be in its infancy in 2025, we forecast that 10 to 15 percent of total crashes for that year will be avoided specifically due to collision avoidance systems. By 2035, ACA could reduce all crashes by between 35 and 50 percent

as compared with a baseline “no ACA” scenario for that year. This ACA effect is in addition to the general decline in accident frequency due to better road planning, driver education, and non-ACA vehicle safety improvements. The exact forecast depends on the scenario chosen and the specific run of the model. Even if claims costs continue to increase at historical rates, decreases of this magnitude will drive a significant reduction in premiums.

Automation Will Disrupt Traditional Market Dynamics Now let’s consider the big innovation area—automated driving. Will uptake be strong? We think so; after all, no other technology feature ever offered on automobiles has allowed drivers to do something different with their eyes and brains! As noted above, ACA is part of any technology package that offers automation. So as semi- and fully automated vehicles (SAV and AV) come along, we will see even more of the core technology that ACA systems are based on present on these vehicles, further reducing crashes.

Vehicles will progress from simply augmenting the driver’s own actions in crisis situations to taking over a significant and increasing portion of the driving workload. If you’ve had the pleasure of driving a late-model BMW or Mercedes with Traffic Jam Assist (TJA), you’ve driven the early commercial versions of a Semi-Automated Vehicle (SAV). You can cede control of the accelerator, brake, and steering to the car in stop-and-go high-way traffic, and the car will keep pace with traffic while making sure you stay in the lane. Drivers using this level of automation must be prepared to take control in short notice; so no movies in the front seat quite yet. The emphasis of these systems is not on crash avoidance, which uses the same technology components

FIGURE 4

Example SAV Technology IntroductionsA partial list of technology introductions. Industry leaders are debuting

sophisticated semi-automated systems that build on existing ACA technology.

Manufacturer Technology Introduction Year

AudiTraffic Jam Assist (slow speed adaptive cruise control with braking and lane centering)

2015

BMWTraffic Jam Assist Highway Pilot

2013 2015

GMSuper Cruise (full-speed adaptive cruise control with braking and lane centering)

2016

Honda/Acura Adaptive Cruise Control and Lane Centering 2013

Hyundai Adaptive Cruise Control and Lane Centering 2014

Mercedes Traffic Jam Assist plus Adaptive Cruise Control and Lane Centering 2013

Tesla Freeway autopilot (specific details not released)2015

(via software update)

Volvo Traffic Jam Assist 2014

VW Traffic Jam Assist 2014

Source: Automaker vehicle introductions or announcements

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38 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

as ACA. Instead, these systems are convenience-oriented, begin-ning to remove the tedium of driving and eventually freeing up drive time for other activities.

Within about five years, drivers will be able to hand control of a substantial amount of the driving over to the SAVs under a limited but fast-increasing number of driving environments. For example, we will see cars with autopilot that can be turned on once you’ve merged onto the freeway; within the subsequent three or so years, a more advanced version can be expected that can be turned on earlier and do the merging for you. And we’ll see vehicle self-parking at very low speeds in some parking environments, such that you will be able to step out of the vehicle at a garage entrance and instruct the vehicle to find a parking place on its own. Some of these advances in capability may even be retroactively applied to earlier models through over-the-air software updates.

Countervailing FactorsDespite a historical decrease in accidents, the auto insurance in-dustry has managed to grow for over half a century. Three broad trends have supported this steady premium growth, even as the balance of claim frequency and severity has changed drastically. 1. The severity of bodily injury claims has driven a large part of

overall premium growth due to the rising cost of medical care. Health care costs have skyrocketed since 1965, with real per capita health expenditures growing at 4.5 percent annually between 1965 and 2010.5

2. Property damage claim severity has also seen a drastic increase, bolstering premium growth at a time of decreasing claim frequency. Complex electronics, lightweight construction ma-terials, and comprehensive airbag systems have been added to vehicles, increasing safety and fuel efficiency but decreasing vehicle survivability in the event of an accident. Even when vehicles can technically be repaired, the costs to do so end up rivaling the actual cash value, leading to a total loss claim

3. Population growth and the shift from one-car to two-plus-car households has expanded the number of vehicles on the road even as driving has become safer. Urbanization, car sharing, and alternative transportation networks like Uber are likely to begin slowing the historical trend.In some scenarios these historical trends continue to drive pre-

mium growth. But the downward pressure from ACA technology as it diffuses through the vehicle fleet and delivers decreases in accident frequency and severity will be the greatest determinant of the trajectory of the current $200 billion of industry premium.

Immediate Steps for the Insurance Industry to TakeTechnology will continue to disrupt many industries. The ex-amples are multifold: Pagers have succumbed to mobile phones, newspapers to digital content, some high-capital oil projects to lower-cost fracking. In each of these cases the old industry re-mains—but it is not as robust, and in some cases is a shadow of its former self. Will this be the case for motor insurance?

Vehicle crash avoidance technology—ACA and its many suc-cessor generations—will reduce accidents and the consequent risk that premiums are based on. There is some room to debate

the timing of the impact, but not too much and certainly not the direction of the change. Technology is the disruptor.

So what might an insurance industry executive begin to do? We believe there are six steps to take now.1. While full automation is the media fascination, recognize that

long before there is significant automation penetration, the frequency and severity of auto accidents will be markedly re-duced by ACA systems that are already on the market and their many ACA-equipped successors.

2. Learn about ACA technology and its benefits. Equip yourself and your executive team with ACA-equipped vehicles, and understand how they perform.

3. Understand the timing of introductions of the technology, the adoption by drivers, and the diffusion through the fleet, across the full range of vehicles you insure.

4. Evaluate your own book. Based on IIHS and independent research, there are data to be gleaned on the effectiveness of ACA systems.

5. Develop long-term strategies regarding vehicle automation and the implications for vehicle ownership models, crash li-ability, insurance needs, and potential new risks.

6. Investigate the blocks of premium that can be built or en-hanced from other lines to replace likely premium losses from less motor insurance.Remember Blackberry? Its co-CEOs were caught flat-footed

when the iPhone was introduced. One CEO was worried, the oth-er was sure that touch screens and apps were not the wave of the future. To say they didn’t move fast enough is an understatement; Blackberry has lost 95% of its market value from its peak in 2008.

While the absolute impact of vehicle crash avoidance technolo-gies will take time to be felt as the fleet slowly turns over—Blackberry didn’t lose its market value overnight—there is little doubt that sen-sors, processors, and software will work together to save drivers from many common crash situations. While these changes are an unalloyed positive development for society, the insurance industry will nevertheless have to cope with significant disruptions to its traditional business model as premiums decline. A proactive un-derstanding of ACA technology, the timing of its impact on the fleet, and how these changes will reverberate through the insurance and adjacent industries will separate companies that adapt to vehicle innovation from companies that will be left behind.

THOMAS GAGE is CEO and managing director of Marconi Pacific;

RICHARD BISHOP is a principal at Marconi Pacific. Senior

Associate JONATHAN MORRIS contributed to this article.

Endnotes1. Intellisafe. Retrieved from http://www.volvocars.com/us/about/our-innovations/intellisafe, Aug. 12, 2015.2. Volvo Cars Presents City Safety. Retrieved from https://www.media.volvocars.com/global/en-gb/media/pressreleases/13829, Aug. 12, 2015.3. Volvo City Safety loss experience—a long-term update, April 2015, HLDI Bulletin, Vol. 32, No.1.4. IIHS. Crash Avoidance Potential of Four Passenger Vehicles Technologies, May 2011, Jessica S. Jermakian. Journal of Accident Analysis and Prevention (#43).5. Trends in Health Care Cost Growth and the Role of the Affordable Care Act, White House Council of Economic Advisers. Retrieved from https://www.whitehouse.gov/sites/default/files/docs/healthcostreport_final_noembargo_v2.pdf, Aug. 12, 2015.

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COMMUNICATING LONGEVITY RISK

40 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

BEYOND

THE DEFINITIONS

By Liaw Huang and Tom Terry

DESPITE THE WELL-INTENTIONED EFFORT TO RAISE AWARENESS of longevity risk both in the financial community and with the public at large, the concept of longevity risk remains elusive. It has proved to be a difficult concept to communicate. Longevity risk seems to take on a dif-

ferent meaning depending on the context. What do we mean when we say “longevity risk”? Is there a master definition,

as Humpty Dumpty would ask, that trumps all the others? Consider the following potential statements:

■■ “If retirement assets are able to achieve higher rates of return, then longevity risk will be reduced.”

■■ “Pension plan sponsors realize the magnitude of the pension plan’s longevity risk when the pension liabilities are measured using realistic mortality im-provement assumptions.”

■■ “When asked about longevity risk, the survey participants indicate that declin-ing health is their No. 1 concern.”

■■ “Can individuals purchase longevity bonds or other capital market instruments to hedge against their longevity risk?”

The validity of the above statements depends on what is meant by longev-ity risk, and in each case longevity risk appears to take on a different meaning. These examples are illustrations of what we perceive to be two related problems:

1. The multiple meanings of the term “longevity risk” create barriers in communication.

2. Individuals and institutions often misunderstand the nature and characteris-tics of longevity risk. This impedes the understanding and acceptance of the various so-called longevity risk solutions.

Regardless of the context, people’s behaviors are influenced by their percep-tions and presuppositions about longevity and about risk. If we want to optimize the effectiveness of longevity risk solutions, we first need to appreciate how people understand longevity risk. Often people’s worldviews shape their percep-tions and responses to risks. A risk management theory from social anthropology, called plural rationality, may offer helpful insight into the different perspectives on longevity risk—and so may be useful in addressing the communication and understanding gaps.

In this series we will examine:

■■ The various meanings of longevity risk;

■■ Some presuppositions and implications about the nature of longevity risk;

■■ Four different “worldviews” of longevity risk as suggested by plural rational-ity theory; and

■■ Suggestions for moving forward.

‘ When I use a word,’ Humpty Dumpty said in rather a scornful tone,

‘ it means just what I choose it to mean—neither more nor less.’

‘ The question is,’ said Alice,

‘ whether you CAN make words mean so many different things.’

‘ The question is,’ said Humpty Dumpty,

‘ which is to be master—that’s all.’

— Lewis Carroll, Through the Looking-Glass

[Editor’s note: This is the first of a two-part series on longevity risk.]

LONGEVITY RISK

SEP | OCT.15 C O N T I N G E N C I E S 41THINKSTOCK

What Do We Mean by ‘Longevity Risk’?What is longevity risk? How is the concept of longevity risk communicated?

Longevity refers to a long life.1 So, in general, longevity risk may be construed as risk associated with a long human life. Our scanning of public discussions and writings on this topic reveals four broad categories of meaning.■ Longevity risk as individuals outliving their fi nancial resources

(also called “individual” or “idiosyncratic longevity risk”);■ Longevity risk as mortality improving more than expected, or

uncertainty about future mortality improvements (also called “systematic,” “aggregate,” or “pooled longevity risk”);

■ Longevity risk as the additional cost to a society or, more nar-rowly, a pension system, when mortality improvements are underestimated;

■ Longevity risk as the adverse consequences of living a long time.These four categories suggest four frames in which longev-

ity risk may be understood. We depict these four frames by the curves in Figure 1.

Let’s examine each of these four frames in more detail.

Individual or Idiosyncratic Longevity RiskA common use of the term “longevity risk” is to describe the like-lihood of an individual outliving his or her fi nancial resources, or his or her failure to leave behind intended bequests due to

increased lifetime spending. Employing the term “longevity risk” here is an essential ingredient in building the case for the pur-chase of annuity products and other lifetime income solutions.

Typically, the discussion begins with an assertion about a retiree’s life expectancy, followed by an assertion that there is a signifi cant probability that the retiree will outlive his or her fi nancial resources. This probability is then defi ned as longev-ity risk. Used this way, longevity risk is an individual risk, also known as idiosyncratic longevity risk. It is distinct from sys-tematic longevity risk, which is associated with the pooling of individual risks.

Here are two examples of this usage:The United States government has announced steps to make

it easier for families to save for retirement. In attempting to pro-mote greater public understanding of lifetime income needs, the government defi nes longevity risk as the risk of retirees outliv-ing their assets:

Particularly as the baby boomers approach retirement, and as life expectancies and retirement periods lengthen, Americans are increasingly confronting the risk of outliv-ing their assets in retirement (“longevity risk”) and are seeking more help and better strategies for managing their savings in retirement. 2

Similarly, fi nancial advisers promote lifetime income prod-uct solutions by referring to longevity risk as the risk of outliving

FIGURE 1

Longevity CurvesREPRESENTATION DESCRIPTION COMMON SYMPTOMS

Individual Longevity Risk: Variability in an individual’s life span

Outliving one’s retirement assets

Pooled Longevity Risk: Uncertainty in mortality improvement

Uncertainty in a pension plan’s benefit payments due to mortality; inability to manage all risks in a pension system

Additional Cost to a Society or a Pension System When Mortality Improvements Are Underestimated

Underreporting of pension and retiree health liabilities; much higher financial burden than expected in a country’s social insurance program

Adverse Consequences of Living a Long Time

Health risks, inadequate retirement savings, risk of elder abuse, loss of companionship, long-term care needs, and other problems associated with a long life

Communicating Longevity Risk CONTINUED

42 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

one’s assets. A typical example is Fidelity Investments’ discus-sion of annuitizing a portion of one’s retirement portfolio:

Annuitizing a portion of your portfolio can provide a source of guaranteed income that may help protect you against lon-gevity risk—the risk that you will outlive your money. 3

Notice that this use of the term “longevity risk” is closely aligned with a consequence of longevity: outliving one’s assets. This consequence is a financial concern. Assuring that one’s re-tirement assets last a lifetime will be directly affected by the length of the planning time horizon, but it also depends on other factors, such as asset allocation and investment returns. To un-derstand how longevity impacts the likelihood of outliving one’s assets, retirees need to understand and appreciate the variability of their own life span.

The main characteristic of individual longevity risk is the variability of the individual life span. For example, the follow-ing realities can be readily calculated from standard mortality tables, but these realities are seldom communicated to retirees.

■■ The standard deviation of the life span of an individual age 65 is between 9 and 10 years. Translated: There is a wide range of death ages for an individual age 65.

■■ For a retiree age 65 with a life expectancy of 20 years, the probability of dying at the life expectancy age is less than 4.5 percent. Between age 80 and 90, where the retiree is most likely to die, the probability of dying during any one year of age is approximately 4 percent.

We represent individual longevity risk by a curve with wide variability (a “Flat

Curve”). The arrow below the curve represents the fact that an individual’s actual life span can be either longer or shorter than expected.

When financial advisers ask retirees to consider life expec-tancy, they unintentionally steer retirees toward the concept of “expected value” and away from the concept of “variability.” While they may be unable to articulate the concept of life span variability, retirees inherently have a strong sense of the variabil-ity of their remaining life based on their personal circumstances and life experiences.

So, while the financial advisercommunicates this:

The retiree’s experience and picture is actually this:

This disparity in concepts creates confusion for the retiree and may undermine the credibility of the financial adviser in the eyes of the retiree and dampen the effectiveness of the financial adviser’s message.

Pooling is generally thought to be the most effective means of dealing with the variability of the individual life span. While the timing of an individual death is highly variable, the timing of deaths taken collectively for a large group becomes more and more predictable as the size of the group increases. Individuals benefit from the collective management of individual longevity risks.

Systematic or Aggregate Longevity Risk (Pooled Individual Longevity Risk)Assuming that individual longevity risks have been pooled, what remains is usually called “systematic longevity risk” (also called “aggregate longevity risk” or “trend risk”). Systematic longevity risk is the risk that actual mortality experience of the popula-tion in question differs from what is expected. This difference arises because of uncertainty associated with future mortality improvements; these improvements can potentially be higher or lower than expected.

In the context of a typical mortality table, an individual life span may vary according to the table’s probabilities of death. However, the mortality table itself changes each year in uncer-tain ways. The risk associated with uncertain future mortality tables is the systematic longevity risk.

We represent systematic longevity risk by a curve with much less variability (a “Skinny Curve”). The arrows represent the uncer-

tainty in the mean. The curve does not represent life spans but is meant to illustrate more predictability in the aggregate.

Pooling to manage the variability of individual life spans is what an economist would call a “diversification free lunch,” but such a device is not available to manage systematic longevity risk. Systematic longevity risk is usually dealt with by trans-ferring the risk to others more capable of bearing such risk. A pension plan can transfer its longevity risk to an insurer, to a counterparty in a longevity swaps transaction, or to issuers of longevity bonds. When a pension plan or an insurance company is unable to transfer or share the systematic longevity risk, it may encounter financial surprises resulting from unexpected levels of benefit payments in future years.

Ultimately, society as a whole underwrites this systematic longevity risk because other societal structures absorb this risk. Social insurance systems, future tax receipts, the economic

WHEN FINANCIAL ADVISERS ASK RETIREES TO CONSIDER LIFE EXPECTANCY,

THEY UNINTENTIONALLY STEER RETIREES TOWARD THE CONCEPT OF “EXPECTED VALUE”

AND AWAY FROM THE CONCEPT OF “VARIABILITY.”

SEP | OCT.15 C O N T I N G E N C I E S 43

productivity of future generations, and bequests from the cur-rent generation to the next generation are all vehicles through which this risk is absorbed. It is intergenerational in nature be-cause the resources eventually available to the next generation will be adjusted to refl ect the degree to which the current gen-eration’s living standard is maintained.

Longevity Risk as the Adverse Consequences of Underestimating Mortality ImprovementsWhen economists, demographers, actuaries, and policymakers speak of longevity risk, they often are referring to the degree to which the costs associated with an aging society are understat-ed. The magnitude of such understatements might be estimated, for example, by comparing the life expectancy improvements in the past century with the estimated life expectancy improve-ments for the next 30 to 50 years that are built into current cost projections. Increasing life expectancy puts pressure on a coun-try’s social security, pension, and health care systems. When life expectancy improvements are understated, future governments are burdened with unexpected fi scal pressures.

The logical response to this sense of longevity risk focuses on using robust life expectancy improvement assumptions in fi scal analyses, and on taking steps to lessen adverse fi nancial impacts in case the life expectancy improves much more than expected.

An example of this is the International Monetary Fund’s (IMF’s) 2012 report on longevity risk and its fi nancial impact.4 The IMF defi ned longevity risk as “the risk that actual life spans of individuals or of whole populations will exceed expectations.”5 Their approximations of fi nancial impacts are based on an ex-pectation of a longevity “shock” of three years by 2050. Three years was chosen because it approximates the average under-estimation of longevity that has been observed in the past. The economic cost of maintaining retirement living standards was split into three components: the cost at the 2010 level, the addi-tional cost due to projected longevity improvements from 2010 to 2050, and the additional cost due to a three-year shock to longev-ity.6 The report then discussed fi nancial and policy implications.

The report is careful in its choice of terms. The term “longev-ity shock” is chosen to distinguish it from longevity risk. Looking beyond the defi nitions, what we fi nd is that the message being

communicated is not the uncertainty or variability of future mortality improvements, but the potential adverse fi nancial im-pact of longevity understatement. For example, the report states:

Still, higher longevity at younger ages is clearly not a risk. Longer healthy and productive lives (before retirement) add to incomes, retirement savings, and tax revenues.7

Thus, if no adverse fi nancial impact results from the longev-ity improvements of productive younger workers, then there is no longevity risk associated with them.

This sense of longevity risk is often used in the context of Social Security and the underreporting of pension liabilities.

We represent this notion of longevity risk as a curve skewed to the left (a “Skewed Curve”). The arrow represents the direction of a pre-

sumed “correction” to the understated mortality projectiones.

This picture captures the concern of many policymakers and pension plan sponsors regarding longevity risk: the potential ad-verse consequence of a longevity shock. Therefore the response to this notion of longevity risk involves using more robust mor-tality improvement assumptions and more robust stress-testing scenarios in any analysis of long-term system costs.

Longevity Risk as the Adverse Consequences of Living a Long TimeOur fi nal perspective on longevity risk is broader and in many ways more personal. For example, a 2013 discussion paper on lifetime income by the American Academy of Actuaries states:

A signifi cant concept underpinning lifetime income is “lon-gevity risk,” which has many dimensions and includes the increasing life expectancies of retirees and their spouses, and conceptions and misconceptions of life expectancy and its implications. Longevity also includes the risks of declining health, loss of ability to manage fi nances, and loss of independent living. A very important longevity risk is lifetime income risk. Individuals who underestimate their likelihood of living into the older ages could deplete their assets well before the end of life.8

FIGURE 2

Mitigating Responses to Various Longevity Risks

Flat Curve Response:risk pooling

Skinny Curve Response:risk sharing

Skewed Curve Response:robust assumptions

Rising Curve Response:well-being

Communicating Longevity Risk CONTINUED

44 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

The sense of longevity risk here includes other risks asso-ciated with a long human life, not just financial risks. We see various needs of the elderly increase with age—among them the need for medical care, the need for reliable income for living expenses, the need for caretakers, and the need for family and companionship. In this context, longevity risk represents the extent to which such needs may not be met as an individual ages.

Another example of this perspective can be found in the report “Longevity Risk and Reward for Middle-Income Amer-icans” by Bankers Life and Casualty Company Center for a Secure Retirement:

Comparing all longevity risk, half (57%) of middle-income Americans age 55 and older are concerned about declin-ing health, followed by a lack of money to do things in retirement (47%), lack of energy (46%) and outliving their savings (44%).9

In that study, 500 middle-income American were surveyed and asked about their longevity concerns. The term “longev-ity risk” was used as a general catchall for these concerns. The survey results showed that health, not income, was the top lon-gevity concern. The report used the more specific “financial longevity risk”10 to describe longevity-related concerns due to insufficient retirement savings.

We represent this use of the term “longev-ity risk” by a curve that increases over time or with age (a “Rising Curve”). The rising

curve indicates the individual’s sense that adverse conse-quences of aging will grow over time.

Addressing this sense of longevity risk calls for a holistic approach that may include health and long-term care for the el-derly, attention to friend and family relationships, management of housing and household affairs, prevention of elder abuse, and the making of end-of-life decisions.

The Communication ChallengeConsidering these four very different notions of longevity risk, it is easy to see why communicating longevity risk is such a challenge.

Imagine this scenario. A financial adviser first raises the top-ic of longevity risk with a retiree; that retiree likely has a “Rising Curve” in mind. Forging ahead, the financial adviser then in-troduces the notion of longevity risk solutions in the frame of the “Skinny Curve.” The puzzled retiree can only envision the “Flat Curve” and confusion reigns. No wonder longevity risk is poorly understood.

Or imagine a pension board discussion about a pension plan’s longevity risk. The pension adviser recommends a longevity risk mitigation solution based on a “Skinny Curve” picture, but the pension board soon realizes that its pension li-ability is best represented by the “Skewed Curve” picture and struggles to understand why a “Skinny Curve” solution can solve its “Skewed Curve” problem. Shouldn’t the board concen-trate on the “Skewed Curve” problem first? Meanwhile some older board members begin quietly contemplating their own personal situations: Might the “Skinny Curve” longevity risk solution be applicable to their individual “Flat Curve” and “Ris-ing Curve” situations? And do they individually face a “Skewed Curve” problem as well? The result—massive confusion.

We have described four different notions of longevity risk, each with different characteristics and each evoking different responses. Understanding the frame in which longevity risk is communicated is essential for the successful communication of longevity risk.

In a future issue of Contingencies, we’ll examine some addi-tional challenges in communicating longevity risk, and offer some suggestions for how to frame this important public dialogue. The success of marketplace solutions and public policy initiatives de-pends on a common understanding of these issues.

LIAW HUANG is a principal and senior research associate at

The Terry Group. TOM TERRY is founder and CEO of The Terry

Group. The authors are grateful to professor DAVID BLAKE

for his invitation to contribute this paper to the Longevity 9

conference in Beijing, to CAROL DASKAIS NAVIN for her many

helpful comments that have improved this paper, and to DAVE

INGRAM , who introduced to us the concept of plural rationality.

Endnotes1. Definition from the Oxford Dictionary.

2. “Treasury Fact Sheet: Helping American Families Achieve Retirement Security by Expanding Lifetime Income Choices,” United States Treasury, p.1.

3. “Don’t take a lifestyle cut in retirement: Five ways to help close your income gap, no matter what your age.” Fidelity Viewpoints. Retrieved from https:// 401k.fidelity.com/public/content/401k/Home/VPClosingtheGap, Aug. 12, 2015.

4. ‘The Financial Impact of Longevity Risk,’ Chapter 4 of Global Financial Stability, IMF Report, International Monetary Fund (2012).

5. Ibid., p.3.

6. Ibid., p. 8.

7. Ibid., p. 6.

8. “Risky Business: Living Longer Without Income for Life,” American Academy of Actuaries, June 2013, p.3.

9. “Longevity Risk and Reward for Middle-Income Americans,” Center for a Secure Retirement, Bankers Life and Casualty Company, March 2013, p. 13.

10. Ibid., p. 16.

UNDERSTANDING THE FRAME IN WHICH LONGEVITY RISK IS COMMUNICATED

IS ESSENTIAL FOR THE SUCCESSFUL COMMUNICATION

OF LONGEVITY RISK.

SEP | OCT.15 C O N T I N G E N C I E S 45

S P E C I A LS E C T I O N

SOA Annual Meeting and

ExhibitOct. 11–14, 2015

Austin, TX

ACTEX Publications107 Groppo Drive, Suite APO Box 974Winsted, CT 06098PHONE: 800-282-2839, 860-379-5470FAX: 860-738-3152EMAIL: [email protected]: www.ActexMadRiver.com

Since 1972, ACTEX has been committed to providing high quality educational material in actuarial science and related areas. We publish textbooks in Mathe-matics, Finance, Insurance, Business, Risk Manage-ment and Actuarial Science to assist actuaries with their continuing education in these and other topics. We also offer a multitude of study manuals and other educational opportunities aimed at assisting students in their preparation for the examinations of the Soci-ety of Actuaries, the Casualty Actuarial Society, and the Joint Board for the Enrollment of Actuaries. For a detailed listing of all of our products, complete with samples and demos, please visit our websites.

BOOTH 518

A.M. Best Company A.M. Best Company is a global credit rating organization with a unique focus on the insurance industry. Best’s Credit Ratings are independent opinions regarding the financial strength and creditworthiness of insurance companies, reinsurers, alternative risk transfer entities such as captives, and other risk-bearing organizations. A.M. Best also provides issuer credit and debt ratings as an opinion of an issuer’s ability to meet its financial obligations.

The company publishes a wide variety of analytical data resources, references, directories and periodicals online and in print. Best’s Insurance Reports, A.M. Best’s flagship product, offers quantitative and qualitative coverage of insurers and reinsurers in the United States, Canada, the United Kingdom and worldwide that is available nowhere else. A.M. Best’s Financial Suite is a family of databases that presents detailed information from the financial statements of thousands of insurance entities. The data and analysis found in these products can be integrated in one powerful, flexible online environment via the BestLink system.

A.M. Best is also the world’s most recognized source for insurance news. Articles generated by A.M. Best’s news staff are published in Best’s Review magazine, the Best’s Insurance News & Analysis service, through its real-time news channels and via more than a dozen international information distributors.

A.M. Best Company was founded in 1899 and has offices in the United States, Mexico, London, Hong Kong, Singapore and Dubai. To learn more, visit www.ambest.com.

Booth 552

Actuarial Careers, Inc.® 11 Martine Avenue White Plains, NY 10606 PHONE: 800-766-0070, 914-285-5100 FAX: 914-285-9375 CONTACT: Aimee Kaye, Patty Kent, Claudine Cox, Jesse West, Barbara Roman, Jennifer Hart, Robyn Taylor, Lauren Carter, Jill Grayson, Lauren Lee, Marie Smith, Bonnie Ten-Pow, Jill Kenney, Steven Frost, Ted JacknessEMAIL: [email protected] WEB: www.actuarialcareers.com

Actuarial Careers, Inc.® is an executive recruiting firm that specializes solely in actuarial employment opportunities, both Nationally & Worldwide, offer-ing traditional and non-traditional actuarial jobs for all levels including CFO, Chief Actuary, Fellows, Associates, and Students in all actuarial disciplines including Life, Health, Pensions, Annuities, Invest-ments, Reinsurance, Consulting, Group Benefits, ERM, and Property & Casualty.

Our institutional clients include insurance compa-nies, health care organizations, investment banks, and consulting firms.

The entire staff of Actuarial Careers, Inc.® is com-mitted to providing the finest and most responsive service in our industry.

Booth 411

Actuarial Resources Corporation 6720 W 121st Street; Suite 200 Overland Park, KS 66209 PHONE: 913-451-0044 FAX: 913-451-1562 CONTACT: Chris Peek EMAIL: [email protected] WEB: www.arcval.com

Actuarial Resources Corporation (ARC) is a nation-ally recognized software and consulting firm. Since 1987, ARC has been providing consulting, valuation, and financial analysis services to various organiza-tions including life and health insurers, reinsurers, investors and lenders, guaranty associations, state regulators, producers, and attorneys needing expert advice or testimony in insurance and tax matters. ARC’s professional staff includes qualified Associates and Fellows from the Society of Actuaries, backed up by experienced actuarial staff. By utilizing advanced computer and software tools like our own financial analysis system, ARCVAL, and projection software like Prophet®, ARC offers our clients comprehensive actuarial services.

Booth 100

ANDOVER RESEARCH, LTD.

Andover Research, Ltd. 420 Lexington AvenueNew York, NY 10170PHONE: 1-800-ANDOVER; 212-986-8484FAX: 212-983-0952CONTACTS: Lisa Evans, Debbie Fine, Deborah Turner, Hillary Steele, Sarah Price, Alex Harper, Amy Baxter, Alex Walsh, Arielle Gates, Kathie SpencerEMAIL: [email protected]: www.andoverresearch.com

Andover Research, Ltd., founded in 1975, specializes in the placement of actuaries globally. Our premiere team of 10 experienced recruiters has a reputation as leaders in the field. We earn recognition for our per-sonal integrity as well as our successful placements. Confidentiality, objective assessments and continu-ous involvement in the total recruiting process are hallmarks of our service.

Our Practice consists of identifying and placing ac-tuarial professionals (from students to Chief Actuar-ies). Our proprietary database and broad network of contacts enable us to provide our service in a timely fashion to both applicants and clients. Clients include insurance companies, consulting firms, investment banks and healthcare organizations.

Booth 515

46 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

NOTE: The results or output created by use of the Best's Capital Adequacy Ratio Adjustment System (“Output”) is for informational and internal purposes only, and such Output may not match or be consistent with the official BCAR score that A.M. Best publishes for the same company. The Output is not guaranteed or warranted in any respect by A.M. Best.

The BCAR Adjustment System is a non-rating services product, and its purchase is not required as part of the rating process.

www.ambest.com/sales/bcarsystem 15.0

489

Experimentwith insurers’

BCAR scoresunder changing

conditions

Best’s Capital Adequacy Ratio Adjustment System – P/C, US lets you test multiple “what-if” scenarios just as an A.M. Best analyst would.

Best’s Capital Adequacy Ratio (BCAR) is a calculation A.M. Best analysts use to test the impact of scenarios that affect an insurer’s financial outcomes.

The BCAR Adjustment System – P/C, US is a desktop application that provides online access to the same base model and data used by A.M. Best to calculate the BCAR score for approximately 3000 single and group U.S. property/casualty companies.

BCAR Adjustment System users always have access to the same base model that A.M. Best uses in its published BCAR scores. Experiment with various scenarios with this highly sophisticated analytical tool.

Contact us for more information: (908) 439-2200, ext. 5311, or [email protected]

S P E C I A LS E C T I O N

SOA Annual Meeting and

ExhibitOct. 11–14, 2015

Austin, TX

Ernst & Young LLP 5 Times SquareNew York, NY 10036 WEB: www.ey.com/US/insurance

EY is a recognized leader in providing assurance, tax, transaction and advisory services to life, health, prop-erty and casualty insurers and reinsurers worldwide. Our dedicated team of more than 9,600 insurance-aligned professionals spans many disciplines and offers a well-rounded understanding of business issues and challenges as well as integrated services to our clients. They include actuarial, risk, finance improvement, operations improvement, transac-tions, accounting and accounting implementation, financial reporting and business intelligence and ana-lytics professionals with deep subject matter knowl-edge who assist clients in enhancing their business opportunities. In doing so, we play a critical role in building a better working world for our people, our clients and our communities.

Booth 503

DW Simpson 4121 N Ravenswood AveChicago, IL 60613PHONE: 800-837-8338 / 312-867-2300FAX: 312-951-8386CONTACT: Bob MorandEMAIL: [email protected]: www.dwsimpson.com

DW Simpson Global Actuarial & Analytics Recruit-ment has been specializing in the recruitment of actuaries and analytical professionals for 25 years. We work at all levels of experience, from Actuarial Student through Fellowship, and with all disciplines including Life, Health, Pension, Property & Casualty and non-traditional areas. We are the largest of the firms that specialize in the placement of actuaries and related analytics professionals.

We publish the most trusted and comprehensive Ac-tuarial Salary Survey. It is organized by discipline & career level, and is formatted using simple charts, graphs & trend lines. The 2015 survey includes spe-cific information for Reinsurance, Consulting & In-surance actuaries, along with salary surveys by state & international markets.

DWSimpson.com/news is written by our experienced actuarial recruiters and contains valuable market in-sights, jobs and career advice. Please visit our website for more information and register for actuarial jobs, salary surveys & news updates.

Booth 507

Ezra Penland Actuarial Recruitment 4256 North Ravenswood, Suite 200 Chicago, IL 60613 CONTACT: Sally Ezra or Claude Penland PHONE: 800-580-3972 FAX: 773-340-4209 EMAIL: [email protected] WEB: www.EzraPenland.com

Ezra Penland Actuarial Recruitment was established by Sally Ezra and Claude Penland, ACAS, MAAA, partners with over 35 years of combined industry experience. With the industry’s leading actuarial sal-ary surveys and a rapidly growing actuarial recruiting staff, our goal is to be the top actuarial recruitment firm in the world while serving the long-term needs of clients and actuarial candidates. Our educated, knowledgeable and highly-trained staff will always exhibit business ethics, integrity, empathy and strong listening skills to help you reach your business goals. Ezra Penland works on both retained and contingent searches at all levels of actuarial analysts, credentialed actuaries and senior roles.

Booth 505

Gen Re120 Long Ridge RoadStamford, CT CONTACTS: Joe Atamaniuk, VP, Marketing & Account Management, Individual Products; Stacy Varney, VP, Marketing & Account Management, Group & Specialty ProductsEMAIL: [email protected]

[email protected] WEB: www.genre.com

Insurers are seeking more than traditional risk transfer options in today’s uncertain business envi-ronment. Fresh perspectives on managing risk are key to sustainable growth. Reinsurance delivered by a valued thought partner—one who offers creativ-ity and innovation, as well as actionable insights and expertise - is key to long term success.

Gen Re is more than a reinsurer. Our tailor-made reinsurance programs, unparalleled market research, and dynamic risk assessment capabilities provide a competitive edge to our clients in the Life, Medicare Supplement, Critical Illness and Disability markets. Working with Gen Re means a commitment to deliv-ering improved business performance—your success is truly our business.

BOOTH 218 & 220

GGY AXIS 9465 Counselors Row, Suite 200 Indianapolis, IN 46240 PHONE: 1-877-GGY-AXIS CONTACT: Rob Hrischenko EMAIL: [email protected] WEB: www.ggyaxis.com

AXIS is the complete actuarial solution for life, fixed and variable annuity, DI and LTC product needs. One integrated system supports seriatim and model-based valuation, pricing, product development, fi-nancial projections and risk analysis. Perfect for PBA!

AXIS is ready to use with more built-in flexibility than other systems. We are continually enhancing AXIS to meet changing needs and exploit new tech-nology. Updates are easy to install and use.

AXIS can help transform your actuarial function: ■ powerful programming options with reduced risk ■ robust model governance and control tools ■ end-to-end automation includes easy integration

with corporate databases ■ fast seriatim processing reduces need for com-

pressed models or hardware upgrades ■ ALM and advanced stochastic analysis including

dynamic hedging for VA’s ■ hosting options on GGY or public cloud for fast

and flexible scalability

Talk to any of our 3,100+ users then call for a free trial. Your next software conversion will be your last!

Booth 302

48 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

913.451.0044 www.arcval.com

Plenty of advisors are authoring white papers off ering direction to companies, but eventually it’s time to roll up your sleeves and focus on getting the job done. It takes a committed partner with substantial real world experience to help you develop and execute that plan, turning your vision for the future into reality.

One of ARC’s core competencies is our ability to think strategically when designing and implementing actuarial processes to fi t seamlessly into the corporate infrastructure. Our proven track record as both a software and consulting fi rm provides our team with a unique blend of actuarial and IT skills focused squarely in the actuary’s domain. ARC has worked with the full spectrum of insurance carriers, from large multi-nationals and reinsurers to smaller insurance companies, and has earned a reputation for delivering implementation projects on time and on budget.

More than a consulting fi rm, a partner you can trust.

“Plans are only good intentions unless they immediately degenerate into hard work.” ~ Peter F. Drucker

Time to Work Ad - March 2015.indd 1 3/23/15 3:25 PM

S P E C I A LS E C T I O N

SOA Annual Meeting and

ExhibitOct. 11–14, 2015

Austin, TX

KPMG LLP 303 Peachtree Street, NE, Suite 2000 Atlanta, GA 30308-3210 WEB: www.kpmg.com CONTACTS: David White EMAIL: [email protected] PHONE: 404 222 3006 Nazir Valani EMAIL: [email protected] PHONE: 416-777-8379

KPMG’s insurance practice is the largest provider of professional services to financial services companies globally. Our dedicated Insurance practitioners in the US, Canada, and globally are an integral part of the Financial Services practice of the member firms of KPMG International. This means that our actuarial professionals have access not only to global actuarial resources but also to the full breadth and depth of experience offered by the audit, tax, and advisory professionals of KPMG’s member firms.

In an ever-changing financial and regulatory environ-ment, the need for qualified, knowledgeable actuaries is paramount. In addition to having deep technical un-derstanding, KPMG’s Actuarial Services professionals are thought leaders on emerging industry issues and can help meet your needs with excellence and integrity.

KPMG is a global provider of AXIS solutions, a lead-ing life insurance actuarial system that seamlessly in-tegrates pricing, valuation and modeling.

Booth 501

Hannover Life Reassurance Company of America 200 South Orange Ave., Suite 1900Orlando, FL 32801PHONE: 407-649-8411CONTACT: Curt HagelmanEMAIL: [email protected]: www.hannover-re.com

Hannover Life Reassurance Company of America (Hannover Re US) is the North American life and health reinsurance subsidiary of Hannover Re Group, one of the largest reinsurance groups in the world. Licensed in all 50 US States, the District of Colum-bia, Guam, and Puerto Rico, Hannover Re US offers innovative risk reinsurance and financial solutions on both an individual and group basis for life and health markets.

At Hannover Re US, we believe that mutually profit-able client relations are based on listening to our cli-ents, understanding their needs, and developing and delivering on innovative solutions. We’ve earned our reputation as one of the most forward-thinking com-panies in the business by simply providing superior value through creativity and personalized service. This is what makes Hannover Re US the Somewhat Different reinsurer.

Oliver Wyman 155 North Wacker Drive, Suite 1500Chicago, IL 60606 CONTACT: Leslie LimPHONE: 312-345-2987EMAIL: [email protected] WEB: www.oliverwyman.com/actuaries

Oliver Wyman provides customized actuarial services and strategic insight, supporting clients as they strive to exceed their business objectives. Our exceptional client and employee retention exemplifies our com-mitment to relationships built on trust, responsive-ness and clear communication. Our clients can fur-ther capitalize on Oliver Wyman’s services through our partners at Marsh & McLennan Companies: Marsh, Mercer and Guy Carpenter—world leaders in insurance and risk management consulting.

Our Life, Health and Property & Casualty actuaries advise insurance companies, regulators, and self-in-sured entities across a broad spectrum of risk man-agement issues. With over 200 professionals across 16 offices in North America and the Caribbean, our consultants can provide independent, objective ad-vice, combining a wide range of expertise with spe-cialized knowledge of specific risks.

In addition to traditional actuarial services, Oliver Wyman has AXIS specialists who have extensive ex-perience taking advantage of GGY AXIS’ power and have kept pace with AXIS’ continuing evolution.

Booth 110

Optimum Re Insurance Company1345 River Bend DriveDallas, TX 75247CONTACT: Gord Gibbins FSA, FCIA, BScExecutive V.P. & Chief Development [email protected] (613-476-0219) PHONE: 214-528-2020FAX: 214-528-2777WEB: www.optimumre.com

Optimum Re, rated A- Excellent by AM Best, is an af-filiate of the Optimum Group and does reinsurance in the US & Caribbean. A sister company, Optimum Re-insurance Inc. serves the Canadian market. This year marks the Optimum Group’s 46th year in business. Optimum supports companies of all sizes and has had particular success in the larger company market. In 2014 Optimum Re reinforced its commitment to the small company market by acquiring a significant block from another reinsurer. Optimum offers com-petitive pricing, full underwriting services, research & development and an individual record Adminis-tration system which enhances its risk management services for LIFE, Critical Illness and ADB products.

Optimum has a significant auto and facultative capacity and a special capacity (>7.5 Million) for cases exceeding the jumbo limit. Its excellent service reputation is clearly shown by its excellent 2015 Flaspohler client results. Its clients ranked it has the “best” reinsurer overall. At the 2012 annual SOA Optimum announced 1 million of capacity for select HIV risks, becoming the first rein-surer to offer such coverage independent of plan. In 2015 Optimum announced significant reductions in its Hep C rating…many cases now becoming standard!

Booth 513

PolySystems, Inc. 30 North LaSalle Street36th FloorChicago, IL 60602PHONE: 312-332-5670CONTACT: Bob KeatingEMAIL: [email protected]: www.polysystems.com

PolySystems’ integrated software suite offers compre-hensive valuation, modeling, and experience study ca-pabilities to life, health and annuity companies. With a unique combination of flexibility and out-of-the-box functionality, PolySystems can be used to calculate re-serves and capital, perform asset/liability projections for CFT and planning, set assumptions, carry out sen-sitivity and stochastic analyses, manage inforce profit-ability, price products and more from a single platform.

PolySystems’ module to gather, edit and manage poli-cy inventory data and a robust structure to link policy level assumptions mean our software handles every-thing from new product development to complex as-sets and delivers dependable, fully auditable results. PolySystems jobs can be automated to run without user intervention on multiprocessors and grid servers.

PolySystems has over 90 actuaries and IT profes-sionals working in Chicago, New Jersey and South Carolina. Our data extract professionals seamlessly integrate PolySystems with your data architecture. Our team of actuarial consultants is experienced in designing complex models, software implementation and attribution analyses.

Booths 306 & 308

An Alliance in Growth

50 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

Pauline Reimer/Pryor Associates Executive Search

147 W. Old Country RoadHicksville, NY 11801CONTACT: Pauline Reimer, ASA, MAAA PHONE: 516-935-0100, ext. 307TOLL FREE: 866-6-ACTUARYFAX: 516-931-7842EMAIL: [email protected]: www.ppryor.com

“It Takes One To Know One…An Actuary Placing Actuaries (and Related Professionals)”Named a top recruiting firm by Dun & Bradstreet, Pryor has 45 years of insurance (Life, Health, P&C, Pensions & Investments) placement expertise. Pau-line Reimer, ASA, MAAA, has headed the Actuarial, Modeling & Risk Division since 1986, after working as an actuary in insurance and consulting firms. An affiliate member of the Casualty Actuarial Society, member of the International Society of Catastrophe Managers and SOA Entrepreneurial Actuaries Sec-tion Council, she is also on the Executive Board of ASNY and the Advisory Boards of both Columbia University’s and New York University’s Actuarial Science programs. Quoted in periodicals and tele-vision, Pauline handles each step of every actuarial assignment personally – no client is ever relegated to just an Assistant. Her impressive placement record of 99% retention rate as well as success ratio in retained searches confirm her status as one of the most suc-cessful actuarial recruiters worldwide.

Booth 304

SCOR Global Life AmericasCONTACT: JC Brueckner, Deputy CEO Head of US Life ReinsurancePHONE: 913.901.4731EMAIL: [email protected]: SCOR.com/SGLA

SCOR Global Life Americas is a top tier life reinsurer in the U.S. market. The company provides reinsur-ance solutions to companies in the U.S., Canada and Latin America. SCOR offers broad capabilities in risk and capital management as well as value added services that help life insurers develop competitive products and enter new markets with speed and efficiency. Its patented VELOGICA® process for simplified issue life insurance offers exciting new opportunities for middle market business. Velogica, which delivers point of sale underwriting decisions, has processed more than two million life insurance applications, making it the most time-tested solution in the automated underwriting space.

U.S. operations are located in Charlotte, NC, Leawood, KS, and Minneapolis, MN.

Booth 103

RGA Reinsurance Company 16600 Swingley Ridge RoadChesterfield, MO 63017-1706PHONE: 636-736-7000TOLL FREE: 1-888-736-5445WEB: www.rgare.comCONTACT: Kathryn Cox, Senior Vice President, Business Development, U.S. Mortality MarketsEMAIL: [email protected]: 636-736-8108

Reinsurance Group of America, Incorporated (RGA) is a global leader in the life reinsurance industry, with approximately $2.9 trillion of life reinsurance in force. From its world headquarters in St. Louis, Missouri, U.S.A. and operations in 27 countries, RGA provides clients with expert solutions in individual life reinsurance, group reinsurance, health reinsur-ance, facultative underwriting, product development and financially motivated reinsurance.

After more than four decades of growth, RGA has become one of the world’s most highly respected reinsurers, recognized for its expertise in risk assess-ment and capital management, its ability to develop innovative solutions, and its unwavering commit-ment to its clients. RGA was rated “Best Overall Life Reinsurer” for the sixth consecutive time by North American life insurers in the 2015 Flaspöhler Sur-vey™ (Direct Writers Evaluate Reinsurers/Life N.A.).

Booths 421 and 423

SunGard PHONE: 1-800-755-5991EMAIL: [email protected]: www.sungard.com/insurance

SunGard’s Prophet is a suite of integrated actuarial solutions supporting insurance and financial services companies around the world. This enterprise-wide actuarial modeling system includes profit testing, projections, reserving, asset liability modeling, sto-chastic modeling and risk management. The latest addition to the solution suite, Prophet GI, is a risk modeling solution for general/P&C insurers, consist-ing of capital modeling and reserving applications.

Prophet’s solutions suite consists of: ■ Prophet Professional ■ Prophet Enterprise ■ Prophet Libraries ■ Prophet Results Database Module ■ Glean ■ Prophet Table Manager ■ Prophet Analytics ■ Prophet Data Conversion System ■ Prophet GI (P&C)

Call today and discover why more than 650 insur-ance sites in more than 65 countries choose Prophet, and let SunGard help you improve the transparency, per-formance and control required by your actuaries and risk managers.

Booth 208

Towers Watson 175 Bloor Street EastSouth Tower, Suite 1701Toronto, Ontario, Canada M4W 3T6CONTACT: Holly StarkeyPHONE: 416-407-3812EMAIL: [email protected]: towerswatson.com

Towers Watson offers a complete solution to help insurers transform their actuarial and analytical functions to a higher level of performance. We provide:

■ World class services, including actuarial and software technology consulting ■ Market-leading software, such as RiskAgility FM, RiskAgility EC and DataValidator ■ An integration, automation and governance platform, Towers Watson Unify, to manage and run your actuarial

processes and software as one holistic solution ■ Flexible infrastructure options, including Towers Watson vGrid and integration with Microsoft Azure and HPC

Towers Watson is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. With 16,000 associates around the world, we offer consult-ing, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management.

Booths 203 and 205

S P E C I A L S E C T I O N SOA Annual Meeting and Exhibit

52 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

THESE JOBS AND MANY MORE CAN BE FOUND AT EzraPenland.com

Over 35 Years of Industry Experience (800)580-3972

[email protected]

JOIN OUR LINKEDIN NETWORKING GROUPS AT EzraPenland.com/LinkedIn

EMAIL RESUMES TO:[email protected]

EZRA PENLAND ACTUARIAL RECRUITMENT

JOIN OUR LINKEDINNETWORKING GROUPS ATEzraPenland.com/LinkedIn

CALIFORNIA - HEALTH AND BENEFITS ACTUARYFor Position 64410, a health and benefits actuary is sought by a California consulting group. Must have 8+ years of experience. Near-ASA or ASA or FSA ideal.

SOUTHWEST USA - HEALTH ASSOCIATE ACTUARYSouthwest USA health insurer is now hiring an Associ-ate of the Society of Actuaries for Position 65755. This ASA must have advanced statistical analysis experience with health insurance data, as well as 2 to 9 years of healthcare actuarial experience.

CONNECTICUT - HEALTH ACTUARYConnecticut company has asked Ezra Penland to find a health actuary for Position 65623C. FSA/near-FSA with 8+ years of healthcare actuarial experience ideal. Imme-diate need. Supervisory experience a plus.

MIDWEST USA - ENTERPRISE RISK MGMT ACTUARYOur client seeks an FSA or an ASA. Must have at least three years of financial modeling experience. Experience with asset/liability modeling and cash flow modeling ideal. Compensation up to $175K for Position 64740.

SOUTHEAST USA - ECONOMIC CAPITAL EXPERIENCEFSA life actuary with economic capital experience imme-diately sought by a Southeast USA insurer for Position 65478. Must have 10+ years of life actuarial and finan-cial experience.

MIDWEST USA - LIFE PRODUCT MGMTMidwest USA insurer is searching for a life product management actuary at the ASA/FSA level for Position 65434. Must have 7+ years of life actuarial experience, up to 18 years of experience.

NEW YORK - PENSION ACTUARYOur New York client is searching for a retirement actu-arial consultant for Position 65605. EA/FSA or EA/ASA credentialed actuary preferred. Client seeks 10+ years of experience, including strong client-facing experience.

NEW YORK - ERM ACTUARYProperty and casualty insurer is searching for an en-terprise risk management actuary at the FCAS level for Position 65721. 10+ years of experience preferred. Requires several years of reserve analysis experience

CALIFORNIA - P&C CONSULTING ACTUARYOrganization seeks an FCAS for Position 65317. Re-quires management experience. 10+ years of property and casualty actuarial experience preferred. Supervisory opportunity.

NORTHEAST USA - COMMERCIAL PRICING ACTUARYInsurer is seeking a commercial lines pricing actuary for Position 65535. ACAS/near-FCAS with 5+ years of property and casualty actuarial experience preferred. Predictive modeling skills required.

FLORIDA - PERSONAL LINES ACTUARYFor Position 65257, a prominent Florida property and casualty insurer plans a role for an FCAS or ACAS with personal lines experience. Must have 5 to 14 years of actuarial experience, including considerable experience with pricing, modeling and reserve analysis.

BERMUDA - REINSURANCE ACTUARYBermuda client is looking to hire an FCAS or FIA actuary for Position 66019. Must have 10+ years of reinsurance experience. Pricing, portfolio management and business strategy role.

MASSACHUSETTS - PERSONAL LINES ACTUARYFor Position 65353, a Massachusetts insurer is looking to hire an FCAS. 10+ years of property and casualty ac-tuarial experience required, including 2+ years of predic-tive modeling experience.

NEW JERSEY - PREDICTIVE MODELERProperty and casualty predictive modeler is needed by a New Jersey insurer for Position 64199. Cluster analy-sis and tree models experience ideal. Experience with machine learning a plus. SAS/R programming skills re-quired. Must have at least 5+ years of statistical mod-eling experience with insurance data. Master’s degree or Ph.D. ideal.

Workshop CRAIG HANNA

Keep Up With Public Policy Developments at the Academy’s Annual Meeting

STAYING CURRENT in actuarial practice isn’t just a matter of remain-

ing current with developments in actuarial techniques and methods. Op-

portunities for the actuarial profession to effectively shape and impact

public policy requires a broader level of awareness of changes that do or

can impact the public that actuaries serve—an awareness that the Acade-

my makes accessible for its members through a wide range of resources,

publications, programs, and particularly events like our Annual Meeting

and Public Policy Forum, this year to be held Nov. 12-13 in Washington.

In Washington, in the state capitals, and beyond, the work of legislators and regulators aff ects the work of actuaries, often in ways that are quite signifi cant. Here are just a few examples of what ac-tuaries can learn about to inform their practice at the Academy’s public policy forum:■■ What’s happened in the multi-

employer field since passage of the Multiemployer Pension Reform Act late last year, including how plans are viewing their new options, and how the Pension Benefi t Guaranty Corp. and Treasury Department have approached these new policy prescriptions.■■ Actuarial Guideline 48 and related

new requirements for AXXX/XXX cap-tive arrangements, including practical eff ects on the investment banking indus-try and how the NAIC and the states can manage implementation.■■ Changes in the personal auto in-

surance market with the advent of self-driving cars, ridesharing, carshar-ing, and telematics.■■ The latest on implementation of the

Aff ordable Care Act, including regula-tory changes related to rate fi lings, the actuarial value and minimum value cal-culators, and risk-sharing mechanisms.

There will be a full lineup of topical breakout sessions and plenaries on casual-ty, health, life, pension, and professionalism topics that our cadre of well-positioned and knowledgeable speakers will address this November. Policy developments in

Washington and elsewhere can be com-plex and sometimes happen quickly, and the Academy is uniquely positioned to bring those most knowledgeable about public policy issues that have actuarial significance in the work being done in Congress, federal agencies, and state legis-latures and insurance departments.

Last year we launched our signature Public Policy Forum, attached to our An-nual Meeting for the fi rst time. Speakers including former Health and Human Services Secretary Kathleen Sebelius and current NAIC CEO Ben Nelson were among the many speakers who spoke to attendees about how their work aff ects actuaries’ daily practice, and how actuar-ies’ work aff ects those they serve.

Other featured topics during this year’s meeting include:■■ A discussion on the sustainability of

public programs and systems with agen-cy stakeholders who can provide deeper insights into program challenges.■■ Public plan funding and risk

disclosures.■■ The latest on life principle-based re-

serve (PBR) reforms, including a look at “Day 1” of PBR taking eff ect for life in-surers. Another session will delve into professionalism issues related to PBR.■■ Updates on payment and delivery sys-

tem reform, long-term care, and health care coverage issues impacting the 2016 elections.■■ Climate change risk, cybersecurity

threats, price optimization, and the pub-lic policy implications surrounding these issues.

This year’s 50th anniversary Annual Meeting and Public Policy Forum will off er not just analysis of contemporary issues, explored in both public policy and professionalism sessions, but also will honor the Academy’s rich legacy of public policy and professionalism mile-stones of signifi cance to the U.S. actuarial profession, and many of the individual actuaries who have made that possible. Our 50th Anniversary Gala Dinner on Nov. 12 will be held in the spectacular Renaissance Revival-style halls of the National Museum of Women in the Arts in downtown Washington, where you will enjoy the company of your peers who are also dedicated to the Academy and to staying current in practice.

For the complete agenda of the An-nual Meeting and Public Policy Forum, and to register, please visit http://www.actuary.org/Academy50.

CRAIG HANNA is director of public

policy for the American Academy of

Actuaries.

54 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

Policy developments in

Washington and elsewhere

can be complex and

sometimes happen quickly,

and the Academy is uniquely

positioned to bring those

most knowledgeable about

public policy issues that

have actuarial significance

in the work being done in

Congress, federal agencies,

and state legislatures and

insurance departments.

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Insureware creates unique collaborative partnerships with each client. The partnership facilitates the growth of incomparable knowledge, benefits, and applications.

Educational and plenary sessions on topical casualty, health, life, pen-sion practice, and professionalism issues will be led by knowledgeable subject-matter experts, including congressional and federal agency representatives, leaders of the NAIC and of the U.S. actuarial profession, and other prominent speakers. Topics include:

• Climate change risk, cybersecurity threats, price optimization, the changing personal auto market, and the public policy implications surrounding those issues.

• Health care and the 2016 elections, updates on Affordable Care Act implementation, payment and delivery system reform, and long-term care.

• The latest on life insurance regula-tion reforms, including profession-alism issues related to principle-based reserving.

• Implications of the Multiemployer Pension Reform Act and new reform efforts.

PUBLIC POLICY FORUM

50TH ANNIVERSARY CELEBRATION NATIONAL MUSEUM FOR WOMEN IN THE ARTS THURSDAY, NOVEMBER 12TH, 7:00 pm

REGISTER NOW FOR THE

AMERICAN ACADEMY OF ACTUARIES 50TH ANNIVERSARY

ANNUAL MEETING

• Lessons from the first year of Own Risk and Solvency Assessment (ORSA) report implementation.

• A discussion led by the Public Interest Committee of the sustain-ability of public programs/sys-tems with agency stakeholders.

• NEW! Business Skills Program (limited attendance): Hone your business skills through inter-active, small-group exercises facilitated by Second City Works, the business-to-business arm of renowned improv group The Second City.

• NEW! Facilitated Professional-ism Plenary: Modeled after the NPR program “Wait, Wait Don’t Tell Me!” member panelists will engage on actuarial ethical issues, with lively interaction and audi-ence participation facilitated by ProEthics.

• Our Nov. 12 luncheon plenary will feature the Academy’s Annual Meeting and ceremonial presidential transition.

November 12-13, 2015

www.actuary.org/academy50202-223-8196

A N D

Registration

Washington Marriott Wardman Park 2660 Woodley Road, NW Washington, DC 20008

Stay current in your practice, earn continuing education credits, network with your peers, and honor esteemed colleagues receiving awards at the Academy’s 50th anniversary celebration.

ANNUAL MEETINGNovember 12-13, 2015

Hosted in the spectacular Renaissance Revival-style halls of the National Museum

of Women in the Arts, the Academy’s 50th Anniversary Gala Dinner will offer a feast

in the company of your peers as the Academy commemorates public policy and

professionalism milestones of significance to the U.S. actuarial profession—and

the dedicated and visionary Academy members who made them possible.

The Gala Dinner is included in the two-day registration fee. Tickets may be

purchased separately for guests.

AnMeetAdContin7.2015.indd 1 8/5/15 3:45 PM

Booklinks REVIEW BY THEA CARDAMONE

Social Security Works! Why Social Security isn’t Going Broke and How Expanding It Will Help Us AllBy Nancy J. Altman and Eric R. Kingson

VOICES INSIDE AND OUTSIDE OF CONGRESS are now being

raised to focus attention on the growing problem of income inequality

as it relates to financial security for Americans. As Sen. Elizabeth War-

ren said on The Rachel Maddow Show (recounted in this book):

“This is the last time to be talking about cutting Social Security. This is the moment when we talk about expandingSocial Security.”

With their combined expertise in the public policy arena,1 Nancy Altman and Eric Kingson have given us in Social Se-curity Works! an in-depth study of this uniquely American program, from its passage in 1935 through the 30-year cam-paign to dismantle it. Writing directly to all Americans—young, old, men, women, and people of all races—this book challenges us all to become better informed about Social Security: both the challenges facing it and the growing movement to expand it.

First, the authors present the history and fundamentals of Social Security. At the outset, the national social insurance program was opposed by both those who thought it went too far and those who felt it did not do enough. Yet a majority of Americans rely on it as fundamental to their economic security. Through its life insurance, disability insurance, and retirement provisions, Americans recog-nize that Social Security has enhanced their lives for 80 years, carrying out the vision of President Franklin Roosevelt to be a “cornerstone … that will take care of human needs and at the same time pro-vide the United States with a structure of vastly greater soundness.”2

The authors demonstrate the impor-tance of Social Security to all generations. Rather than an individual insurance, re-tirement savings, or welfare program, Social Security is explained as group in-surance with protections for workers and

their families. Altman and Kingson detail the unique benefi t structure of Social Se-curity, which provides increased benefi ts but at lower percentages of income for higher-wage workers. The power of the federal government to require participa-tion is also noted, which removes the risk of adverse selection from the program.

Next, the authors give us a detailed analysis of four challenges facing the current system:1. The Precarious Lives of Today’s Old2. The Coming Retirement Income

Crisis3. The Debt Owed to Those Who Care4. The New Gilded Age

Each of these challenges deserves review and indicates areas that need at-tention in reforming Social Security. For example, we know that nearly 75 per-cent of today’s senior households have limited means (e.g., incomes of less than $50,000). All of them face uncertainties

including the rising cost of medical in-surance and uncovered health and long-term care expenses.

The coming retirement crisis is well known to most actuaries: Trends such as the shift from defined benefit pen-sions to 401(k) plans and the low level of retirement savings among the working population make for a cloudy future for the soon-to-retire. Those who provide un-paid care to others (mainly other family members) are not currently covered for that service. Those who must provide care while employed face hard choices about having to take unpaid leave from work. Typically, this burden falls dispropor-tionately on women who have had to raise children and provide care to elderly fam-ily members. Caregiving, in the opinion of the authors, is ready to “burst forth as an issue requiring serious attention.” Social Security provides a way to address it.

Income inequality is the focus of “The New Gilded Age.” The problem is not just that the rich are getting richer, but once again, “The rich are getting richer while everyone else is treading water or even losing ground.” A similar situation hap-pened in the late 19th century, leading to the reforms of the Progressive Era, and in the Roaring Twenties, ending in the calamity of the Great Depression.

Chapter 9, “The Billionaires’ War Against Social Security,” outlines the forces behind this campaign, describ-ing how the language of the debate has subtly changed from one about the “fi -nancial integrity of the Social Security system and the provision of appropriate benefi ts” during the Reagan administra-tion to one about the “entitlement crisis” that attacks Social Security, Medicare, and Medicaid. As the authors point out, both current and prospective Social Se-curity benefi ciaries are rightfully upset

Learn more about the call for papers,

including the complete topic list, by

going to Livingto100.soa.org.

Questions may be directed to

Ronora Stryker, Research

Actuary, at [email protected].

The Committee on Living to 100 Research Symposia requests

professionals, knowledgeable in the important area of longevity and

its consequences, to prepare a high quality paper for presentation for

the 2017 Living to 100 Symposium in Orlando, Florida. The topics

of interest include, but are not limited to:

• Theories on how and why we age;

• Methodologies for estimating future rates of survival;

• Implications for society, institutions and individuals, as well as

changes needed to support a growing aging population; and

• Applications of existing or new longevity theories and methods

for actuarial practice.

Please submit an abstract or outline of your proposed paper by

Sept. 30, 2015. The abstract should include a brief description of

the subject of the paper, data sources and methods to be used, key

items to be covered, and how your paper will contribute to current

knowledge, theory and/or methodology.

A brief curriculum vitae or resume is also required.

Submit the information by email to:

Jan Schuh

Sr. Research Administrator

Email: [email protected]

Call for Papers

Living to 100 Symposium | January 4–6, 2017 | Orlando, Florida

as the shift from defined benefit pen-sions to 401(k) plans and the low level of retirement savings among the working population make for a cloudy future for the soon-to-retire. Those who provide un-paid care to others (mainly other family members) are not currently covered for that service. Those who must provide care while employed face hard choices about having to take unpaid leave from work. Typically, this burden falls dispropor-tionately on women who have had to raise children and provide care to elderly fam-ily members. Caregiving, in the opinion of the authors, is ready to “burst forth as an issue requiring serious attention.” Social Security provides a way to address it.

“This is the last time to be talking about cutting Social Security. This is the

expanding

With their combined expertise in the Nancy Altman and

Social Se- an in-depth study of this

uniquely American program, from its passage in 1935 through the 30-year cam-paign to dismantle it. Writing directly to all Americans—young, old, men, women, and people of all races—this book challenges us all to become better informed about Social Security: both the challenges facing it and

SH

UT

TE

RS

TO

CK

56 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

Learn more about the call for papers,

including the complete topic list, by

going to Livingto100.soa.org.

Questions may be directed to

Ronora Stryker, Research

Actuary, at [email protected].

The Committee on Living to 100 Research Symposia requests

professionals, knowledgeable in the important area of longevity and

its consequences, to prepare a high quality paper for presentation for

the 2017 Living to 100 Symposium in Orlando, Florida. The topics

of interest include, but are not limited to:

• Theories on how and why we age;

• Methodologies for estimating future rates of survival;

• Implications for society, institutions and individuals, as well as

changes needed to support a growing aging population; and

• Applications of existing or new longevity theories and methods

for actuarial practice.

Please submit an abstract or outline of your proposed paper by

Sept. 30, 2015. The abstract should include a brief description of

the subject of the paper, data sources and methods to be used, key

items to be covered, and how your paper will contribute to current

knowledge, theory and/or methodology.

A brief curriculum vitae or resume is also required.

Submit the information by email to:

Jan Schuh

Sr. Research Administrator

Email: [email protected]

Call for Papers

Living to 100 Symposium | January 4–6, 2017 | Orlando, Florida

SH

UT

TE

RS

TO

CK

that the benefits they have earned are be-ing tainted by the implication that they are not deserved. The moneyed interests, and the methods they have used to pro-mote their campaign, are documented in this chapter and deserve notice.

Chapter 10, “The Conventional ‘Wis-dom’ Is Just Plain Wrong,” goes further to address the issues that are at the core of the debate on Social Security and which confront all Americans: Social Security is going bankrupt, young people will never receive a benefit, spending on “entitlements” will bankrupt the nation, etc. Here, the authors point to the care-ful work that Social Security actuaries do on an annual basis to project the annual income and outgo for the program over a 75-year period. (The Academy’s Social Security Committee has just released an issue brief on the 2015 Social Security Trustees Report, available on the Acad-emy’s website.) The conservative nature of the fiscal management of the program is described. As the authors note, “Social

Security cannot pay benefits unless it has the income to cover the costs. It has no borrowing authority.”

Current projections show that the trust funds (on a combined basis) are ex-pected to be able to pay full benefit levels through 2034. Congressional action will be needed if the program is to maintain full benefits at the current level beyond that date. Otherwise, benefit levels will be reduced to about three-quarters of current levels as projected in the 2015 Social Security Trustees Report. And congressional action is needed much earlier to allow for disability benefits to continue, because that trust fund is ex-pected to deplete reserves in 2016.

Benefit enhancements the authors would like to see include:1. A 10 percent benefit increase (up

to $150 a month maximum) for all beneficiaries;

2. Enact the more accurate cost-of-living adjustment (CPI-E);

3. Provide a minimum benefit of 125

percent of poverty at full retirement age for those with 30 years of work; and

4. Add benefits for those who provide unpaid care to certain family members (e.g., at birth or adoption of a child, ill-ness of a covered worker or family members, for a child under age 6).To meet the projected deficit of ap-

proximately 1 percent of GDP and pay for these expanded benefits, the authors recommend a bold proposal to:1. Gradually eliminate the maximum

taxable wage base, giving credit for these contributions;

2. Gradually raise the contribution rate for workers and employers by 1 per-centage point (from 6.2 percent to 7.2 percent);

3. Implement a 10 percent marginal tax rate on income above $1 million;

4. Invest 40 percent of Social Security’s portfolio in broad-based equity fund; and

5. Treat all salary reduction plans the same as 401(k) plans with respect to the defi-nition of wages under Social Security.

Booklinks CONTINUED

Want to drive greater value from your AXIS conversion?Go with an advisor who’s been down the road before.Steering a successful AXIS conversion takes in-depth experience and that’s what you’ll get from KPMG’s member fi rms. KPMG partners and professionals have more than 150 combined years of AXIS actuarial modeling experience and have implemented more than 100 signifi cant conversions. So if you want to speed the return on your investment and gain more value from AXIS’ pricing, valuation and modeling capabilities, contact us directly. And avoid any detours.

Nazir ValaniPartner and National Leader, KPMG in Canada416-777-8379 • [email protected]

Steeve JeanPrincipal, KPMG in the U.S.212-872-3672 • [email protected]

Michael HelewaPartner and Business Leader, KPMG in Canada416-560-4661 • [email protected]

KPMG is a global provider of solutions © 2015 KPMG LLP, a Canadian limited liability partnership and a member fi rm of the KPMG network of independent member fi rms affi liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 8083

For more information on how KPMG’s Actuarial Consulting service can help, contact:

www.kpmg.com/us/axis

7439-KPMG-AxisActuarialAd-Rev3-25.indd 1 3/25/15 5:24 PM

Want to drive greater value from your AXIS conversion?Go with an advisor who’s been down the road before.Steering a successful AXIS conversion takes in-depth experience and that’s what you’ll get from KPMG’s member fi rms. KPMG partners and professionals have more than 150 combined years of AXIS actuarial modeling experience and have implemented more than 100 signifi cant conversions. So if you want to speed the return on your investment and gain more value from AXIS’ pricing, valuation and modeling capabilities, contact us directly. And avoid any detours.

Nazir ValaniPartner and National Leader, KPMG in Canada416-777-8379 • [email protected]

Steeve JeanPrincipal, KPMG in the U.S.212-872-3672 • [email protected]

Michael HelewaPartner and Business Leader, KPMG in Canada416-560-4661 • [email protected]

KPMG is a global provider of solutions © 2015 KPMG LLP, a Canadian limited liability partnership and a member fi rm of the KPMG network of independent member fi rms affi liated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 8083

For more information on how KPMG’s Actuarial Consulting service can help, contact:

www.kpmg.com/us/axis

7439-KPMG-AxisActuarialAd-Rev3-25.indd 1 3/25/15 5:24 PM

The total of the recom-mended changes would be an increase of about 2 percent of GDP. Of the above, the 10 percent marginal tax rate is likely the most controversial in today’s political climate. The authors estimate the impact of this additional tax at 0.53 percent of GDP, or about a quarter of the total of all recom-mended changes. Without that change, there would be slightly less than 0.5 per-cent of GDP available to expand benefits, after remedying the 1 percent projected deficit. Appendix B contains the details of the costs of the benefit expansions and the increased revenues of their plan.

As the authors note, there are sever-al legislative proposals for expansion of Social Security in various areas. These proposals are summarized in Appendix C, which gives the major points of each bill, the sponsor, and other relevant details such as number of co-sponsors. Altman

and Kingson also summarize the pro-grams of various organizations that have worked on expanding Social Security.

Although this book is helpful in sev-eral areas, with its in-depth look at Social Security and call to action, I believe the real question facing all Americans is how much we can afford to allocate to the various programs that make up our current national benefit programs. In at-tempting to solve the problems facing Social Security, the authors have opted to remove Medicare and Medicaid from that discussion. While it is heartening to see that the disability and retirement programs can be put on a stronger foun-dation, the reader is left to wonder how

we will solve the coming dilemma that we face in the medical cost arena, which clearly affects all Americans and threatens our financial security.

Still, Social Security Works! offers a detailed,

data-driven framework with which we can reform this vital program—expan-sion is not only possible, it’s essential.

THEA CARDAMONE is a retired health

actuary living in Vernon, Conn.

The opinions in this review are solely those of the author.

Endnotes1. Nancy Altman and Eric Kingson both served on President Reagan’s 1982 National Commission on Social Security Reform and now serve as co-directors of Social Security Works. They have had extensive careers in the academic and public policy arenas, with a focus on issues such as population aging, pensions, and Social Security.

2. Speech by Franklin Roosevelt, Aug. 14, 1935, the day he signed the Social Security Act.

While it is heartening to see that the disability

and retirement programs can be put on a stronger

foundation, the reader is left to wonder how we

will solve the coming dilemma that we face in

the medical cost arena, which clearly affects all

Americans and threatens our financial security.

IST

OC

K

Tradecraft DAN BONNET

A Security Framework for a Healthy Network NAIC nudges insurers and producers to protect consumer private information

An easy way to meet the National Association of Insurance Commis-

sioners’ (NAIC) new guidelines for cybersecurity is to crawl, walk, then

run—step by step.

Released in April, NAIC’s Principles for Effective Cybersecurity: Insurance Regulatory Guidance looks to state insur-ance regulators “to ensure that personally identifiable consumer information held by insurers, producers, and other regulat-ed entities is protected from cybersecurity risks.” To summarize, the two-page docu-ment says insurance companies, agencies, and producers need to protect personally identifiable information and recommends they follow a nationally recognized cyber-security standard, such as the National Institute of Standards and Technology (NIST) framework.

Securing your network is a long pro-cess that could take months or years, depending on the state of security when you start and the resources you have available. The best way to begin is with a road map that takes you from baby steps to giant leaps. First you crawl, then you walk, then you run.

“Crawl, Walk, Run” uses language that is easy to understand and will cov-er a great deal of the NIST framework. However, it is no substitute for the as-sessments, policies, or internal structures you will need to put in place to abide by the NIST framework.

CrawlImplement basic security measures:■■ Monitor your firewalls: Firewalls are

your first level of detection, so if these are being monitored, you can see an intru-sion immediately and get the attackers out quickly before they move laterally into other systems. The brand of your equipment is not as important as moni-toring it 24/7 so you can see suspicious activity immediately.

■■ Monitor your endpoints 24/7: End-points (servers, laptops, and workstations) have become the most popular method attackers use to break into networks. It takes just one employee to open a phish-ing email and click on a malicious link or attachment to compromise your network. ■■ Invest in an Intrusion Detection

System/Intrusion Prevention System (IDS/IPS) that is separate from the firewall: An IDS/IPS behind the firewall can detect and block thousands of threats that get past the firewall daily. The IDS/IPS must be kept updated with threats and policies, and must be monitored 24/7.

Depending upon how often an or-ganization is targeted, IDS/IPS devices that are not tuned properly can generate thousands or millions of false-positive alerts each day, making it difficult to

identify true threats and take timely ac-tion. Your device manager should be able to update and configure the device so it’s not constantly sending your IT security staff alerts.

The company that codes and builds your IDS/IPS should be different from the one that codes and builds your fire-wall, and the two should be physically separate to ensure that they both aren’t blind to the same vulnerabilities and ex-ploits. Even if you have an appliance that is a mixture of a firewall and an IDS/IPS, you still need a separate layer of IDS/IPS protection behind your firewall to have a defense-in-depth strategy.

You should place a network IDS/IPS at all possible points of entry to your network, a host IDS/IPS on your most valuable servers to prevent intrusion, and a wireless IPS to prevent attacks that use your wireless Internet connection. ■■ Conduct biannual penetration tests:

A Pen Test assesses the software up-dates and policies of your firewalls, the

60 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

IST

OC

K

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software updates on your IDS/IPS and its ability to detect attacks, and detects the vulnerabilities of your routers. ■■ Develop a Computer Security In-

cidence Response Plan (CSIRP) for the inevitable security incident: The longer you wait to get intruders out of your network, the more downtime you experience and the greater your costs of expelling the intruders. A CSIRP ensures your security team and business units are well prepared for attacks and know what actions to take when your network gets breached. A cybersecurity professional should help develop the CSIRP and then conduct “tabletop exercises,” in which the plans are well rehearsed with your security and business leaders using actual scenarios that have occurred elsewhere. ■■ Implement security awareness train-

ing: Train employees to understand common attack techniques regarding the websites they visit—social engineer-ing and spearphishing. Annual testing does not produce vigilant employees, so security awareness training must be a continual part of your culture.

Walk■■ Monitor your servers and routers,

24/7 in real-time: Attackers can break into your network through your servers or routers; no threat prevention device or software is foolproof. The sooner you discover a threat has entered your net-work, the easier it is to remediate the threat and the less difficult and costly it becomes to remove it. ■■ Continuously monitor and inspect

email, file, and Web traffic: Bad traffic is going to get into your network somehow, but an Advanced Malware Protection De-tection (AMPD) service will track traffic to rapidly detect, analyze, and diagnose threats, and will guide you on how to remove them. Neither an IDS/IPS nor an-tivirus software will block malicious email traffic. When malicious emails elude your email security product, AMPD will see the suspicious email and let you know it has entered your network and will provide instructions for remediating the breach.■■ Conduct an IT audit (also called an

Automated Data Processing audit):

This audit examines management con-trols of an organization’s IT systems. The audit assesses controls over the network, logical access, physical access, disaster recovery, application change manage-ment, operations, and related processes to determine whether your system is safeguarding your assets and is operat-ing effectively. ■■ Perform risk assessments: This as-

sessment will quantify or qualify your company’s risk, or the likelihood that a threat would exploit a vulnerability in your network. By locating and catego-rizing your assets, you can then identify and categorize your risks. You can do this one of two ways. You can assign the risks a monetary value or you can rank them on a scale from 1 to 5, based on how likely a threat would attempt to exploit a vulnerability. ■■ Conduct Web app testing: Practically

all applications have security vulnerabili-ties: holes that allow attackers to sneak inside your network. A Web app test helps you discover where the holes are so you can plug them. You should perform a Web app test every time you upgrade or patch a Web app. ■■ Revisit your Computer Security

Incident Response Plan (CSIRP): Con-duct quarterly tabletop exercises, making updates as you go. Discuss what worked and what didn’t work, and improve ar-eas in the plan that are lacking. Having a CSIRP in force can make the difference between your network being offline for

days or just hours. If there’s an incident, it won’t be merely a technology issue—there are legal and financial implications to a breach, so business executives will need to be present. ■■ Conduct managed phishing exercises

to test the effectiveness of your security awareness training program: Conduct simulated phishing attacks at least quar-terly to see how employees respond. The testing should be fully managed and should include an analysis of employee behavior to see how employees are im-proving and who needs more training. ■■ Increase your security awareness

training: Conduct random spearphish-ing email tests to understand who is grasping security awareness principles and who needs more help.■■ Conduct a vulnerability assessment:

This test will assess the security of your systems and networks, and will identify vulnerabilities as well as your assets.

Run■■ Perform an advanced threat pre-

paredness assessment: Hire an incident response provider to evaluate your organization’s ability to detect, resist, and respond to a targeted or advanced threat, including an advanced persistent threat. ■■ Monitor mobile devices: Employ a

real-time monitoring system that pro-vides you with reports on device and application inventory, asset location, groups/users, and related policies, as well as compliance alerts to see who is and who isn’t abiding by policies.■■ Perform a “Red Team” test: Hire an

outside security organization to provide cyberattack simulations using real-world tactics, techniques, and procedures.

Threats and technology constantly change. Even when you can rank your in-surance company as very secure, it must continue its defensive security strategies and tactics to keep pace with attackers. As long as your business is in place, your security practice must keep growing with it.

DAN BONNET is director of small and medium business for North America at Dell SecureWorks, a global information services security company.

Tradecraft CONTINUED

Threats and technology

constantly change.

Even when you can

rank your insurance

company as very

secure, it must

continue its defensive

security strategies and

tactics to keep pace

with attackers.

62 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

3 *We know our market.Customer centricity and new technologies are needed to reach expand-ing markets. Our innovative risk management and financial solutions pro-vide direct writers with alternative means of accessing capital which can be deployed to pursue new lines of business or invest in infrastructure.

* million baby boomers reached age 65 in 2014, drawing upon savings while limiting further investments

Hannover Life Reassurance Company of America

200 South Orange Avenue, Suite 1900 Orlando, Florida 32801, USA

www.hannover-re.com Member of the Hannover Re Group

64 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G64 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

Cryptic Puzzle TOM TOCE

Web Designs

THE OUTER BLUE HEXAGON RING holds five six-letter words

starting at small triangles 1 through 5. The middle yellow hexagon ring

holds three six-letter words starting at 6, 7, and 8. The inner green

hexagon holds one six-letter word starting at 9. All the six-letter words

read clockwise, with no scrambling. The sides of the large hexagon

also form the bases of six equilateral triangles. Nine-letter words can

be made from the entries in the small triangles of each large triangle.

These nine letters are not ordered and must be rearranged.

For Excruciating Level solvers, the clues are presented below and you must determine which lead to nine-letter words and which lead to six-letter words.

For Extremely Difficult Level solvers, the hints in the blue box below identify the nine-letter words.

For Very Hard Level solvers, the hints in the yellow box below identifiy which hexagon ring the six-letter answers are entered into.

For Still Pretty Darn Hard Level solvers, the hints in the green box below reveal the starting position of each six-letter answer.

When you send me your solution, tell me at which level you should be listed.

All 26 letters in the alphabet are used. There are no proper nouns or foreign words. Everything is playable in Scrab-ble. There are two unusual words, one at clue e and one at clue o. Ignore punctua-tion, which is designed to confuse.

Thanks to Eric Klis, Bob Fink, and Jerry Miccolis for test-solving and edi-torial suggestions.

Cluesa. Roaring at a sibling’s prejudicesb. Zap biting bugs at christeningc. Imaginatively risqué country gentd. Skier’s smash-mouth

e. Discounting the odds? If we are, I’d try savagery

f. Wrapped companion editiong. Creating havoc by trying different

dishes after the openingh. Observed scattered dewiness around

Thursday

i. Problems appearing as general manager rages

j. Computer controls Mark’s thrills initially

k. Tuned up car for a funeral procession—with red exterior?

l. One of the little women she had teased

m. Expect Gaga to objectn. Conditioned to relieve FX spreado. Variety, especially, and lightness,

to some extent, can be an uplifting process

TOM TOCE is a senior manager for

actuarial services with Ernst & Young in

New York and is a member of the Jeopardy

Hall of Fame.

1

6

9

2

75

8

4

3

HintsExtremely Difficult LevelThe nine-letter words are at b, h, i, j, k, and n.

Very Hard LevelThe six-letter answers are placed in the rings as follows:

■ ■Outer ring—c, e, f, g, and l■ ■Middle ring—a, d, and o■ ■Inner ring—m

Still Pretty Darn Hard Level■ ■Outer ring—Clue c’s answer starts in triangle 1, Clue e’s in 2, Clue l’s in 3, Clue g’s

in 4, and Clue f’s in 5■ ■Middle ring—Clue o’s answer starts in triangle 6, Clue d’s in 7, and Clue a’s in 8■ ■Inner ring—Clue m’s answer starts in triangle 9

64 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

Previous Issue’s Puzzle—Three-Wheeler

Solutions may be emailed to [email protected].

In order to make the solver list, your solutions must be received

by Sept. 30, 2015.

1

2

3

E

R

T4

5

6

I

N

M 7

8

9

L

L

A 10

11

12

N

C

I13

14

15

L

N

O

16

17

18

T

O

S

19

20

21 O

G

B

22

23

24 AN

G252627 EA R

28

29

30 ON

S31

32

33

A

R

W34

35

36

H

O

E37

38

39S

E

U

40

41

42

A

M

J

43

44

45

I

N

N

46

47

48

S

T

E49

50

51

E

P

E52

53

54

O

D

B55

56

57

I

L

B58

59

60

T

E

A61

62

63A

L

R64

65

66A

G

I

67

68

69A

V

O

70

71

72W

H

O73

74

75

P PI76 77 78

T ZO79

80

81

R

I

A82

83

84

O

R

G85

86

87A

N

B

88

89

90

N

A

A

91

92

93

I

C

T

94

95

96

R

C

A97

98

99

N

T

AClockwise Clues1. TERMINAL—anagram of “tramline”2. LINCOLNS—L (“left”) + COL

(“Colonel”) inside INNS (“hotels”)3. TOBOGGAN—anagram of “Go to

bang”4. REASON—anagram of “Señora”5. WAREHOUSE—WARE

(homophone of “where”) + HO (“a prostitute”) + USE (“to do drugs”)

6. JAM—reversal of MAJ. (“diminished Ionian mode”)

7. NINE—homophone of NEIN (“Germans? No” = Germans’ no)

8. STEEP—double definition9. BOD—BO + D (“Diddley’s first”)10. BILATERAL—BILL surrounding A

+ T (“one-time”) + ERA (“term”)11. IAGO—I (“Italy”) + AGO (“in the

past”) & literally12. AVOW—Hidden in “AVocation’s

workflOW”13. HIPPO—double definition14. TZAR—ZA (“pizza”) inside TR

(“right, but the wrong way”)15. IGOR—(R)IGOR (“Strictness, after a

fashion”)16. BANANA—BAN (“Forbid”) + AN + A

(“apple at the start”)17. TIC—homophone of TICK (“the

sound of a time bomb”) 18. ARC—anagram of “car”19. ANT—anagram of “tan”

Counterclockwise clues20. ANTARCTICA—anagram of

“cataract in”21. NAB—NAB(OK + OV) (“all right, and

everything else gets censored”) 22. ANGORA—anagram of “or a nag”23. RIOT—anagram of “Trio”24. ZIPPO—double definition25. WHOA—WHO (“which person, not

any particular”) + A (“one”)26. VIAGRA—VI (“six”) + AGRA (“City

of Taj”)27. LATE—LAT(T)E (“Starbucks order

missing one teaspoon”)

28. BILBO—BIO around LB (“Pound”)29. DEEPEST—reversal of PEED

(“Urinated”) + EST (“time for New Yorkers”)

30. NINJA—N (“born”) + IN + JA(PAN) (“Japan without censure”)

31. MUSEE—MU (“Mean”) + SEE (“to visit”)

32. HOW—anagram of “Who”33. ARSON—anagram of “sonar”34. REAGAN - anagram of “Age ran” 35. BOG—reversal of GOB (“Sailor”)36. STOOOL—anagram of “Tools”37. NIN—IN rotated (“In more ways

than one”) and Anaïs Nin38. CALL—C (“the third of December “)

+ ALL (“everyone”)39. MINTER—anagram of “term in”

Solvers using no hints:Michael and Jina Accardo, Bob Campbell, Lois Cappellano, Chris Carlson, Michael Dolan, Greg Dreher, Deb Edwards, Bob Fink, Laura Forbes, Phil Gollance, Paul Haley, Pete Hepokoski, J & J Holloman, Ruth Howald, Ruth Johnson, Eric Klis, Ken

Kudrak, Adrienne Lewis, Jerry Miccolis, Lee Michelson, Jim Muza, David & Corinne Promislow, Craig Schmid, Andrew Shewan, Sally Jane Smith, Dave Wallman

Solvers using hints (or not saying):Steve Alpert, Anthony Amodeo, Dean Apps, Chanel Au, Karl Baker, Glenn Bier, Geoff Clarke, Christian Coleianne, Jonathan Currier, Todd Dashoff, Charlie DeWeese, Mick Diede, Ellen Diedrichsen, Deborah Dubois, Mathew Eberhardt, Joseph Feinberg, Bruce Fuller, Walter Haner, Jason Helbraun, John Herder, Wade Hess, Catharine Hornby, James Jones, Paul Kolell, James Lamenzo, George Levine, Jeanette Manning, Liam McFarlane, Jon Michelson, Becky Moody, David Olsho, Alan Putney, Ram Raman, Danny Rhodes, Jay Ripps, Susan B. Schaefer, Bill Scott, Karen Skoglund, Sanjit’s Starlets, Doug Szper, T.O.C.E. (The Thousand Oaks Cryptic Enthusiasts: Sean Donohoe, Josh DenHartog, and Christine Liu), David Treble, Jon Turnes, Frank Zaret

SEP | OCT.15 C O N T I N G E N C I E S 65

Puzzles STEPHEN MESKIN

2 + 2 = 2 × 2

THAT LITTLE EQUATION is one of the things I found fascinating about

math when I was young. You might have felt the same way. When we

were a bit older (and “math” became “mathematics”), we realized that

there are only two solutions to a + a = a × a. They are a = 0, and a = 2.

It was a sign of our mathematical growth. Eventually we saw that the

number of solutions to a problem, 0, 1, 2, …, ∞ could be as interesting

as the solutions themselves—sometimes more so.

Another area of mathematical growth is to try to generalize: We see something interesting and we try to fit it into a big-ger context. Doing so helps us remember it, understand it, and, if we are very lucky, discover something new and interesting. But generalizing from one equation is like drawing a line given just one point; we don’t know which of many different directions to go in.

But then we notice the equation:

1 + 2 + 3 = 1 × 2 × 3

Suddenly a direction for generaliza-tion starts to emerge from the fog. We can look for solutions to equations like a + b + c + … + z = a × b × c × … × z. That is, are there numbers whose sum is equal to their product? So we see it was not the equations we were trying to generalize, but rather the question.

Initially the question was implicit, or maybe it was vague. It is the second ex-ample that gave it some context. In some cases it may take more than two cases to nail down an interesting generalization. Here two seems to work. But our ques-tion still needs to be refined.

■■ Do we allow repeats? YES, of course we do; our original example involves two 2’s.

■■ Do we allow 0? NO, 0’s lead to trivial solutions.

■■ Do we allow fractions? NO, fractions would give infinitely many solutions to a + b = a × b.

■■ Do we allow negatives? NO, negatives allow for solutions that are negatives of one another, for example –1, –2, and –3 would be a solution to a + b + c = a × b × c.

■■ Finally, rearrangements of a solution will be counted as the same solution. Equivalently, we will only accept solu-tions with a ≤ b ≤ c ≤ … ≤ z. We have come quite far. Let’s see how

well we can solve our generalized prob-lem. First we restate it as:

For n ≥ 2, find positive integers a1 ≤ a2 ≤ … ≤ an such that:

Σai = Πai

n n

i=1 i=1

Here’s a warm-up problem:1. How many solutions are there for

n = 2 and for n = 3?The main problems:

2. Show that there is at least one solu-tion for all n. If you want a hint, see below just above the solution to last issue’s puzzle.

3. Extend problem 1: Find the number of solutions for each n for n = 4 to 15.

Going FurtherThis brings me to a bit of a confession. We really didn’t have to throw out frac-tional solutions. But if we had left them in, it would have led us to a different generalization and a different problem to solve. Indeed, what really started me thinking about the problems posed above was a problem I saw in a recent issue of

The American Mathematical Monthly, Vol. 122, No. 3, March 2015, page 284. Problem 11,827 reads:

Show that there are infinitely many rational triples (a, b, c) such that a + b + c = abc = 6.

In this problem n = 3 and the common value of the sum and product is fixed at 6; in our posed problem we let these vary. On the other hand, while in our posed problems we restricted solutions to posi-tive integers, in the Monthly problem all rational numbers can be used in the solu-tions. And as a result of these tradeoffs, the Monthly problem asks for infinitely many solutions. So far I have been able to find only two: (1, 2, 3) and (–1.5, –0.5, 8). Can you discover others? I’d like to see them. (We will learn the answer to this problem in about two years given the Monthly’s publishing schedule. You will find out the answer to our posed prob-lems in about two months, if you haven’t already figured them out.)

So we have two interesting general-izations of the equation in the title. One generalization underlies the posed prob-lems, the other underlies the problem in the Monthly. My guess is that there are more. It would be interesting to read about any other mathematical general-izations you may think of. So please send them in; if I like yours, I may use it (and give you credit, of course).

[Hint for Problem 2: Try to generalize the solutions for n = 2 and n = 3 to all n.]

Solution to Previous Puzzle1. What is the probability that my young-est brother sees a family win a car in the first episode of Family Feud that he watches?

One could solve this as a Markov Chain, or you can realize that the prob-ability of seeing a family win its fifth match in a row is one-half the probabil-ity of a family winning its fourth match, which is one-half of winning its third match, etc. If families didn’t have to

Editor’s note: This is the inaugural puzzle by new puzzle

co-editor Stephen Meskin. Solutions may be emailed to

[email protected].

In order to make the solver list, your solutions must be received

by Sept. 30, 2015.

WIK

IME

DIA

66 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

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retire after their fifth win in a row, the probability of seeing a fifth win would be (1/2)5 = 1/32, and the probability of see-ing a was family win six or more in a row is also 1/32. But since a family can’t win more than five in a row, we need to sub-tract 1/32 from the denominator, leaving us with a probability of (1/32) divided by (31/32), which equals 1/31.2. What is the probability my middle brother sees two families win a car in 10 consecutive episodes?

There are 15 episode pairs where it’s possible my brother sees two families winning a car: episodes 1 and 6, 1 and 7, 1 and 8 … all the way to episodes 6 and 10. We need to sum the probabilities of these pairs occurring to find our answer. For five of these pairs, including episodes 1 and 6, the probability is (1/31) × (1/2)4. (Notice that either family can win episode 2, so that’s why the exponent is 4 and not 5.) The (1/31) part of the equation is the probability of him seeing a car won on episode 1, our answer to the first puzzle.

In a vacuum, the probability of winning a car is the same in every episode, which means that the probability of him seeing a family win a car on episode 2, 3, 4, or 5 is also 1/31. For the remaining 10 of these pairs, including episode 1 and 7, the proba-bility is (1/31) × (1/2)5. In this case, it doesn’t matter who wins episode 2, but a family must win for the first time in episode 3, and then win out the remaining four epi-sodes. Hence the exponent is 5. The sum of the probabilities is therefore: 10 × (1/31) × (1/2)5 + 5 × (1/31) × (1/2)4 = 2.0%.

SolversChristopher Allard, Robert Bartholomew, Bob Byrne, William Carroll, Bob Conger, Andrew Dean, Bernie Erickson, Mark Evans, Bill Feldman, Yan Fridman, Renauld Guilbert, Rui Guo, Eric Kovac, Chi Kwok, David Lovit, Harold Luber, Lee Michelson, Paul Navratil, David Promislow, Craig Schmid, Matt Sedlock, Lenny Shteyman, John Snyder, Al Spooner, and Daniel Wade. Robert Bartholomew was accidentally left off the solvers list for the previous puzzle.

STEPHEN MESKIN is an adjunct

assistant professor of mathematics

at University of Maryland, Baltimore

County, where he teaches and advises

actuarial students.

SEP | OCT.15 C O N T I N G E N C I E S 67

End Paper BOB RIETZ

Walk, Walk, Walk

“ESTA IGLESIA ES MUY BONITA.” The cleric’s eyes lit up when

he heard this, and he showed us the features of his country church,

proudly describing their significance and age in a combination of Eng-

lish and Spanish.

This happened early on Day 2 of our Camino, a pilgrimage in northern Spain dating back almost 1,000 years. While the complete Camino Frances measures about 500 miles and normally takes a few weeks to complete, we walked only the last 75 miles in six days this past Octo-ber. Our pilgrims’ passports had enough ink stamps from hotels, cafes, and pubs along the way to confirm we had actually walked from Sarria to Santiago de Com-postela, earning us a pilgrim’s certificate.

But six days was long enough to create some lasting memories. I met a pilgrim on crutches, and walked with him for a mile or so, exchanging our reasons for go-ing on our respective Caminos. It rained continually the last four days, and de-spite our best ponchos and rain gear, we were always cold and wet after a couple of hours. We ducked into every available cafe for some café con leche, to warm us on the inside and to dry out. During one of these respites, a blind person sat down next to me. His traveling companion held 18 inches of hose at one end, and the blind

person held the other end. They walked over 100 miles connected by 18 inches of rubber for their entire Camino.

We saw a poster in the restaurant af-ter breakfast on our fourth day. A man with a metal prosthesis above his right knee was rejoicing in front the Cathe-dral of St. James the Apostle in Santiago, the end point of the Camino. My friends asked me to translate the words, and I told them the man was celebrating the completion of his 100th Camino—all with an artificial leg! Later that after-noon, we entered a clearing in the woods and came upon a smiling fellow sitting behind a small table. He was stamping pilgrims’ passports with wax melted from a candle, just like in the movies. As we got closer to the table, we could see that he had a metal prosthesis on his right leg. It was the man in the poster.

We met another pilgrim in his 80s who had started in France, and had been walking for six weeks. After seeing these four pilgrims on four consecutive days, we resolved not to complain about our

feet or the rain or the beds or anything else about our pilgrimage.

The Camino traverses different geo-graphic zones in northern rural Spain, where a town’s population is most likely under 100, and consists mainly of the farm families in the area. Very few people spoke ingles, so I was grateful for having studied español for the previous year in preparation for this trip. We managed to confidently order from the menú del día, always with an unlabeled bottle of local vino tinto. (I have a very funny commu-nication story, too long for this article, that I’ll tell anyone who asks me at an actuarial meeting.)

The sun finally broke through the clouds when we entered Santiago, though we had another eight miles be-fore we arrived at the cathedral. I met the pilgrim on crutches again, who told me he arose that morning at 5:00 a.m., as he did every morning, to get an early start before he walked 10 hours that day.

The cathedral exemplifies Middle Ages architecture, with construction lasting about 700 years. It also houses a museum with four floors of artifacts from around A.D. 1000 to the present day. The inside of the cathedral is sim-ilarly impressive, with over 20 small chapels ringing the main altar. The tomb of St. James the Apostle lies behind the main altar, and to touch the reliquary was a sublime experience. The five-foot Botafumeiro, a giant incense burner that takes eight men to hoist, hangs in the middle of all this and swings through a 140-foot arc. (You can view this cer-emony on YouTube; it was also featured on an episode of Anthony Bourdain’s No Reservations.)

Meeting friendly pilgrims, communi-cating in broken Spanish, eating peasant meals, and experiencing the Cathedral of St. James the Apostle made me under-stand that unplugging from our digital lives for a while can be very satisfying. IS

TO

CK

68 C O N T I N G E N C I E S SEP | OCT.15 W W W . C O N T I N G E N C I E S . O R G

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