Chapter One

Credibility

The players on the Canadian Property & Casualty
Insurance scene in the 70's filled page after page in any
comprehensive listing. But if the listing was compiled based on
size, there were no more than a handful of large companies.
These were mostly British multinationals with names like
Royal, Commercial Union, and Sun Alliance. Though they
dominated their Canadian territory, the relatively diminutive
size of Canada's population, in total, made even the main
forces, of any industry, dependent on one another or on outsiders
for rare, unique or specialized resources.


This was particularly true of insurance because so much
of their nature is involved with chance, probability, statistics.
In order to have meaningful data on the wide variety of risks to
be underwritten, the Canadians pooled their data in a single
entity, the Insurance Bureau of Canada, affectionately known
as the IBC, which then made the combined analyses available
to each member of the pool. Although this made their
information functioning viable, it severely hampered their
competitive urges.


Whatever benefit a company might think would accrue to it
because of its perceptive underwriting practices or its
expeditious claims handling or its sleek operations or its
inspired marketing, they had no statistically justifiable way
to alter the industry pooled rates and target more profitable
growth to reward their pains. And so the entire industry
marched to practically the same tune. That is, until the
mid-70s when the largest companies were reaching a size
sufficient to stand, statistically, more on their own.


Convinced that they should no longer be so dependent
on those who were not their peers, these major players became
restless to go their own way, each of them suspicious that the
other would make the move first and gain some irretrievable
advantage. Each monitored the others' movements, impending
movements, even gossip on improved record keeping, hiring,
group compliance at the IBC. The main difficulty that kept one
and all from bolting from the IBC, was the fact that there was
only one Property & Casualty Actuary in all of Canada and he
resided at the IBC, under the watchful eyes of the entire industry.


Having an Actuary of your own was the key to independence.
Not only did you need to be able to assess the masses of
data required for ratemaking, you also needed to convince
provincial regulators that your shining new rating structure
based, in some mysterious way on your own numbers and producing
presumably significantly different rates than your competitors,
was legitimate, defensible. Not just any actuary would do either.
The garden variety actuary, the life actuary, had very little
exposure to the complexity of data characteristic of the
Property & Casualty industry. More than half of their training
was irrelevant to the computations of non-life risk. This,
of course, did not mean that a life actuary could not do
those computations, merely that his credentials were not
the desired ones. The Restless Ones discounted the
life actuary solution, except as a short-term solution.


Their candidate of choice, especially when the long-term
perspective was their concern, would have to be a genuine,
imported Property & Casualty Actuary. But the nearest source,
the states to the South, turned out to be prohibitively
expensive. Actuaries there usually were ranked quite high in
the corporate structure, insisted on avoidance of Canadian
taxation, and had substantial moving expenses. The prospects
of luring an import, within any reasonable budget, was
infinitesimal. That left only slower, more arduous alternatives
and each knew that the others would arrive at the same
conclusion.


Commercial Union, one of the multi-nationals, secured
approval from home office in London to pursue that next most
viable route: finding local talent willing to be trained, as
quickly as possible, to become their in-house winged beast.
They would create a new department to be called Underwriting
Analysis, headed by their most senior underwriter. The
position would be titled simply, Analyst, but the requirements
would be Actuarial-Trainee-without-Trainer/Fast-Learner. To
carry out the search as expeditiously as possible, they would
use an outside agency, an open invitation to industry gossip,
knowing that whatever their competitors concluded would not
advance those outside speculations beyond what each
competitor should have already figured.


By sheer coincidence on my part, I had picked up a brochure
in the campus library, a year and a half before, that
described the actuarial profession in terms that sounded
Merlin-esque, my oldest dream. Dreams are something you live
off when you are an immigrant. Very few were the jobs there
in the 70´s without the fine print that said ´minimum two
years Canadian experience´. Not too surprising, considering the
number of young people from the states to the south who, like
us, had recently, simply come to stay, making more and more
Canadians feel somewhat claustrophobic. Our two years was
more than half over but my horizon seemed unchanged.
The academic job I had managed to land had no future, the job
market in my field was still in the state of collapse, and
though I had managed to publish my doctoral dissertation, the
response was truly underwhelming. So I had been cruising the
career shelves.


It may seem a little late to be career shopping but up
to the year before graduation, the job market for
mathematicians had been very promising. With the war
ending and the demise of the aerospace industry, my career
prospects were not going to get brighter any time soon.


Nor were Yitz´s. My husband had been an Israeli
paratrooper, delaying his education and vocational choices.
Our whirlwind relationship had been as colorful as...

... Our discussion was pleasant but unremarkable until we
rose to do a tour of the offices. For some reason, my eye caught
the title of a small blue pamphlet lying on the credenza and, in
a moment of inspired enthusiasm, I picked it up and zeroed in on
exactly what I needed... Credibility. Credibility theory,
actually. But the definition in the text so appealed to me with
its clarity and elegance that my mathematical instincts
involuntarily engaged, bringing with it the smiles and the
warm glow usually reserved for baby-watching or engagement
rings. The formula for the credibility of a sample had emerged
from insisting that the expected square error be minimal when
you´re splitting the weighting between the sample, whose
credibility was in doubt, and the population, which was
considered solid. The credibility was that weight. It
functioned so beautifully; it was so intuitively natural...

© JHRaichyk