Friday, October 29, 2004

Spitzer & Cherkasky
Mike Cherkasky, the new CEO of Marsh & McLennan, gave $12,000 to New York State Attorney General Eliot Spitzer earlier this year, even though he was not running for office, according to The contribution was one of four Cherkasky has given to Spitzer since 1998 for a total of $18,500, according to the site.

He [Cherkasky] also confirmed that he and Spitzer are good friends, they play tennis together and that Spitzer contributed "a few thousand dollars" to Cherkasky's 1993 campaign for Westchster County, N.Y., district attorney.

"Eliot considers Cherkasky to be a friend and a mentor," said Marc Violette, a spokesman in Spitzer's Albany office. "They have a long-standing relationship. It's not unusual in that context for Cherkasky to contribute to Eliot's campaign." The relationship between the two men goes back to the 1980s, when Cherkasky served as Spitzer's boss in the Manhattan district attorney's office. He has since referred to Spitzer as one of the most capable prosecutors he has ever worked with, and the two men are close friends, according to a source familiar with their relationship.

Wednesday, October 27, 2004

SOA Exam 5

I took it today. Think I did OK, but don't know if well enough to pass. This exam is grueling. Grades don't come out until January 14, so I'll have tons of time to worry about it. By the time grades come out I'll actually already be studying for the next exam in May.


Saturday, October 23, 2004

SOA Education Redesign

The Society of Actuaries (and to a lesser degree the Casualty Actuarial Society) has a byzantine exam process to which I have alluded previously. The current system was implemented on 1.1.2000 and is changing again in phases over the next couple of years. Information on the new design is on the SOA website. The short version is that what's currently Exams 1-4 (preliminary education) is changing on 1.1.2005, and what's currently Exams 5&6 (Associateship education) are ending on November 2005 and May 2006, to be replaced with a series of "e-learning modules" and a "control cycle." (I think they've been talking to professors of education.) The current Fellowship education is changing somewhat less radically than the other levels and will mostly consist of two exams (design & pricing and company/sponsor perspective).

The two most recent documents on this redesign -- Preliminary Education Syllabus Annoucement and Process for Validation by Educational Experience -- were released by the SOA earlier this month.

MMC CEO not to step down?

Marsh's stock surged as much as 10% in the early afternoon after the Financial Times reported that embattled Chairman and Chief Executive Jeffrey Greenberg would resign "within hours." The newspaper's Web site also reported that Jules Kroll, 63, founder of corporate security firm Kroll Inc. and a vice chairman of insurance brokerage unit Marsh Inc., would succeed Greenberg. But Kroll quickly issued a statement denying the report as "erroneous," cooling enthusiasm for Marsh shares. The stock closed up 7.8% at $26.79 on the New York Stock Exchange.

Wednesday, October 20, 2004


One year in my current job. Not really anything to say about that, but it's been a good year.

Tuesday, October 19, 2004

Tumble in insurance sector continues

U.S. insurance probe widens as investors flee
Ace, Aon tumble again on Spitzer probe

The probe into insurance bid rigging by New York Attorney General Eliot Spitzer widened to health insurers on Tuesday and threatened to go nationwide as at least three more states (California, Connecticut and Pennsylvania) said they are looking into the matter.

MetLife, the largest U.S. life insurer, and UnumProvident, the largest disability insurer, also said they had received subpoenas from Spitzer.
  • Aetna (AET) lost 11.8%
  • Cigna (CI) lost 10.3%
  • UnumProvident (UNM) lost 9.8%
  • Aon (AOC) lost 9.7%
  • Ace (ACE) lost 6.3%
  • Marsh & McLennan (MMC) lost 5.7% (four-day decline of 48%)

Monday, October 18, 2004

Taking 401(k) Distributions

A recent study [by Hewitt Associates] reveals that 68% [!] of those who changed jobs in 1999 kept retirement plan distributions from the old job instead of transferring that cash to an IRA or a new employer's plan. (*)

This is money for your retirement. A disturbingly large number of people view such distributions as a "windfall" or "found money" and use it to buy a car or go on vacation. There is only thing to do with this money - roll it over into another tax-deferred retirement savings mechanism!

One objection which is often raised when I say this is that an employee who is laid off may need this money for day-to-day bills. Well, my first thought is that if you don't have an emergency fund set up, you shouldn't be contributing to a 401(k) in the first place. But there's no use crying over spilt beer, so let's just look at what the right thing to do is you do happen to find yourself in this unfortunate situation.

You should still roll it over into an IRA. Here's why... If you take a taxable distribution, you pay federal income tax, state income tax and the penalty tax up front and on the entire amount. If you instead roll it over and withdraw funds from the IRA only as needed, you pay the taxes only on what you end up actually needing, which could save you a substantial amount. Furthermore, you pay these taxes at the end of the year when you file your tax return. If you are in a situation dire enough that you are tapping into your retirement funds, this is not an insignificant consideration.

(*) Registration may be required. It's free, and The Motley Fool has a lot of great financial information. You can use BugMeNot to go ahead and browse their site.

Friday, October 15, 2004

Marsh axes brokerage head, Appoints Cherkasky (Kroll chief)

Marsh & McLennan removed the chief executive of its Marsh Inc. insurance brokerage unit, the day after the firm was was charged with rigging insurance transactions by New York State Attorney General Eliot Spitzer. Michael Cherkasky takes over as chief executive of Marsh Inc. immediately, the company said, replacing Ray Groves, who had been Marsh's CEO since 2003. Cherkasky was chief executive of Marsh Kroll, the company's risk consulting unit, formed earlier this year after Marsh & McLennan bought investigation and security company Kroll Inc. for about $1.9 billion.

Two AIG Executives Guilty

Two AIG executives were arrested yesterday and pleaded guilty in the case. New York-based American International was cited in the Spitzer lawsuit but not named as a defendant.

Two AIG executives pleaded guilty to participating in the illegal conduct and are expected to testify in future cases.

More on the Spitzer probe

Insurance Journal's website has several articles related to the breaking Spitzer Marsh lawsuit story.

AIG Chairman Maurice Greenberg today said he does not think the charges brought by New York Attorney General Eliot Spitzer against giant insurance broker Marsh McLennan will hurt his company's business but that they could lead to more disclosure and even changes in the way brokers are paid.

Marsh & McLennan Companies announced today that its risk and insurance services subsidiary will immediately suspend its practice of market services agreements (MSA) with insurance carriers.

Maurice "Hank" Greenberg, chairman and chief executive of American International Group, said Friday the firm will likely stop paying fees that are at the center of a growing scandal in the insurance industry.

NY Attorney General Complaint

I've uploaded the text of the actual complaint against Marsh to my website at (Adobe Acrobat Reader required).

For those who are not familiar with the insurance brokerage business involved in this lawsuit, the first few sections of this document provide a fair amount of introductory level explanation.

As far as the actual charges, the lawsuit alleges incidents such as the following...

53. An example of the operation of this system is evident in the bidding for the excess casualty insurance business of Fortune Brands, Inc., a holding company engaged in the manufacture and sale of home products, office products, golf products, and distilled spirits and wine. On December 17, 2002, an ACE assistant vice president of underwriting sent a fax to Greg Doherty, a senior vice president in Marsh Global Broking’s Excess Casualty division, quoting an annual premium of $990,000 for the policy. [ACE-INA-005754] Later that day, ACE revised its bid upward to $1,100,000. On the fax cover sheet with the revised bid, ACE’s assistant vice president wrote: "Per our conversation attached is revised confirmation. All terms & conditions remain unchanged." [ACE-INA-005755-6]. An email the next day from the assistant vice president to an ACE vice president of underwriting explained the revision as follows: "Original quote $990,000 . . . We were more competitive than AIG in price and terms. MMGB requested we increase premium to $1.1M to be less competitive, so AIG does not loose [sic] the business. . ." [ACE-INA-005757]

72. As part of its vigorous effort to steer the Greenville contract to Zurich, Marsh sought a false bid from a competing insurer and then, despite that insurer’s refusal, submitted a wholly fictitious bid on that insurer’s behalf. On December 16, 2002, Glenn R. Bosshardt, the Global Broking vice-president assigned to the project and Joan Schneider’s subordinate, contacted an assistant vice-president of underwriting at CNA, an individual with whom he had previously worked and who had already told Bosshardt that CNA had no interest in bidding on the Greenville project. In an email Bosshardt stated: "[P]er my voicemail, we need to show a CNA proposal. I will outline below the leading programs (ACE & Zurich). I want to present a CNA program that is reasonably competitive, but will not be a winner." [Marsh-NY 89930] Bosshardt proceeded to reveal the ACE and Zurich quotes on the project and then proposed numbers that CNA should quote in order to lose the bid but still appear to have been competitive. Although CNA never authorized Marsh to submit this bid, it was submitted to Institutional Resources as a legitimate competing bid. [Marsh-NY 89630-31]

Thursday, October 14, 2004

Insurers' Stocks Plunge on Spitzer Probe

Marsh & McLennan (MMC) shares plunged more than 20 percent Thursday after the giant insurance broker and several major insurers were charged by New York Attorney General Eliot Spitzer with market manipulation. Insurance giant AIG (AIG) dropped 10.4% to $60.

Others insurance brokers and insurance companies that weren't named in the lawsuit also fell. Aon (AOC) dropped 16.2% to $23.18.

Monday, October 11, 2004

PBGC Deficit Could Double

Plan terminations by United and another bankrupt carrier, US Airways Group Inc., would nearly double the PBGC's current deficit of about $9 billion. And it could get much worse.

Friday, October 08, 2004

401(k) Participation Rate Slips

The Wall Street Journal, 06-Oct-2004, Midwest ed., p. C15

Participation rates in 401(k) plans slipped last year, according to the Profit Sharing/401(k) Council of America's newest annual survey. Only 76% of eligible employees participated in their plans last year, compared to 80% in 2002. David Wray, president of PSCA, said young people may have been scared away by the stock market declines of recent years, regulatory investigations into improper mutual fund trading practices, and fund fees.
It seems with the jittery market we've been experiencing lately, people are backing off their 401(k) accounts again. Many people have told me, "Because of the market, I don't want to risk money in my 401(k); instead I'm going to [insert name of favorite investment advisor] and investing with them."

This is wrong on so many levels.

1. You're foregoing the tax benefits of before-tax 401(k) withdrawals. If you have $2,000 to invest, plopping it into your 401(k) puts $2,000 to work for you. If you take it in after-tax money, you'll have somewhere in the neighborhood of only $1400 working for you.

2. You're leaving free money on the table; if you make just $33,000 and your company matches half of the first 6% you contribute, we're talking about one thousand dollars! By not contributing into your 401(k) at least up to the level that your company matches, you are losing out on tons of money that you've earned.

3. You shouldn't really be looking at the short-term fluctuations of the market in making decisions about retirement money that you won't need for thirty years. But, in any event, if you decided that you didn't want to put the money in stocks and wanted a super-safe cash-equivalent alternative, ALL 401(k) plans have a money market fund or other cash-equivalent account in which you can invest.

4. You can invest in your 401(k) with little or no fees beyond the (often surprisingly high) fees charged by the mutual funds themselves. An investment advisor needs to charge you additional fees to cover their own expenses, often just to end up putting your money in the same types of mutual funds you could put it in yourself.

5. Often, once your particular investment needs are correctly identified, it turns out that the right thing to do is to put your money in stocks. Then your money ends up in mutual funds that are as risky as, or sometimes even riskier than, the funds in your 401(k) anyway.

So, don't let market fluctuations scare you from taking advantage of your 401(k)!

Friday, October 01, 2004

My work history

Once I decided to leave the teaching profession, I found myself in a difficult position. "I have a degree in math, don't want to teach, what can I do?" Sadly, in Miami, this question has few answers. At least my degree was relatively marketable. When I started college, I wanted to major in mathematics education. A counselor told me, "Math is usually a critical shortage area. When you apply for a job, if there's a lot of applicants they are going to hire someone with experience whether you have an education degree or not. If there aren't many applicants, they'll hire you if you have a degree in math and let you certify later." On his advice, I changed my major to math, and I've never regretted it. He was 100% right; when I applied for a math teaching position absolutely nobody cared that I wasn't certified. In fact, I received multiple offers, all of which included money and time off to complete the state certification requirements. And of course when I decided to leave teaching, I would have been absolutely screwed with a degree in education. With a degree in math, I at least had a few options. To that counselor, wherever you are, God bless you for that great advice.

I took the only job that came my way - as a programmer (I had taught myself) at a small (very small) actuarial consulting firm. That really had nowhere to go, so about a year later I moved to a mid-size firm doing the same kind of work. That firm was bought, which turned out to be good for me. Of course, the company said "No jobs will be lost, blah, blah, blah." Fortunately (as there did turn out to be substantial layoffs), I didn't listen to any of that and dusted off my resume in a hurry.

I ended up being able to make a great move as a result of this; I relocated (I had pretty much milked Miami for all it was worth) and went to work at one of the major players in the HR outsourcing area, working as a defined benefit system analyst. I worked there 2.5 years, earning a couple of promotions along the way, but always doing the same work. Basically, I studied a company's plan and did all the analysis and design for how the calculations were going to be performed. After a couple of years, I was ready for more.

I moved to another major player in the field, as a senior consultant and group manager. This work was a lot less interesting (really, anyone could do it). But there were nice plusses ... travel, client contact, supervisory responsibility, good hours, great office. I loved it! After 2 years, the bomb fell! My boss decided to reassign me to a position I did not want. I told him if he did that, I would quit. I don't know if he thought I was bluffing, or maybe he figured the economy was soft and I wouldn't be able to make good on my threat. Anyway, he reassigned me, so I found another job (had two offers within the month) and I quit.

So now I'm a calculator manager, basically doing what I did at my previous job. Not bad, but I miss the travel and client contact. Mostly, I miss my office, though. But I like what I'm doing now much better, and I'm really good at it (it's not like I had to learn the whole job in a year, since I'd done this exact job before). So hopefully, I can grow here. And they're paying me more than my last employer for a position with less responsibility, so maybe my old boss did me a favor by forcing me to quit. I've been here just under a year; I think if I play my cards right, this job has a lot more upside career potential than my last one.


My profession

As I mentioned in my last post, I work in defined benefit outsourcing area. Defined contribution plans (e.g., your 401(k) account) is pretty simple. If your balance is $60,000.13, then that's your balance and you're done. However, in defined benefit plans there are (a) a gazillion regulations from the IRS, the PBGC, ERISA, etc., etc., and (b) complicated actuarial calculations involved. That's where I (and my team) come in.

OK, so what's an actuary? The dictionary says, "someone versed in the collection and interpretation of numerical data (especially someone who uses statistics to calculate insurance premiums)." That's pretty good, but it's not quite the whole story. Actuaries are the professionals that price all manner of risk. So they work in life insurance, health insurance, property/casualty insurance and pension/annuities.

To be quite precise, I shouldn't really call myself an actuary. To be an actuary, there is a series of exams that must be completed. While you are in the process of completing the exams as I am you should more properly refer to yourself as "working in the actuarial field." But that's too long and boring.

So, we've covered my background and my field. My next post will cover my specific work history in the defined benefit outsourcing field. That will catch up all the background history and bring everything sort of up to date. Beyond that, we'll see what I add.

My background

OK, a little background on me...

I grew up in Miami, Florida. I went to my local state school (I'm Cuban-American and Cuban parents are really weird about their kids going away to college) and majored in physics and mathematics. When I graduated, I became a high school math and physics teacher. This turned out to be a really bad move on my part. I did it for six years at three different schools. I was a little slow; I didn't really like it but it still took me six years to figure out that the career just absolutely was not for me. At least I managed to get a master's degree in physics during that time, so it wasn't a complete waste of time. My concentration was theoretical physics; I wrote my thesis in intermediate energy nuclear physics. Not much call for that in my current line of work, but it at least has some "wow" factor when people see it on my resume.

Since 1996, I have worked in the actuarial, risk management and benefits consulting field. Currently, I work for a major consulting firm that does benefits outsourcing for very large corporations. What does that mean? Well, a company like (just pulling an example out of a hat) IBM wants to concentrate on making computers and providing IT services. They don't want to have to worry about calculating your pension benefits or manning a telephone center to take phone calls from retirees who want to change their address. That's where we come in; we take over some or all of the company's HR and benefits functions and IBM can get back to making computers.

Personally, I work in the defined benefit area as a manager. More on that later.

First blog post

Been spending a lot of time thinking about my career recently. Thought the idea of starting a blog to record my thoughts might be worthwhile. Still haven't decided what I'm going to put in here, though.