by Larry Stern
Note from the Editors: This is part II of Larry Stern’s article; part I, highlighting the earlier stages and years of Larry’s entrepreneurial evolution, can be found in the August 2012 issue of The Independent Consultant.
During the first week of my employment, my boss took me aside and gave me advice that has remained with me ever since: “Actuaries automatically have two strikes against them when they walk into a room with other company staff— especially the marketing department. First strike: People assume you are better educated than they are. Second strike: You are paid more than most people in the company because you are an actuary. Your objective is not to get the third strike. Otherwise you will lose all creditability and people will never want to work with you again.” He also advised: “There is always an adversarial relationship between actuarial science and marketing. You have to overcome this obstacle. You have to become a good listener.” My career success can be traced back to this advice that I took to heart over 40 years ago.
My Indiana University (IU) business degree also came in handy as I worked with others. I understood marketing; my computer programming courses gave me insight into how programming is done; investment courses provided guidance on long-term vis-à-vis short-term investments risk. However, I was new to underwriting and policyholder services. The marketing people started to see me as a “marketing” actuary and took me on road shows to explain to the agents how the products worked and how to sell them.
I stayed with that first company for almost 10 years, making progress through the actuarial exams. One day, I received an offer to move to a large public company that was interested in developing a dividend-paying product. My experience was exactly what they were looking for. My father could not understand why, if I was not fired, I was going to change companies. He even called my former boss to inquire whether I had been let go. He had served in World War II and had worked for the government his entire life as an accountant.
Unlike the mutual company where actuaries were in all areas—actuarial department, policyholder service, IT department, investment unit and working with the CEO—the public company had 10 actuaries exclusively in the actuarial department. Remember the wise advice that I had received earlier? It came in handy here as well. I was hired as the product development (PD) actuary and leader of the PD team. The product that we developed for the company’s 75th anniversary broke all production records. Again, I was involved in rollout meetings with the sales force, putting those entrepreneurial skills to good use. At about this time in the early/mid-1980s, when universal life (UL) first came on the scene, my second company was riding the wave of success. The management team was too conservative to venture into the new world of interest-sensitive products. Members of the team thought that UL would not survive, that it was confusing for the customers, and that the administrative system was too complex to program.
After two and a half years, I received a call from a company exclusively marketing UL products. It was a stock company that had been in business for less than 20 years with a small actuarial department—the vice president & chief actuary and a staff of three that handled the reinsurance administration. The incumbent vice president & chief actuary had recently left. The senior vice president offered me the vice president & chief actuary position, which I accepted. My father called again.
I was part of a five-person management team, responsible for the actuarial work and all the facets of product development, including setting the interest crediting rates, which affect pricing. I viewed my role as the protector of the bottom line. Yes, the CFO could account for the bottom line, but the chief actuary was really responsible for understanding how premiums flow until they reach the bottom line.
Once again my mentor’s advice and the entrepreneurial skills came into play. I initiated a monthly meeting with the CEO and the senior vice president to review results and explain the technical aspects of the business. When the board of directors met, I was called to give similar explanations.
Unlike other insurers in the 1980s that were hampered by inflexible legacy systems, my company was able to administer UL products. My adage was that if actuaries can write the programs to carry out the actuarial calculations, the IT department should be able to create the administrative system. In other words, the product features should drive the system, not the other way around.
With the assistance of Tillinghast, we designed products that refunded the cost of insurance charges if the policy remained in force for a period of time. They became the top-performing products—another exercise in entrepreneurship.
After eight years and several changes in management, I decided to take the plunge and become a consultant. I saw consultants as the ultimate entrepreneurs—you help clients solve problems, while putting a share of your compensation at risk. My relationship with Tillinghast led to discussions to come aboard as a senior consultant, which prompted another call from my father. Fast forwarding, I see that my experience with innovative product development was a key for success and that having worked for three direct writing companies allowed me to empathize with my clients—I had sat in their chairs; I understood their concerns; I could help to solve their problems.
My tenure at Tillinghast gave me the opportunity to see how differently companies tackle similar tasks, some more successfully than others. I worked on a variety of different projects—product development, reinsurance, financial reporting, etc. I led the product development practice and was made principal in three years. I networked with other consultants around the globe, building long-lasting relationships. Computers now performed in seconds all those calculations I used to do by hand. I could review output and instantly recognize if there were errors with the results. After nine years, I was ready to take this experience back to a corporate environment.
With the bull equity market of the 1990s, several new offshore reinsurance companies were established. I was asked to join one as the head of financial reinsurance. This company wanted to leverage my consulting relationships to market reinsurance solutions. I viewed this new responsibility as an extension of my actuarial consulting experience. I was also intrigued to work for a relatively new start-up. Once again, as a member of the senior management team, and wearing several hats, the company began to gain traction. It was also fun living overseas.
I reached a point in my life and career where I needed to decide what I really wanted. The challenges of the start-up became complex with changing strategies, starting, stopping and turning around. Within two years I was ready to make the ultimate career move and “hang out my shingle.” But wait, I had been an entrepreneur in one form or another for my whole career.
For the last almost 10 years I have been a sole practitioner, consulting actuary and reinsurance intermediary. I assist companies with capital needs by securing reinsurance capacity. It is rewarding and frustrating—rewarding when transactions are completed (with compensation totally contingent), and frustrating when, as an intermediary, you are in the middle of the negotiations with no control over the decisions that others make. Clients continue to be those with whom I have had business and personal relationships over the years. I work with my wife—she is a CPA in charge of bookkeeping, employee benefits, tracking down client payments, etc. We are a successful team. We also travel together to places like New York, Chicago, LA, London, Paris and all points overseas.
To think it all began innocently on a winter’s day in 1959...
Until next time, may all your experiences be profitable ones.
Larry N. Stern, FSA, MAAA, is president of Canterbury Consulting, LLC, a sole practitioner providing life insurance and annuity actuarial consulting and reinsurance intermediary services located in Charlotte, N.C. He can be reached at firstname.lastname@example.org.