T h e
he Academy welcomed several dozen leaders of the actuarial profession to
o f t h e
See summer summit, Page 4
ASOP No. 36
Academy weighs in on reinsurance, dependent coverage
Harmonizing PPA and standards
COPLFR offers comments on second exposure draft
2010 nominees for Academy leadership positions
A ct u a r i e s
See social security, Page 9
Security Reform: Possible Changes in the Benefit Formulas and Taxation. This revises the October 2006 version of the issue brief. While the Social Security program has enjoyed broad public support and served as a financial safety net for elderly Americans for decades, the growing number of retirees—combined with a relatively smaller number of workers paying taxes to support the retirees—threatens the long-term solvency of the program. To protect the program’s solvency, policymakers continue to consider various reform options. The recently updated Academy issue brief focuses on two possible options for reform: changing the benefit formulas for workers or spouses and changing the federal income tax treatment of benefits. Actuaries at the Social Security Administration estimated in 2009 that, unless the program is changed, annual benefit payments and administrative expenses will exceed payroll tax income by 2016. After that, the program is expected to need ever-increasing amounts of cash from
A cad e m y
the U.S. Treasury. And the cash behind the Treasury promises—represented by the Social Security trust funds—is projected to come to an end by about 2037. The cost of the Social Security program may be reduced from current levels through any number of possible changes to the benefit structure. The issue brief discusses several benefit formula reforms, including reducing the primary insurance amount (PIA) factors in the PIA benefit formula while keeping the ratios between the factors constant, indexing the bend points used in the PIA formula by a factor other than wage growth, increasing the averaging period for the average of wages calculation used to determine benefits, and making modifications to cost-of-living adjustments (COLAs). There is also a discussion of the structure for spousal benefits. Another way to improve Social Security’s financial condition is to make changes to the way benefits are taxed. The issue brief discusses reforms for the indexing of income thresholds, phasing out the thresholds, and the implications of other kinds of taxation for low-income earners. The Social Insurance Committee has extensively reviewed different reform options for Social Security
A m e r ican
Public Interest Committee Chairperson Tom Terry leads discussion at the 2010 Summer Summit in Washington.
Analyzing Social Security Reform Options he Academy’s Social Insurance Committee recently updated the issue brief Social
N e ws m o nt h l y
Summer Summit Focuses on Public Interest Washington July 19 to discuss the organization’s role in serving the public interest at the 2010 Summer Summit. The meeting was designed to guide the work of the Public Interest Committee in recommending to the Board of Directors opportunities in which the Academy can utilize its actuarial expertise and critical perspective to adopt advocacy positions on public policy issues. The meeting drew Academy leaders from all practice areas to think broadly about issues that reach far beyond the actuarial profession. A goal of the summit was to enhance awareness of the Academy’s commitment to examining actuarial issues that affect the public and to build support for Academy advocacy on the most significant of those issues, explained Public Interest Committee Chairperson Tom Terry, a former Academy vice president for pension issues. “We heightened awareness among key Academy volunteers that we will be advancing advocacy positions in the months ahead, and we affirmed support for the notion of strongly speaking out,” Terry said. A panel discussion at the summit covered how to identify issues that merit action by the Academy. The panel consisted of Terry and five practice council vice presidents:
c a l e n d a r August 10 Academy Executive Committee meeting, Washington 14-17 NAIC summer meeting, Seattle 26 Actuarial collaboration meeting, Ottawa, Canada
September 9 Quarterly NAIC Webinar 16-17 Actuarial Standards Board meeting, Washington 20-21 Casualty Loss Reserve Seminar (Academy, CAS, CCA), Lake Buena Vista, Fla. 22 PBA implementation seminar (Academy, SOA), Chicago Sold Out 30 Council of U.S. Presidents meeting, Mont-Tremblant, Quebec, Canada TBD Webcast on best of Contingencies “Up to Code” articles (Academy, ASPPA, CAS, CCA, SOA)
Academy News Briefs Volunteer Survey Eclipses Past Years’ Responses More than 700 Academy members— a record number and more than double the 2009 response rate—contributed to the Academy’s vital work on public policy issues and professionalism by completing the annual volunteer survey by its July 9 closing date. New to the survey this year is the Academy Advisors, a virtual committee that will employ easy-to-use webbased survey research technology to capture feedback and advice from a representative group
of Academy members. Academy Advisors will begin its work with approximately 300 members. Academy volunteers working over the past year produced substantial, noteworthy work that touched every practice area and many aspects of the profession. The response to the 2010 volunteer survey reflects an ever-increasing commitment among actuaries to volunteer their time, talent, and expertise to advance the profession and serve the public interest.
October 1-2 North American Actuarial Council meeting, Mont-Tremblant, Quebec, Canada 5 Academy Board of Directors meeting, Washington 15 IAA meeting, Vienna, Austria 17-20 ASPPA annual conference, National Harbor, Md. 17-20 SOA annual meeting, New York 18-21 NAIC fall meeting, Orlando, Fla. 24-27 CCA annual meeting, Rancho Mirage, Calif.
November 1-4 Life and Health Qualifications Seminar, Arlington, Va. 7-10 CAS annual meeting, Washington 8 Academy annual meeting, Washington 17-18 P/C Loss Reserve Opinion Seminar, Chicago 18-21 NCOIL annual meeting, Austin, Texas
December 2 Webinar on ASOP No. 41 (Academy, ASPPA, CAS, CCA, SOA)
To continue receiving the Update and other Academy publications on time, remember to make sure the Academy has your correct contact information. Academy members can update their member profile at the member log-in page on the Academy website. Links to documents underlined in blue are included in the online version of this issue at www.actuary.org/ update/index.asp
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America Speaks Several Academy representatives participated in nationally organized town hall discussions on June 26 on how to solve the nation’s long-term fiscal challenges resulting from the federal deficit. Presented by AmericaSpeaks, a nonpartisan nonprofit organization dedicated to engaging citizens on important governance issues, events were held in 19 cities and dozens of smaller communities around the U.S. to search for common ground on questions of fiscal responsibility. Academy Senior Pension Fellow Frank Todisco and Academy Senior Health Fellow Cori Uccello were invited to be among the experts on site at the primary town hall event in Philadelphia, where health care and Social Security were discussed. Meanwhile, Academy Social Insurance Committee Chairperson Janet Barr contributed to the Chicago event. The actuaries collaborated with other participants in small groups to examine various options to reduce the budget deficit by cutting spending and/or increasing revenues.
The goal of the AmericaSpeaks campaign is to produce a plan to reduce the federal deficit by $1.2 trillion (or half the current projection) for the year 2025. For more information, visit www.usabudgetdiscussion.org. 151A Ruling Vacated The D.C. Court of Appeals on July 12 voided the Securities and Exchange Commission’s (SEC) Rule 151A, which would have classified indexed annuities as securities under the SEC’s oversight. The court’s ruling allows indexed annuities to continue to be classified as insurance products under state regulation. Issued in January 2009, Rule 151A was scheduled for implementation on Jan. 12, 2011. (For a history of the issue, see the August 2009 issue of Actuarial Update.) Regulatory Reform President Obama signed into law on July 21 a sweeping financial services overhaul bill, the Dodd-Frank Wall Street Reform and Consumer Protection Act. For a summary of the new law, see the Academy Alert that was published following the Senate’s passage of the law on July 15.
Before the Flood The House of Representatives passed a five-year extension of the National Flood Insurance Program in July. The extension would postpone the requirement for mandatory purchase of flood insurance by homeowners living in newly designated flood-hazard zones. The bill awaits action in the Senate. The flood program is set to expire on Sept 30. Excellence in ERM In conjunction with the ERM Symposium, the Actuarial Foundation each year issues a call for papers from which it presents the ERM Research Excellence Award for the one paper that most demonstrates overall excellence and makes a significant contribution to the growing body of enterprise risk management knowledge and research. Congratulations to the 2010 winner, Academy member Neil Bodoff. To view or download a copy of the paper, Discarding Risk Avoidance and Embracing Risk Optimization: Managing Reinsurance Credit Risk, visit the Foundation’s website.
➜ continued on
A c t u a r i a l Up dat e au g u s t 2 0 1 0
➜ continued from
In The News Academy Senior Health Fellow Cori Uccello discussed medical loss ratio (MLR) requirements in an article in the June 4 New York Times. The Academy Medical Loss Ratio Regulation Work Group’s April 28 letter to the National Association of Insurance Commissioners regarding the potential disruption to the individual health insurance market resulting from new MLR requirements also was cited in the article. Uccello said a lot would depend on how final regulations are written. Robert Parke, former chairper-
son of the Academy’s Disease Management Work Group, was quoted in the June 8 New York Times. Parke, a consulting actuary for Milliman in New York, said that savings from disease management programs are offset by the costs of managing the programs but are still worthwhile because they can enhance the quality of care.
The Academy’s critical issues paper on the Community Living Assistance Services and Supports (CLASS) Act was cited in a Kiplinger’s Personal Finance column published on June 8 by the Washington Examiner. The paper said that actuarially sound premiums for the new longterm care program could range from $125 to $160 per month. A June 10 AARP Bulletin article included comments by Academy Senior Pension Fellow Frank Todisco that were first published in a news release announcing the Academy’s response to a request for information from the U.S. departments of Labor and the Treasury regarding lifetime income options. Todisco highlighted the cost efficiency for insuring against longevity risk through a w w w . a c t u a r y. o r g
media relations activity report — second quarter, 2010 risk-pooling arrangement, such as an annuity, compared to selfinsuring that risk by attempting to manage a lump sum. “An individual on his or her own typically would require about 50 percent or more additional funds to achieve the same level of financial security during retirement,” Todisco said. The Academy Pension Practice Council and Life Practice Council response also was cited. The councils recommended that defined contribution plans be required to offer a guaranteed lifetime income option. Todisco also made several observations following the release of the Governmental Accounting Standards Board’s Preliminary Views on Pension Accounting and Financial Reporting by Employers. His remarks were published and discussed in articles by Plan Sponsor on June 18 and Pensions & Investments on June 28. Academy Life Products Committee Chairperson Cande Olsen was quoted in a June 14 National Underwriter Life & Health web exclusive from her testimony to the National Association of Insurance Commissioners (NAIC) during a May 20 public hearing regarding stranger-originated/owned annuities. Olsen, a consulting actuary for Actuarial Resources Corp. in Chatham, N.J., said that regulators should consider modifying the NAIC’s Viatical Settlements Model Act “to ensure that the transactions the model seeks to regulate for life insurance also are regulated for annuities.” An Academy analysis from the appendix of her testimony was also published with the article. (For more information, see the July issue of Actuarial Update.) Academy Life Products Committee member Linda
Second Quarter, 2010 Five-Year Quarterly Average
177 226 Placements
Note: A request is a media inquiry for more information (e.g., statistics, comments, work products, etc.) or for media credentials to an Academy event. An interview occurs when the Academy is able to provide a spokesperson to meet a media request. When an interview is fulfilled, it is no longer tallied as a request. A placement is an article containing an Academy reference, quote, or attribution from an Academy spokesperson or the placement of an Academy-produced letter to the editor/op-ed. A five-year quarterly average is the statistical mean of the past 20 quarterly totals for each category (requests, interviews, and placements).
Lankowski discussed risk clas-
transactions,” he said. “Their thinking on the revenue recognition project may very well have influence on their thinking in the insurance contract project.” To find out about other actuaries in the news and for external links, visit the Academy’s newsroom.
Academy International Financial Reporting Standards Task Force Chairperson William Hines was quoted in a June 25 Bureau of National Affairs report. Hines, a consulting actuary for Milliman in Wakefield, Mass., said it is important for those working within the insurance industry to study the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) revenue recognition exposure draft even though insurance contracts were not under the scope of the draft. He said that many issues addressed in the revenue recognition exposure draft also are being addressed in the joint FASB/IASB insurance contracts project. “Both boards want to achieve more consistency in accounting treatment across industries and
Speakers Bureau Academy Senior Health Fellow Cori Uccello was a panelist during a June 15 American Enterprise Institute discussion on health care reform implementation, which featured a keynote address by Indiana Gov. Mitch Daniels. Uccello provided an actuarial perspective on medical loss ratio requirements, premium oversight, grandfathering of plans, and the individual health insurance coverage mandate.
sification and gender-based pricing for life insurance in a June 14 article in the Banker & Tradesman. Lankowski said that pricing should be equitable so that no group unfairly subsidizes another group. She also noted that the Academy supports actuarially sound pricing.
Academy Senior Pension Fellow Frank Todisco commented on various risks facing the U.S. retirement system as a panelist during a June 24 Heritage Foundation conference examining retirement security systems in the United States and the Netherlands. Video is available in the newsroom.
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Summer Summit, continued from Page 1 Al Bingham (health), Ethan Kra (pension), Gary Josephson (casualty), Art Panighetti (life), and Henry Siegel (risk management and financial reporting). The group’s consensus was that an advocacy position should address an issue recognized to be important by the general public, that the position must be actuarial in nature, and that it should be clear and unambiguous. The panel members also reaffirmed confidence in and support for having the Academy serve as an unbiased source of information for public policymakers while also taking advocacy positions on select policy issues. They agreed that recommending a solution, or range of solutions, is preferable to merely identifying a problem, and they also acknowledged that the Academy should be cautious about the issues it selects and judicious in the number of advocacy positions it takes. The Academy’s widely recognized 2008 statement in support of raising the Social Security retirement age reflects the model for the Academy’s public interest advocacy work, a commitment that was incorporated into the strategic plan in 2007. “We’re still new at this, and we’re still finding our way,” Terry said. “But there was near universal agreement that the statement on raising the retirement age was an appropriate position for the Academy to take on behalf of the profession. We took some risks in taking that position two years ago, and it was important to acknowledge that the risks were worth taking.” The position itself is one that continues to find its way into policy debates, as it was mentioned as an option for Social Security reform by both House Minority Leader John Boehner (ROhio) and House Majority Leader Steny Hoyer (D-Md.) in June. “Looking back on how the issue evolved, it’s now on the national radar in a way it wasn’t two years ago,” Terry observed. As was the case throughout the process of creating the Social Security statement, summit attendees overwhelmingly agreed that the Academy should solicit input from the membership on advocacy issues. Attendees also agreed that the Academy should be open to partnering with other organizations on select issues. Unlike the Academy’s 2009 summit, which specifically looked at the financial crisis and produced an agenda of future work products geared toward answering questions related to regulatory reform, this year’s summit was more open-ended. During breakout sessions, summit attendees suggested issues for the Academy to address, which were discussed when the group reconvened at large. Attendees agreed that Medicare sustainability and lifetime income availability in retirement policy were two pressing topics that best met the Academy’s advocacy criteria. Other issues considered for possible future action were public debt, cost and quality implications of health care reform, rules for flood-prone areas, and pension funding. Insurable interest in life settlements and the purchase of uncovered hedges by financial institutions were marked as lower priorities at the moment. Summit attendees started their morning with a compelling keynote address by David Walker, former comptroller general of the federal government and current chief executive officer of the Peter G. Peterson Foundation, who focused his remarks on the fiscal outlook in the United States. w w w . a c t u a r y. o r g
Walker Hammers Home Urgency to Act To fit the theme of the day at the July 19 Academy Summer Summit, keynote speaker David Walker, former U.S. comptroller general and head of the Government Accountability Office, urged the crowd of actuaries to use their unique knowledge to shed light on issues that are critical to the public interest. Walker, now president and chief executive officer of the Peter G. Peterson Foundation, focused his words on the fiscal future of the United States and the importance of the actuarial profession in speaking out on the problems that loom on the horizon as a result of federal debt and entitlement promises that U.S. demographics can’t support. “The nation is in bad shape,” said Walker, a certified public accountant and political independent. Walker cited U.S. government liabilities, commitments, and unfunded social insurance promises in 2009 that came to $61.9 trillion, or $200,000 per U.S. citizen. “The typical household in America has a second mortgage it doesn’t even know about—its share of the national debt.” The former comptroller general cited specific measures that he considered obvious actions for the federal government to take to rein in rising debt, such as reinstituting statutory budget controls that were present during the late 1990s. He further warned against the “creative accounting” that utilizes trust fund assets—which are projected to be depleted in 2037—to mask the size of the total federal debt. “We need to get tough budgetary controls on the books, and we need to reform Social Security next year,” said Walker, indicating that these are two issues that should provide a starting point for the debt commission established this year by President Obama. “These are doable, and we can gain credibility from doing them.” Although those are quick fixes to stop the escalation of the problem, Walker singled out rising health care costs and the uncontrolled projected increases in Medicare spending as the more difficult long-term challenge. Those create a ripple effect on retirement security as employers freeze defined benefit plans and transfer more risk on employees through greater use of defined contribution plans. Speaking in support of the Academy’s 2008 statement that advocated raising Social Security’s retirement age, Walker said that the U.S. needs to have a “solid base defined benefit plan that encourages people to work longer.” “We need to start focusing on sensible solutions, but we need to prove to the public that doing nothing is not an option,” he said. Walker reiterated the importance of the Academy remaining “fact-based, nonpartisan, and nonideological” in its public interest advocacy efforts to build on its credibility to public policymakers. “We need to educate and energize the public, we need a safe space for people to lead, and we need to hold respect and accountability for those who do,” Walker said. Former U.S. Comptroller General David Walker
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l ife n ews
NCOIL Discusses Implications of Health Care Reform
ith the passing into law of the Patient Protection and Affordable Care Act earlier this year, health care reform was the central topic of the 2010 summer meeting of the National Conference of Insurance Legislators (NCOIL) July 7-11 in Boston. Academy member Steven Schoonveld gave an overview of the Community Living Assistance Services and Supports (CLASS) Act (the new voluntary, long-term care services program) and its impact on overall health care reform. Schoonveld provided an analysis of the program, detailing the Academy’s concerns, such as the rate of future increases and their burden on new enrollees, the insufficiency of using a five-year waiting period, and the lack of underwriting and limited restrictions on enrollment. “If premiums are set at the actuarially appropriate level, it would be difficult to enroll enough healthier and unsubsidized lives to keep the program sustainable,” Schoonveld said. He also outlined the Academy’s recommendations for strengthening the program. They included an enhanced definition of “actively at work,” opt-out and subsequent opt-in restrictions, premium structure changes, and a consistent definition of benefit eligibility. The health care sessions also focused on such topics as the implementation timeline for states; funding challenges for Medicaid, Medicare, and private plans; current National Association of Insurance Commissioners (NAIC) activity; health insurance exchanges; and the impact of reform on insurers. Of particular significance was the discussion with the NAIC on its efforts in assisting the Department of Health and Human Services in the interpretation of the regulations that are going into effect under the new law. The session highlighted issues such as the need to define essential benefits, concern about the flexibility of states to implement the law and planning and implementing the health insurance exchanges, as well as implementation of the temporary reinsurance program. The session dealing with the impact on private health insurance looked at the fear that insurers might leave the market, rating challenges for the newly insured, the impact on group/non-group coverage, and the impact on small carriers.
Life Notes Academy Senior Life Fellow Nancy Bennett commented on strangeroriginated life annuities (STOLAs) at the Life Insurance and Financial Planning Committee meeting. The testimony was similar to that delivered by Cande Olsen at a May NAIC Life and Annuities Committee hearing in Washington. (For more information, see the July issue of Actuarial Update.) w w w . a c t u a r y. o r g
Bennett said that STOLAs convert retirement preparation products into investment arbitrage vehicles, which is harmful to the life industry and raises rates for consumers. This adverse consumer impact prompted Georgia State Sen. Ralph Hudgens, chairperson of the Life Insurance and Financial Planning Committee, to appoint a subcommittee to study the issue and provide a report to NCOIL at the next meeting in Austin, Texas, in November. Sen. Hudgens appointed Rhode Island State Rep. Brian Kennedy and West Virginia State Sen. Mike Hall as the subcommittee’s co-chairpersons. Bennett also was scheduled to give testimony regarding Interstate Insurance Product Regulation Commission standards for guaranteed living benefits and guaranteed minimum death benefits for individual deferred annuities, but time did not allow. Bennett is expected to testify on this issue at the November NCOIL meeting in Austin.
—Tim Mahony and John Meetz
➥ Ross Bowen, an actuary for Allianz Life Insurance Co. of North America in Minneapolis, has joined the Academy’s Life Capital Adequacy Subcommittee. ➥ Anthony Render, senior actuary for American Equity Investment Life Insurance in West Des Moines, Iowa, has joined the Academy’s Annuity Reserve Work Group.
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H ealth n ews
Regulations Work Out Reinsurance, Dependent Coverage Issues
s the Department of Health and Human Services—often in conjunction with the departments of
Labor and the Treasury—continues to release interim final regulations aimed at implementing the new health care reform law, the Academy’s Health Practice Council is actively providing input on those regulations from a practical, actuarial perspective. The most recent provisions addressed are the creation of a temporary reinsurance program for early retirees and the extension of dependent coverage. The council’s Joint Committee on Retiree Health offered comments in June on regulations that would implement the new reinsurance program for early retirees. The comments addressed aspects such as the definition of an early retiree, the data requirements needed to file for the reinsurance program, the use of the two-year reinsurance estimate, the requirement to provide costsharing payment documentation, and estimating pharmacy rebates. The work group also commented on the allocation of funding for the program. The regulation established a first-come, first-served payment process, which could result in an exhaustion of the $5 billion allocation within the first couple of years of the program. According to the comments, if the intent of the program is to provide affordable coverage until the exchanges take effect in 2014, then this could leave retirees vulnerable. As an alternative, the work group suggested allocating the $5 billion by calendar year “to each plan’s claims in
proportion to its relationship to total calendar-year claims submitted.” On the issue of extension of dependent coverage, the Academy’s Benefits and Eligibility Work Group provided comments in July on several areas within the regulation that potentially could have a significant impact on costs or create disruption in the individual and group markets. The work group discussed the broad definition of a dependent and the potential for anti-selection prior to the implementation of the individual mandate—as well as the implications of the difference between grandfathered and non-grandfathered plans with respect to treatment of dependents with access to employersponsored insurance. In addition, the work group requested clarification on whether the regulation allows for the continuation of age rating for dependents (up to age 26). If age rating no longer is allowed for dependents, the work group proposed one alternative to minimize market disruption by allowing a carrier to “continue the practice of charging premium rates by age; however, once the dependent reaches a particular age, the rates would remain constant.” The work group currently is reviewing and preparing comments on two additional sets of regulations: one on the elimination/restriction of lifetime and annual limits, rescissions, and pre-existing exclusions and the other on preventive care cost-sharing provisions.
Health RBC Formula Under Review
he Academy’s Health Solvency Work Group
sent a letter on June 11 to the National Association of Insurance Commissioners’ (NAIC) Capital Adequacy Task Force responding to its charge to the Academy to evaluate the current health risk-based capital covariance formula calculation for potential changes to the calculation or methodology. The letter explained that the health risk-based capital (RBC) formula quantifies five separate risks: ➥ Asset risk for affiliates with RBC ➥ Asset risk for others ➥ Underwriting risk ➥ Credit risk ➥ Business risk. The letter clarified that the covariance formula is based on the assumption that certain risks are independent of one another. It added that although some risks may be positively correlated and others may be negatively correlated, without further research there is no way of knowing the extent of the correlation. The work group discussed how the relative correlation of the different types of risks (asset, insurance coverage, and expense) of each company could be determined and indicated that it would be w w w . a c t u a r y. o r g
possible to quantify these risks given sufficient time and data. It was noted, however, that this would be a large project taking in excess of a year to complete. The letter further stated that fine-tuning the covariance formula would be more accurate since actual correlation of risks would not significantly change the relative RBC of companies or move them into a regulatory-action level. The formula most likely would need to be recalibrated more comprehensively if changing the covariance would significantly affect companies that fall into a regulatory-action level. The letter also noted that it is possible to test the impact of having no covariance or limited covariance on the RBC of companies that file the health RBC formula using the NAIC data, which may provide an indication of the importance of pursuing a project such as this.
—Tim Mahony health briefs
➥ Cynthia MacDonald, senior experience studies actuary for the Society of Actuaries in Schaumburg, Ill., has joined the Academy’s LTC Valuation Table Work Group.
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P ension n ews
Harmonizing Cost Accounting Standards Presents Challenges
he Pension Committee submitted written comments to the Cost Accounting Standards Board July 9 regarding the board’s ongoing efforts to harmonize cost accounting standards with the Pension Protection Act of 2006 (PPA). The Cost Accounting Standards Board is located within the Office of Federal Procurement Policy (OFPP) and is an independent, statutorily established board consisting of five members. In addition to the OFPP administrator, who serves as the chairman, there are four members with experience in government contract cost accounting: two from the federal government (Department of Defense and General Services Administration), one from industry, and one from the accounting profession. The board has the exclusive authority to make, promulgate, and amend cost accounting standards and interpretations designed to achieve uniformity and consistency in the cost accounting practices governing the measurement, assignment, and allocation of costs to contracts with the United States. The Pension Committee letter specifically addressed the board’s proposed rulemaking on Cost Accounting Standard (CAS) Nos. 412 and 413. The proposed rules follow the release in 2007 of the advance notice of proposed rulemaking. The Academy submitted comments in September 2007 in response to the advance notice, and a more recent notice of proposed rulemaking has been developed based upon the feedback received in 2007. The most recent letter addressed key provisions in the notice that may require further analysis, reconsideration, and perhaps revision prior to the issuing of a final rule. It expressed a concern within the actuarial community that some elements of the notice will produce results that may prevent plans from meeting the objective of harmonization. The letter identified certain areas in the notice that the Pension Committee believes require revision so that the final rule achieves harmonization with consistent and equitable results. Those include the proposed addition of unnecessary triggers, the elimination of mandatory amortization of mandatory prepayment credits, and the basis for settlement accounting. The committee emphasized that while the board may disagree philosophically with the use of settlement liabilities similar to those applied under PPA to determine government contracting pension costs for an ongoing plan, it is nevertheless congressionally mandated as the required funding approach for pension plans and is linked inextricably to CAS costs through the requirement that cost accounting standards harmonize with the PPA funding rules. Modeling the provisions of the notice in simple PPA/cost accounting standard harmonization forecasts indicates that the notice does not recognize PPA funding effectively under standard Nos. 412 and 413. Specifically, required contributions are not fully reimbursed over time under the terms of the notice as previously suggested under the advance notice.
GASB Webinar The Academy’s Pension Practice Council presented a webinar on July 15 on the Governmental Accounting Standards Board’s recently released Preliminary Views on Pension Accounting and Financial Reporting by Employers. Panelists discussed several aspects of the GASB paper, along with an overview of the board’s progress on its pension accounting and financial reporting research project. Academy Senior Pension Fellow Frank Todisco also released comments on the paper in June via an Academy news release. Todisco acknowledged that GASB’s discount rate approach has been significantly different from that taken by standard setters in the private sector and remains a point of contention in public plan valuation. One key change, however, is the board’s call for unfunded obligations to be recognized on the employer’s balance sheet—in contrast to current standards that require reflecting only a liability for any actuarially recommended contributions that aren’t made.
Schedule SB/MB The Academy’s Pension Committee sent comments on July 7 to the Internal Revenue Service regarding the 2011 Schedule SB/MB filing instructions and forms. The committee requested guidance on interest rates when calculating the shortfall amortization installment, the option of electronic signatures for enrolled actuaries, and other specific changes.
➥ Anne Button, an actuary with Deloitte Consulting in Boston, has joined the Academy’s Pension Practice Council.
—Jessica Thomas w w w . a c t u a r y. o r g
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C asualty n ews
ASOP No. 36 Draws Comments
he Academy’s Committee on Property and Liability Financial Reporting (COPLFR) recently provided comments to the Actuarial Standards Board (ASB) on the second exposure draft of Actuarial Standard of Practice (ASOP) No. 36, Statements of Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves. COPLFR members responded to the questions posed by the ASB in the second exposure draft and provided some additional comments on its content. COPLFR expressed the opinion that the elimination of Section 3.7.4, which addressed risk transfer requirements, warranted mention in the transmittal letter. In addition, COPLFR members were opposed to the elimination of the disclosure requirement (Section 3.8.1.) of the current ASOP No. 36, which they believe lowers the disclosure standard for practitioners. The committee concluded that the removal of Section 3.8.1 also was worthy of mention in the transmittal letter. COPLFR members responded to the two questions posed by the ASB as well. They stated that the new language concerning reliance on another actuary’s work obscured the distinction between reliance on another actuary’s statement of actuarial opinion (SAO) for the purpose of issuing his/her own SAO and reliance on another actuary’s supporting analysis as part of a review or second opinion. A clear distinction between the two is necessary to ensure compli-
ance with Section 3.7.2, the comments said, suggesting alternative language to clarify that section. The committee recommended restoring the disclosure requirement pertaining to differences that may arise between a “reviewed” and a “reviewing” actuary. While the standard still instructs the reviewing actuary to “understand the differences,” COPLFR members wrote that it is important for such differences, if material, to be disclosed by the reviewing actuary. COPLFR members also reiterated their view that the disclosure requirements of Section 3.4 are unduly burdensome, a comment they initially provided during the first exposure draft of ASOP No. 36. The committee asserted that Section 3.4 disclosures belong in the actuarial report, not in the SAO.
Life and Health Qualifications Seminar
P/C Effective Loss Reserve Opinions Seminar: Tools for the Appointed Actuary
Nov. 9-12, 2010, Arlington, Va.
Hyatt Regency O’Hare Nov. 17-18, 2010 | Chicago
The Life and Health Qualifications Seminar offers state- and country-specific basic education that may not have been provided as part of the Society of Actuaries examination process or acquired through subsequent testing or alternative education. It can also serve as a basic education refresher or as a source of continuing education for more experienced actuaries. For more information or to register, visit www.actuary.org/seminar/.
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—Lauren Pachman casualty briefs
➥ Rimma Maasbach, an actuarial consultant for Insurance Services Office in Jersey City, N.J., has joined the Academy’s Terrorism Risk Insurance Subcommittee. ➥ Peter Rauner, senior managing consultant for Pinnacle Actuarial Resources in Chicago, has joined the Academy’s Medical Professional Liability Subcommittee.
Following up on last year’s success, the Academy’s annual seminar on casualty loss reserve opinions again will be divided into two parts. The first day’s sessions will cover foundational topics, while the second day will focus on more advanced subjects. Participants may register for either or both days of the seminar. The seminar is presented annually by the Academy’s Committee on Property and Liability Financial Reporting. For more information, visit www.actuary.org/seminars/casualty/opinion10.asp
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Officer Slate Announced
Actuarial Update Associate Editors
William Carroll Patrick Collins Andrew Erman Rade Musulin Geoffrey Sandler Donald Segal Editor
Tim Dougherty (firstname.lastname@example.org) Design and Production
BonoTom Studio Inc. Designer
Paul Philpott Marketing and publication production manager
American Academy of Actuaries President
Ken Hohman President-elect
Mary Frances Miller Secretary
Andrea Sweeny treasurer
he Academy’s Nominating Committee released its slate of recommended
nominees for Academy officer positions to be voted on by the Board of Directors at its next meeting in October. David Sandberg, vice president and corporate actuary for Allianz Life Insurance Co. of North America in Minneapolis, led the slate of nominations as the president-elect nominee. He would succeed Mary Frances Miller as Academy president for the 2011-2012 term. Stephen Rosen, senior consultant for Stephen H. Rosen and Associates in Haddonfield, N.J., was nominated to be the next secretary, in which he would oversee committees responsible for membership, technology, and communications. John Schubert, specialist leader and consulting actuary with Deloitte Consulting in Chicago, was nominated to continue serving for a second year as treasurer, overseeing budgetary and fiscal matters. Nominees for two-year terms as practice council vice presidents are Tim Wisecarver (Casualty Practice Council), president of the Pennsylvania Compensation Rating Bureau and the Delaware Compensation Rating Bureau Inc.; Tom Wildsmith (Health Practice Council), consulting actuary with the Hay Group in Arlington, Va.; and John Gleba (Council on Professionalism), consulting actuary for the Madison Consulting Group in Madison, Ga.
Pending a final vote from the Board of Directors in October, new Academy officers will begin their terms following the Academy’s annual meeting Nov. 8 in Washington. Nominees for regular director positions will also be presented by the Nominating Committee in the near future. Regular directors will be voted on by the membership during the Academy’s annual meeting.
risk management and financial reporting briefs
➥ Wayne Blackburn, principal and consulting actuary for Milliman in West Paterson, N.J., has joined the Academy’s ERM Subcommittee. ➥ Matthew Lantz, assistant vice president and actuary for AEGON in Cedar Rapids, Iowa, has been appointed vice chairperson for the Academy’s Risk Management and Solvency Committee. Christine Kogut, a consulting actuary for Milliman in South Burlington, Vt., also has joined that committee. ➥ Amy Gorham, vice president for actuarial finance for Sun Life Assurance of Canada in Wellesley Hills, Mass., has joined the Academy’s Financial Reporting Committee.
John Schubert Vice Presidents
Al Bingham Gary Josephson Ethan Kra Art Panighetti Kathleen Riley Henry Siegel Executive Director
Mary Downs Director of Communications
Mark Cohen Assistant Director for PublicAtions
Linda Mallon Executive Office
The American Academy of Actuaries 1850 M Street NW Suite 300 Washington, DC 20036 Phone 202-223-8196 Fax 202-872-1948 www.actuary.org Statements of fact and opinion in this publication, including editorials and letters to the editor, are made on the responsibility of the authors alone and do not necessarily imply or represent the position of the American Academy of Actuaries, the editors, or the members of the Academy. ©2010 The American Academy of Actuaries. All rights reserved.
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Social Security, continued from Page 1 and recommends that before Congress seriously considers any change to the benefit calculation or taxation structure, the following policy questions should be addressed: ➥T o what extent is Social Security responsible for ensuring that the country is not faced with high poverty rates among its elderly population? ➥D oes a proposed change to the benefit formula make sense on its own, or is it purely revenue-driven? ➥H ow much can Congress reduce the individual-equity component of the program and still retain support among middle-income and higher-income Americans? ➥ S hould the tax on benefits continue to flow to both Social Security and Medicare, to Social Security only, or to the general fund of the U.S. Treasury? What is the true cost of this tax to today’s seniors? ➥H ow would a change in the cost-of-living adjustment affect existing beneficiaries, particularly the elderly, who currently have the highest poverty rates in the United States?
educating the public One of the suggestions included in the Academy’s joint Pension Practice Council and Life Practice Council response to the departments of Labor and the Treasury in May on ways to encourage lifetime income options in retirement was improving consumer education. As one step toward that process, the Academy’s Pension Committee and Social Insurance Committee recently published suggested changes to two current Social Security Administration publications: “When to Start Receiving Retirement Benefits” and the special insert to the annual Social Security Statement for workers 55 or older, “Thinking of Retirement?” Two of the points highlighted in the documents that could use more clear explanation are the adverse financial impact of drawing benefits before normal retirement age and the questions people need to ask themselves to determine the best age to begin receiving Social Security benefits. Other considerations include spousal benefits and information specific to women, who tend to outlive their husbands and, therefore, may wish to choose a strategy that differs from their husbands.
—Jessica Thomas A c t u a r i a l Up dat e au g u s t 2 0 1 0
A m e r I C A N A C T u A r I e S T h e T h e he AcAdemy welcomed severAl dozen leAders of the actuarial profession to o f o f he AcAdemy’s...