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Pioneer: Sim Segal Creating Something New

Pioneer

CREATING SOMETHING NEW

By Sam Phillips

SIM SEGAL has been nominated as a pioneer for his work in enterprise risk management—he created a new market for actuaries in the nonfinancial services sector. Here's how it happened.

Q: Tell us the story of your actuarial career.

A: When I was a kid, someone told me that I should be an actuary, since it was the only way to make any money if you were good at math. I asked, "What does an actuary do?" and he answered, "You sit in a room and you count dead people!" So I dismissed an actuarial career until I happened to meet a cool actuary at one of my college graduation ceremonies, and found out what an actuary really does.

I was fortunate enough to begin my career at MetLife, which, over 16 years, gave me the opportunity to gain experience in virtually all major product areas and actuarial functions, and work with some of the best and brightest in the field. During the last several years there, I helped enhance MetLife's capital management practices in advance of their going public. This included advising executives on the implications of being the first successful U.S. insurance company to implement economic capital, and helping to integrate economic capital into strategic planning, pricing and financial reporting. I also led one of the Initial Public Offer (IPO) teams, which was a rare and valuable experience.

I had always been told that I had skills that matched up well with consulting—flexibility, creativity, thought leadership, business savvy, etc.—and when MetLife moved out of Manhattan, I decided to explore opportunities in consulting, which I have been enjoying ever since. My primary area of specialty is enterprise risk management (ERM)—helping companies understand and increase their enterprise value, make better risk–to–value tradeoff decisions, and protect their value from risk.

I have also had the continuing and rewarding opportunity to give back to the profession in a variety of capacities. I am currently serving as a member of the SOA Board of Directors, and have previously served as chair of the Management and Personal Development Section and as president of the Actuarial Society of Greater New York. While it is personally satisfying to make a contribution to the profession, committee work also involves direct work benefits, since it is essentially free training in business savvy, including leadership, management and communication skills. For this reason, I often encourage others to consider some type of committee or volunteer work.

There were two keys to the direction my actuarial career has taken. First, I had some good mentors and managers along the way. Second, I had a clear sense of direction, and advanced along my path by either seizing or creating opportunities at critical junctures.

Q: Please explain what led to your innovative approach to ERM and how this developed a new market for actuaries in the nonfinancial services sector.

A: I remember that the treasurer of a top–5 U.S. insurer asked me, "Sim, I see that ERM is important intuitively, but how do I make the quantitative business case to my boss that we should be spending resources on this?" I realized then that ERM, in the form that virtually everyone was doing it, didn't have a built–in business case. ERM is traditionally connected to capital, or the risk side, or downside of the equation. But a business case must capture the impact to value, or the upside.

I had done a lot of work in value–based management—understanding value drivers and managing value upwards—and I had done a lot of work in what was then becoming known as ERM, and I realized that the two concepts needed to be combined. This is how I developed the value–based ERM approach—a combination of risk management and value–based management. It is essentially comprised of simple fundamental elements, but put together in a new way.

This approach has multiple benefits. First, it enables companies to quantify operational and strategic risks, rather than just financial risks. Second, it links ERM information to decision–making. Third, it works equally well for all types of companies, not just insurance companies.

Q: Have actuaries been taking advantage of the new opportunities that have been created by your innovation?

A: Yes. As a result of this innovation, I have led teams of actuaries in ERM consulting projects at a wide variety of companies—insurers, manufacturers, telecommunications, national defense, credit cards, etc. This work is fun and very interesting and actuaries love it! Actuaries get to learn other businesses, and apply their skills in new ways. The strategic nature of the work also gets actuaries working with the C–suite, and it is always rewarding to know you are contributing to the most important decisions in the firm. I also see a high level of interest when we recruit new talent to the team, since this work offers a combination of two hot areas for actuaries—experience in ERM and the opportunity to work for noninsurance companies.

Q: You also have expertise in stochastic retail financial planning. What led to that opportunity?

A: This is an exciting area that involves applying actuarial science to a problem faced by most Americans: "What portfolio of products do I need to allow me to retire comfortably?" Financial planners attempt to address this problem, but they do not approach it holistically. They only address financial risk, stochastically projecting returns of investment products and recommending an allocation between stocks, bonds and cash.

A colleague of mine, Jay Vadiveloo, Ph.D., FSA, MAAA, CFA, developed an actuarial approach that addresses all the risks involved—e.g., mortality, morbidity, longevity—and stochastically projects outcomes affecting both investment and insurance products. The result is a comprehensive portfolio allocation of life insurance, health insurance, immediate annuities, deferred annuities, stocks, bonds and cash, which yields superior risk–return profiles. This essentially applies the concepts of ERM at a lower level of abstraction—at the level of the retail customer. Insurance companies can use this approach in a variety of ways, including the sales process, customer segmentation and marketing efforts, and product development.

I was thrilled to get involved in this area, as I had wanted to do so ever since modeling my parents' retirement. Years ago, when my parents were about to retire, I put together a simple spreadsheet model to project their financial situation, including some deterministic shock scenarios. When I brought my parents' account data and my model output to the gleaming midtown Manhattan offices of a leading financial planning firm, I was surprised by what I learned. Their two top retirement experts asked me, "What software did you use to develop these projections?" When I explained it was my own model and not professional software, they expressed relief and explained that even their recently revamped software did not have the capabilities of my (simple) model. This was the state–of–the–art in financial planning? At that moment, I realized that actuaries could significantly enhance financial planning for retirees.

Q: What has been your most memorable achievement?

A: At the end of my life, I think I'll look back most fondly at those times when I was able to help people along their path. I often get involved with helping new entrants into the profession, either offering guidance or helping them land an opportunity. I also love mentoring and helping actuaries develop the skills they need to advance. When you can help people change their life path, help them achieve their goals, you've changed their whole world.

Q: What advice would you offer to up–and–coming actuaries?

A: First, it's never too early to think about what type of work you want to do. The earlier you identify this, the earlier you gain the experiences and skills you will need to get there. Second, look for opportunities to apply actuarial skills in new ways. We actuaries can be far more involved than we are currently in decisions impacting society, like national health care, the global financial crisis, the green energy movement or even the forecasts involved in the government's annual budget process. If we have more actuaries thinking about the larger issues and how we can get involved, we will start to make more inroads. Finally, I would offer to help personally. To any actuary out there who thinks I may be able to help them in some way, please feel free to contact me at sim.segal@watsonwyatt.com.

Sim Segal, FSA, CERA, MAAA, is U.S. leader of ERM Services for Watson Wyatt Insurance and Financial Services, Inc. He can be contacted at sim.segal@watsonwyatt.com.

Sam Phillips is a communications associate at the Society of Actuaries. He can be contacted at sphillips@soa.org.