Trouble in Paradise

Welcome

Things were going amazingly well at Security Life of Denver (see “The world needs another blog” to read the preface to this post). Kathryn and I were both working there, and both of us loved our jobs. But there were several flies in the ointment.

The first one was internal to Security Life. Besides building, updating, and operating the financial projection system (which had been my primary task when I first started working at SLD), I began to write data collection and statistical analysis programs. Lots of them. People in the actuarial department came to depend on these reports. They provided useful information about the company’s business. But the marketing department hated the picture the data were painting. For instance, death claims on the policies written by the company’s largest agencies were running about 150% higher than the company was assuming they would be. And overall mortality was about 25% above expectations.

Eventually the guys in marketing came to hate me, personally. I insisted on using accurate mortality assumptions in the financial projections I prepared, and these showed us making substantially smaller profits than the company was targeting. The marketing people said we should assume that our mortality experience would eventually improve. I insisted on the accuracy of my analysis of actual claims data. An actuary can’t just pick assumptions willy-nilly. He must pick assumptions that reflect reality.

The second fly in the ointment was the Board of Directors at ING, a Dutch financial conglomerate. (25 years ago, Security Life was a wholly owned subsidiary of ING. That company’s US operations were subsequently renamed VOYA.) ING had allowed SLD to function as an autonomous entity for many years. But about 1990 a number of the old timers retired from the Board. The new appointees were eager to show how much they had learned at business school. They decided to shake things up by forcing Security Life to merge with Life of Georgia, another of their US subsidiaries. This led to a huge culture clash.

Kathryn took the first hit. Life of Georgia decided that Security Life would have to migrate away from the “Pacesetter” (aka ALIS) system that had been running on an IBM mainframe for 20+ years and move its automated systems to a network of PCs running a system that had not yet been developed. Soon Kathryn was traveling to Georgia on a regular basis to consult with the design team for this boondoggle (which ultimately came to nothing — the last I heard, SLD was still running Pacesetter on a S/390 box). By the spring of 1994 she had gotten her fill of the new management. After looking over our finances (our house was fully paid for), I concluded that we could get along just fine without her paycheck. So she quit her job in April of 1994, after 10 years with SLD.

At about the same time, the Dutch Board of Directors decided to put the executives from Life of Georgia in charge of the combined companies. That meant my boss, Bob Jenkins, had to report to Linda Emory, who was a real piece of work. Bob couldn’t take it for long — he transferred out of actuarial and took a job in the programming department. That left Dan Fritz, an affable fellow just a few years older than I, in charge of SLD’s actuarial department. Dan lasted about six months, just long enough to land on his feet at VALIC in Houston, Texas.

Having driven two dedicated and hard-working actuaries out of the company in just eight months, Mrs. Emory next turned her sights on me. Her proposition was simple. I could be promoted to Senior Vice President if I would take the reins for SLD’s actuarial department, provided that I would willingly sign off on the company’s annual statement for the year 1994. I told her that I would accept the appointment as SLD’s actuary with one proviso: the “surplus relief” reinsurance treaty with ING in Holland — which obligated Security Life to make annual payments of roughly $750,000, but which would never allow SLD to obtain any actual cash benefit — would henceforth be reported as a $15 million liability, and not as a $180 million asset. This was totally unacceptable to Mrs. Emory. In the end she assumed the title of Chief Actuary at SLD, and some young whippersnapper from Georgia who had absolutely no knowledge of Security Life’s book of business signed the annual statement that year.

In January of 1995 I was informed that my services would not be needed after the 31st of March. My job function was being phased out. If I agreed to stay the whole three months and train my replacement (say what?),  I would receive a very generous severance package amounting to roughly $75,000. So on April 1, 1995 I joined the ranks of the unemployed.

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