A group was gathered around the company coffee machine as Michelle ran in breathlessly. “I have some big news,” she announced. “Tina just gave me her letter of resignation. She is quitting and joining Rich in his new company.”

    “Well, you know what that means,” I quipped. “Tina’s leaving will simultaneously raise the average hotness quotient of the women in both our companies,” I said with a smirk.

    Some of the group almost smiled, but others scrunched their faces in confusion at that statement. Even if you didn’t know us, it was easy to figure out who are the actuaries and who are not.

    I am Nick Palluci, an actuary, in fact one of the senior actuaries of Penn Re. Rich Olson had been the chief underwriter, and he left to become president of a new company, Jersey Re. No one was surprised when he took Andy Fletcher, the number two underwriter, with him, to start the underwriting department. But people expected he would take an actuary with him to become his third employee. Nobody thought he would take Tina Long, a somewhat junior computer person, as the third employee. She seemed a little too inexperienced to run an entire computer department. But she was cute and quirky in sort of a Sarah Palin way.

    At Tina’s farewell party, we tried to grill her on what her responsibilities would be at Jersey Re. Would she really be in charge of Rich’s computer department? Tina explained that Jersey Re was part of a larger organization that would share a number of services, including computer services; Tina’s new job was solely to produce Rich and Andy’s management reports. The group toasted Tina and wished her luck in her new position, and Tina, who is not a big drinker, let it slip that she was getting a big raise to join Rich.

    Months went by, and Rich and Andy started to put business on their books. It became clear that they were not going to hire an actuary any time soon. Penn and Jersey are both property-casualty broker reinsurance companies. Unlike primary companies that insure people and businesses directly, a reinsurance company insures insurance companies. A reinsurance company does not file rates with the insurance department, so actuaries are not needed for that. Furthermore, the broker system means that reinsurance companies get their business from reinsurance brokers and only take a percentage of each deal, with each reinsurer getting the same rate. So a company without actuaries like Jersey Re can let another company, like ours, do the actuarial analysis on each deal, and take a percentage of the deals we take at the same rate. Since actuaries can be pretty expensive, this seemed like a reasonable strategy for a start-up company like Jersey Re.

    During the busy January 1 renewal season, Jersey Re did not appear to be handicapped at all by the lack of an actuary. They got shares of a number of deals that we were on, which ordinarily wouldn’t bother us, except often this meant Penn had to accept a reduced percentage so that Jersey could get in on the deal. Interestingly, they did not get on any deals that Penn had looked at and decided not to do. Jersey Re would never offer the initial rate quote to the market – without an actuary it was unlikely that they would do so – but they would make their independent decision on the final rate.

    Rich and Andy had worked so long at Penn that they certainly knew our appetite for deals and the way we would decide whether or not to do a deal. They had also been the major decision makers for much of the business Penn had written for years. I had spent many hours with Rich and Andy explaining Penn’s actuarial pricing models as well. So even without an actuary, it seemed plausible that Jersey Re would write pretty similar business to what Penn wrote.

    As it got closer to January 1 when all the decisions have to be made, I found myself working longer and longer hours. As I worked late into the night, the office was quieter, I had fewer co-workers interrupting me, and the network response time to my otherwise long recalculations of some monster spreadsheets even improved, with hardly anyone else on the system.

    One morning in the coffee room I ran into Michelle, and I asked if she had heard from Tina since she left. “Yes, I saw her at a computer conference,” Michelle replied. “She seems to be doing pretty well. Based on the Chanel suit she was wearing, I think she is doing a little too well. I think she is being paid more than I am,” Michelle said with some jealously. I winced at that remark, knowing many of us at Penn feel we are underpaid and could probably earn more elsewhere.

    That evening while I was working late at night to get a quote ready for the next morning, I opened a spreadsheet file and got a strange error message: “File is locked for editing by Nick. Click Notify to open a read-only copy and receive notification when the document is no longer in use.” That was strange for two reasons. First, this meant someone else was currently working with that same file – which seemed unlikely at that hour. Second, the message implied that the someone else was me! “Dammit, I’m mad,” I thought to myself. The message quickly disappeared, and I dismissed it as one of the system’s many quirks. I knew if I called the help desk, they would tell me to turn the computer off, reboot, and see if the problem goes away – similar to the advice I imagined they would give me if my car had a flat tire – start the car up again and see if that problem goes away.

    But this odd error message bothered me, so the next day I told Michelle about it. She asked if I had been logged onto a second computer at the same time. Years ago people did this, she explained, because personal computer memory was limited and this was a way to get around the limitation. I reminded her that as a senior actuary I had been given the maximum possible amount of computer memory, so there was no need to log on to a second machine.

    Later that day Michelle telephoned me. “Nick, you were mistaken. The computer records show you were logged on the company computer twice yesterday. The first time was on your desktop which you have been on continuously for weeks, and while you were still logged on from your desktop, you logged on again at 9:02 p.m. remotely. You logged into your account, from your token, with your password; all three of these need to happen to get into the system remotely. You must have opened the same file twice, so you got the message that the file was already in use. Then you logged off a couple of minutes later.”

    “Oh, that’s right, I forgot. Thanks, Michelle,” I replied and hung up. But her theory was wrong. I hadn’t logged on remotely last night. In fact I haven’t used the remote capability for months.

    I unzipped my key case. There was my security token, with the six digit number that changes every thirty seconds. I stared hypnotically at the blinking dot. I was thinking about who might know my password and the way my data directories were arranged.

    Kevin, one of the underwriters, suddenly poked his head into my office and pulled me back into reality. “Nick, when are you going to be ready to talk about the actuarial numbers on the Kingston account?” he asked.

    “Data, et al, up in a min; I manipulate a tad,” I replied automatically, pleased with myself for such a clever reply. Kevin looked at me blankly. “Don’t you get it – it’s an actuarial palindrome – it’s the same forwards and backwards!” This is why there is a love-hate relationship between actuaries and underwriters – they just don’t get us!

    “No, actually, there are a lot of new claims this year, they’re pretty large, and it’s taking me longer to finish than I thought,” I explained. “Can it wait until tomorrow?”

    “OK, but please have it by tomorrow morning. The broker said he needs an answer first thing tomorrow. Remember, this is our biggest account. And no doubt Rich and Jersey Re are going to want a piece of it.”

    “I understand, Kevin, and you’ll have my numbers and recommendation first thing tomorrow morning. Even if I have to work all night,” I promised.

    Kevin left my office, and I knew what I had to do.

    Again, I worked late that night. Since this was such an important account, I made a duplicate copy of my data files just to be safe. The original copy was in my usual data directory, Kingston, but contrary to what I always do, I put a backup in a new directory, Notsgnik.

    The new claims were going to be a problem. I decided I wanted to see the effect of the analysis with and without the new claims, and so I made separate files for this. I put the analysis without the new claims in the Kingston directory, and I put the analysis with the new claims in the Notsgnik directory. The effect was enormous. I decided we would need to increase our rate 20% in order to renew the Kingston deal, and the last thing I did that evening was to write a quick memo explaining the +20%, which I also put in the Notsgnik directory.

    Kevin and I met the next morning. We went over my analysis, and I explained my calculations. If it weren’t for these new claims, I would have recommended reducing our rate 15%; unfortunately, the new claims changed everything. Reluctantly, Kevin agreed to offer a quote of +20%.

    Kevin made the call and did the talking, but I was in his office listening on the speakerphone. The broker was absolutely horrified at our quote. Didn’t we realize how much money we had made on this account over the years? The broker claimed he could get this deal done at the expiring rate, and maybe even a rate decrease. The broker threatened to take us off the deal and replace us with Jersey Re.

    “Well, do what you have to do,” said Kevin, “but we are not renewing unless we get +20%.”

    The deal did get done later that day at a 10% rate decrease. Penn declined to renew at this price, and Jersey Re did take our percentage share. I smiled slightly, as I thought about how Jersey might have come to its conclusion. I jiggled my keys in my pocket. I reminded myself I should ask Michelle to replace my security token. I also thought about Sarah Palin – I still think she is cute.