June/July 2013 Volume 10 Issue 3 HoW moDel RIsK DeVAsTATeD An oRGAnIZATIon The importance of a successful ERM program THe “eVoluTIon THesIs” oF InTeRnATIonAl THe eVoluTIon oF THInKInG CommITTee AT WoRK Delving deeper into actuarial thinking What are we doing, globally speaking? ‘ COVer stOrY 20 HoW ModEL risK dEVAstAtEd An orgAniZAtion To have a successful ERM program, companies must use a primary ERM model that is practical, transparent, flexible and realistic. A primary ERM model lacking these qualities can increase an organization’s exposure to model risk … sometimes to a devastating level. by sim segal FeatUres 12 uAP is not in our bEst intErEst—A PErsonAL ViEW The author of this article discusses his views on the CIA’s UAP. by bradley M. smith 14 tHE “EVoLution tHEsis” of tHE EVoLution of tHinKing Many of us talk about the evolution of thinking. Would we do better to substitute “proliferation” for “evolution” of thinking? This author thinks so. by Charalampos fytros ADVERTISING INFORMATION INQUIRIES ABOUT ADVERTISING SHOULD BE DIRECTED TO: M.J. MRVICA ASSOCIATES, INC. 2 WEST TAUNTON AVENUE BERLIN, NJ 08009 [PHONE: (856) 768-9360; FAX: (856) 753-0064; EMAIL: [email protected]] soA PrEsidEnt Contributing Editors Departments Tonya B. Manning Rod Bubke FSA, MAAA, EA, FCA FSA, MAAA 08 E ditoriAL [email protected] [email protected] HoW WELL do You KnoW Carl Hansen soA stAff ContACts FSA, EA, FCA, MAAA WHo WE ArE? Patrick Gould [email protected] Managing Dir. of Marketing & Communications Jay Jaffe 10 LEttEr froM tHE PrEsidEnt [email protected] FSA, MAAA s uPPorting our [email protected] Lisamarie Lukas intErnAtionAL strAtEgY Dir. of Communications Wilbur Lo [email protected] FSA [email protected] Karen Perry 28 gLobALLY sPEAKing Publications Manager Karin Swenson-Moore intErnAtionAL CoMMittEE [email protected] FSA, MAAA At WorK [email protected] Jacque Kirkwood Magazine Staff Editor Timothy Paris [email protected] FSA, MAAA 31 P oint of ViEW Erin Pierce [email protected] ArE ACtuAriEs ProfEssionALs? Graphic Designer James Ramenda [email protected] FSA, CERA 34 E duCAtion [email protected] The Actuary is published bi-monthly (February, intErnAtionAL outrEACH— April, June, August, October, December) by the Lloyd Spencer Society of Actuaries, 475 N. Martingale Rd., Suite FSA, CERA, MAAA WHAt HAVE WE bEEn doing? 600, Schaumburg, IL 60173-2226. Periodicals post- [email protected] age paid at Schaumburg, IL, and additional mail- ing offices. USPS #022-627. Larry Stern 38 A LooK into ErM This publication is provided for informational FSA, MAAA and educational purposes only. The Society of [email protected] ErM in tHE HiErArCHY of Actuaries makes no endorsement, representa- tion or guarantee with regard to any content, CorPorAtE nEEds Kurt Wrobel and disclaims any liability in connection with the use or misuse of any information provided FSA, MAAA herein. This publication should not be construed [email protected] 40 s ECtion HigHLigHts as professional or financial advice. Statements of fact and opinions expressed herein are those of The Actuary welcomes both solicited and unsolic- tHE VALuE of sECtion the individual authors and are not necessarily ited submissions. The editors reserve the right to those of the Society of Actuaries. accept, reject or request changes to solicited and LEAdErsHiP unsolicited submissions, as well as edit articles The Actuary is free to members of the Society of for length, basic syntax, grammar, spelling and Actuaries. Nonmember subscriptions: students, punctuation. The Actuary is copyedited according $22; North American $43; Int’l $64.50. Please send to Associated Press (AP) style. 42 o ut of tHE offiCE subscription requests to: Society of Actuaries, P.O. Box 95600, Chicago, IL 60694-5600. For more information about submitting an article, ACtuAriEs on tHEir oWn tiME please contact Jacque Kirkwood, magazine staff PostMAstEr: send address changes editor, at (847) 706-3572, [email protected] or to the soA, c/o Communications Society of Actuaries, 475 N. Martingale Rd., Suite department, 475 n. Martingale rd., 600, Schaumburg, IL 60173-2226. 46 t HE soA At WorK suite 600, schaumburg, iL 60173-2226. soA rEsEArCH—MAKing ©2013 Society of Actuaries. All rights reserved. No part of this publication may be reproduced in any An iMPACt form without the express written permission of the Society of Actuaries. June/July 2013 issue of The Actuary Editorial HOW WELL DO YOU KNOW WHO WE ARE? By lARRy sTeRn my CAReeR As An ACTuARy spans sections, and members of the SOA staff, about a. Wright more than 40 years. When I first started as an 80 in all—we were pre-assigned at tables of b. Newton actuarial student, my calculator was a “clunker” eight. One of the team-building exercises was c. Holmes Smith Corona Marchant—big, clumsy and a quiz on how well we knew who we are as d. Batten noisy. I entered numbers by pushing buttons a profession, historically speaking. People at e. Ruskin and hitting a key. The SCM would spin like each table worked as a group to answer the a one-armed-bandit. After a few seconds questions. We were given about 20 minutes 2. Who was the first Canadian actuary? the answer would appear. No computers in to complete the task. Even with all the “those days.” What it took me to accomplish knowledge and experience in the room, it a. Ezekiel B. Elliott in three months during my first summer as an surprised me how few of us could correctly b. Hugh Baker actuarial student can now be completed in a answer the questions. c. John B. Cherriman nanosecond. My, how time has flown! d. Charles McCay I thought it would be a fun challenge for the e. William Bard To maintain my status to render actuarial membership to take the same quiz. Your prize opinions (and keep current on actuarial/ is the satisfaction you realize by knowing the 3. Who was the first U.S. actuary? financial services industry activities), correct answers. (For those of you who are I attend SOA and industry-sponsored stumped, the answers appear later in this a. Robert Patterson meetings/seminars/conferences/webcasts edition of The Actuary. We thought about b. Nathanial Bowditch to obtain continuing education credits. But holding them until the next edition but c. Charles Gill every time the syllabus changes, I double waiting that long just might conjure up d. Elizur Wright check to ensure my FSA designation has memories of waiting for exam results.) So e. Jacob Shoemaker been “grandfathered.” I recently proctored here you go, and good luck! an associate-level exam in my city for an 4. What year did the Society of Actuaries individual and I have to admit, I don’t think Note: A special thank you to SOA Director of officially come into existence as an I could have answered the first question! My, Governance Sheree Baker for compiling the incorporated body? how times have changed! questions and researching the answers. a. 1927 Which begs the question: how well do THe quIZ sTARTs HeRe. b. 1909 you know who we are? At a recent SOA c. 1937 Leadership Conference—those in attendance 1. Who wrote the SOA motto, “The work d. 1949 were members of the Board, Leadership of science is to substitute facts for e. 1956 Development Committee, the Nominating appearances and demonstrations Committee, chairs and vice-chairs of all the for impressions?” 08 | THe ACTuARy | June/July 2013 5. What year was the first female actuary c. 1960 Society is measured appointed to an actuarial position? d. 1955 by, and reflects its e. 1952 willingness to fight a. 1898 for, what it believes b. 1910 Bonus: What year was the preferential ballot to be right”— c. 1866 for president-elect introduced? Thomas P. Bowles, Larry Stern d. 1922 Jr., SOA president 1972-73 e. 1931 10. Who was the first female president of the SOA? C. “The Committees are the working fabric Bonus: Who was the first female actuary? of the Society. At the present time, about a. Anna Rappaport 500 members serve on committees. This 6. Where was the earliest actuarial club b. Daphne Bartlett is remarkable membership participation, formed in North America? c. Emma Warren Cusman and it reflects the high esteem in which d. Barbara Lautzenheiser we hold society membership.”—Donald R. a. New York e. Tonya Manning Sondergeld, SOA president 1990-92 b. Toronto c. Hartford 11. How many countries are represented 1. SOA President Vogel made d. Philadelphia by SOA membership? statement A. True or False e. Quebec 2. SOA President Bowles, Jr. made a. 76 statement B. True or False 7. The name for the Society of Actuaries b. 55 3. SOA President Sondergeld made was selected by a vote of 112 to 82. c. 42 statement C. True or False What was the other name that was d. 87 4. SOA President Vogel made considered? e. 94 statement A and SOA President Bowles, Jr. made statement B. True a. Actuarial Society Here’s some extra credit for all you or False b. American Institute of Actuaries overachievers. Read statements A, B and C 5. All three SOA presidents made c. Fraternal Actuarial Association before answering questions 1 through 5. each individual statement attributed d. North American Actuarial to them. True or False Association A. “Actuaries generally have positions of e. Association of Actuaries considerable influence in their companies. Answers are on page 47. Well, how did you I think it is up to us to use that influence do? 8. The Society of Actuaries’ first president wisely and for the good of the general was: public as well as for the good of our own Until next time, may all your experiences be … companies ... . We should remember that profitable ones. A a. Benjamin T. Holmes in the long run what is best for the public is b. Walter Klem what is best for the companies; otherwise Larry Stern, FSA, MAAA, is president of Canterbury c. Henry E. Rood the companies will not survive.”—Julius Consulting LLC. He can be contacted at larry_stern@ d. Edmund M. McConney Vogel, SOA president 1979-80 earthlink.net. e. Wendall A. Milliman B. “If we are to mature as a public profession 9. The office of president-elect of the and … achieve the public recognition SOA was created in what year? that we … believe we deserve, we must tackle with intelligence, understanding and a. 1949 mature perspective those problems which b. 1965 fact us today. The long-term vigor of the June/July 2013 | THe ACTuARy | 09 Letter from The President SUPPORTING OUR INTERNATIONAL STRATEGY By TonyA B. mAnnInG you HAVe HeARD quite a bit over the past faculty and students, employers, and the One professor and several students few years from the SOA about our international media. Our purpose was to better understand expressed an interest in expanding strategy. Simply put, the overarching goal of the needs of our members, learn what we opportunities through applying actuarial our international strategy is to have the FSA should expect with regard to growth of the science outside of the traditional actuarial designation be recognized as an international profession, and find out what opportunities fields, such as financial engineering or credential that translates globally. exist for partnerships with universities, banking. We discussed how we currently employers and local actuarial organizations. structure our courses and what changes We know that globalization is providing might be made to allow students to be opportunities for actuaries around the world It was both an educational and inspiring better prepared to apply actuarial science and we are seeing a growing number of experience that helped me better understand in another complementary discipline. candidates from outside North America taking both the region and the opportunities and I have had this same idea proposed by our exams. We want to be sure that wherever challenges that are presented there. faculty and students at North American our members practice, the FSA designation is universities, and it is something the SOA accepted and appropriately recognized. unIVeRsITy VIsITs is exploring. We are already developing During our 12 days, we visited five universities. more professional development content Additionally, all organizations are facing It’s always energizing to be on a university that leverages leading-edge investment and risk management challenges that can cross campus. There’s an eagerness for learning risk management content with applications multiple disciplines. The SOA must ensure and a contagious excitement about the outside of insurance, and we will continue to that its educational system is equipping future. The students I talked with had a expand the continuing education offerings actuaries with the skills to address the full number of questions, and certain topics for business skills and communication spectrum of risk management issues. That is clearly stood out as most important to them. skills. There is much more to be done why our international strategy depends on to fully explore new paths for actuaries, our offering general insurance (or property Students want to have a better understanding and the unique needs and opportunities and casualty) education. of the daily responsibilities and duties of for actuaries working in Asia should be an actuary. In addition, some were in the considered and leveraged. To help support our international strategy, process of weighing an actuarial career with I recently took my first trip to Hong Kong other careers, so they particularly wanted Overall, talks with the students at the and China. Over 12 days, Ken Guthrie, SOA to know, “What are my opportunities for universities confirmed the importance of managing director of Education, Wai Ling employment?” With the fast-paced growth of having a solid relationship with those taking Yung, SOA program manager based in Hong the insurance industry in Asia, opportunities our exams. It is clear that the needs and Kong, and I met with SOA members, university are expected to remain strong. expectations of exam takers are changing. 10 | THe ACTuARy | June/July 2013