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DECEMBER 2 0 0 4



understanding the intricacies of financial economics is instinctive or easy, even for professionals who work every day in pension-related fields. On Nov. 18, the Academy and SOA Joint Task Force on Financial Economics and the Actuarial Model held a roundtable discussion on the topic with the express purO ONE WOULD EVER CLAIM THAT

pose of educating actuaries, regulators, standard-setters and policy-makers on the concept and details behind financial economics, as well as its potential impact on traditional actuarial paradigms. The daylong session at New York University’s Rosenthal Pavilion attracted more than 60 participants. “Providing leaders in the pension community, both inside and outside the profession, an opportunity to learn about financial economics is invaluable,” said Ken Kent, the Academy’s vice president for pension issues. “The roundtable gave everyone an opportunity to question, clarify, challenge, and consider the principles of financial economics as they apply to pension consulting. We were able to move the discussion along.” The roundtable was broken down into five sessions: a basic introduction to the tenets of financial economics, a discussion of appropriate investment choices, impacts on accounting for pension plans, an examination of issues in funding defined benefit (DB) plans, and alSee FINANCIAL ECONOMICS, Page 6

Inside Academy Report Card A look at action in each council for the second half of 2004 Casualty . . . . . . . . . . . . . PAGE 4 Health . . . . . . . . . . . . . . PAGE 4 Professionalism . . . . . . . PAGE 4 Life . . . . . . . . . . . . . . . . PAGE 5 Risk Management and Financial Reporting . . . . PAGE 5 Pension . . . . . . . . . . . . . PAGE 5 FASB Forum The Academy and industry leaders discuss insurance accounting . . . PAGE 7 Applicability Guidelines An updated version is now available . . . . . . . . PAGE 7

Year-End Report



each of the Academy’s practice councils is wrapping up projects. It’s been a busy second half of the year, and the Academy has the paperwork to prove it. For instance, the Medicare Steering Committee and the Actuarial Equivalence Work Group commented to the Centers for Medicare and Medicaid Services on proposed regulations for Medicare prescription drug plans and Medicare Advantage plans. The Committee on Property and Liability Financial Reporting updated its annual practice note on reserve opinions to include actuarial opinion summary model law issues. And the Pension Practice Council and the Professionalism Council joined forces to comment to the

Joint Board for the Enrollment of Actuaries on potential revisions to regulations governing services provided by enrolled actuaries under ERISA. But the work hasn’t all been on paper. In September, the Life Practice Council sponsored a seminar in Boston on its C-3 Phase 2 project that attracted some 80 actuaries. A joint Academy/SOA task force on financial economics held an educational roundtable on the topic for more than 60 actuaries and other pension professionals in New York in November. And the Academy’s fifth annual Life and Health Qualifications Seminar in November was a sold-out event for the second year in a row. For more highlights, turn to the Academy Report Card on Page 4.

Actuarial UPDATE

Making Sense of Financial Economics

Calendar DECEMBER 1 Academy Life Financial Reporting Committee meeting, New Orleans

1–2 ABCD meeting, Delray Beach, Fla. 2–3 SOA seminar on analysis and presentation of financial information, Las Vegas

2–3 NAIC LHATF meeting, New Orleans 4–7 NAIC winter meeting, New Orleans 6 ASB Pension Committee meeting, Washington

13–14 ASB meeting, Washington 14 Academy Social Insurance Committee meeting, Washington

JANUARY 12–14 SOA longevity symposium, Orlando, Fla.

23–24 Academy Pension Practice Council meeting, New Orleans

23–26 SOA intercompany LTCI conference, Orlando, Fla.

26 Academy new board member orientation, Washington

27 Academy Board of Directors meeting, Washington

27–28 Los Angeles Benefits Conference (ASPA, Academy), Los Angeles

27–28 NASI conference on Medicare modernization, Washington

28 Academy Council on Professionalism meeting, Washington

FEBRUARY 9–11 NAIC finance summit, Orlando, Fla. 28 Academy Pension Practice Council Capitol Hill visits, Washington

MARCH 10–11 CAS Ratemaking Seminar, New Orleans

12–15 NAIC spring meeting, Salt Lake City 17–19 ASPA 401(k) summit, San Diego 29–30 ASB meeting, Washington

APRIL 3–6 Enrolled actuaries meeting (Academy, CCA), Washington

MAY 2–3 Academy spring meeting, Washington 4 Academy Board of Directors meeting,

Academy NEWS Briefs Wilcox Assists U.K. Investigator


and other leaders of actuarial organizations from around the world met with Sir Derek Morris in November about questions relating to the Morris Commission’s review of the British actuarial profession in the wake of the failure of Equitable Life to pay out on some of its annuities as anticipated by policyholders. “I appreciated the opportunity to speak with Sir Derek about the U.S. actuarial profession’s public policy and professionalism activities, and I think we have a good story to tell,” Wilcox said. Morris, former chairman of the Competition Commission, an independent public body that conducts in-depth inquiries into mergers, markets, and the oversight of the major regulated industries in Britain, attended the November meeting of the International Actuarial Association in Washington to speak with leaders of the actuarial profession about his investigation. He participated in one-on-one meetings with representatives from the United States, Canada, and Australia as a follow-up to written responses from many individuals and organizations to the Morris Commission’s consultation document. On behalf of the U.S. profession, the Academy in September submitted responses to almost 90 questions about the actuarial profession. Question topics ranged from the CADEMY PRESIDENT BOB WILCOX

A Record Year

The Academy was busy in 2004. You may have some sense of that already from reading the Update each month. But take a glance through the pages of the �����

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JUNE 2–3 ASB meeting, Washington 6–7 CAS seminar on reinsurance, Hamilton, Bermuda

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������������������������������������������������������ ��������� ���� ��������� ��� ������ ��������������� ������� ����������������������������������������������������� ������������������������������������������� ����������������������������������������������������� ��������������������������������������������������� ��������������������������������������������������������� ������������������������������������������������������������ ��������������������������������������������������������������������� �������������������������������������������������������������� ������������������������������������������������������������������ ����������������������������������������������������������������� ��������������������������������������������������������������� ��������������������������������������������������������������� ������������������������������������������������������������������ ������������������������������������������������������������������� ���������������������������������������������������������������� ����������� ���� �������� ���� ����� ������� ��������� ���� ���� ����������� ���� ������������������������������������������������������������������� ������������������������������������������������������������������� ������������������������������������������������������������ ����������������������������������������� ������������������������������������������ ��� ������������ �������� ���� �������� ������������������������������������ ���������������������������������� ���������������������������������������� ������������ ���������� ���� ��������� ����� ������������������������������������������ �������� ���������� ���� �������� ������� ����� ���� ��������� ���������� �������� ��� ������ ���������������� ���� ���������� ���������������������������������������� ����������������������������������������� �������� �� ����������� ������� ��������� ��� ��������������������������������������� ����������������������������������������� ������������������������������� Medicare Chief Actuary Rick Foster receives a standing ovation following his spring meeting remarks.

15–17 SOA spring meeting (health, pension),



New Orleans

WEB INTERFACE Links to documents underlined in blue are included in the online version of this issue at


Defraying Disaster It was a


reporting, product development), New Orleans

A c t u a r i a l U P D AT E

of Academy activities, the Record has pages devoted to each of the Academy’s six councils, with an account of major projects in each practice area and a complete listing of public statements for the year. The cumulative effect? Impressive.



23–24 SOA spring meeting (financial

scope of the actuarial role and the accountability of actuaries to the market for actuarial services to the reservation of specific statutory roles for actuaries in various practices. In his meeting with Morris, Wilcox focused on the U.S. profession’s public policy activities, highlighting Academy efforts to reach out to legislators, regulators, and interested parties (including the general public) on issues with actuarial implications such as Social Security, Medicare, life insurance sales illustrations, and pension reform. Wilcox and Morris also discussed aspects of U.S. actuarial professionalism, focusing on the standard-setting process, the counseling activities of the Actuarial Board for Counseling and Discipline, and elements of the Code of Professional Conduct that specifically address the public interest. Morris left the meeting with a wealth of material, including the Academy’s 2004 election guides for voters, the Consultant’s Daily Guide to the Code of Professional Conduct (provided by the Conference of Consulting Actuaries), a brochure on retirement issues for women (provided by the Actuarial Foundation), and a complete set of U.S. standards of conduct, practice, and qualification. Wilcox is expected to attend a follow-up meeting with Morris in January.

2004 Record, which was mailed

to all Academy members with their November dues notice. In addition to a general overview DECEMBER 2004

timely subject. At the Nov. 18–21 meeting of the National Conference of Insurance Legislators (NCOIL) in Duck Key, Fla., Rade Musulin, a member of the Academy’s Casualty Practice Council, briefed state legislators on Florida’s recent hurricane season and discussed options for natural disaster insurance legislation. Musulin, vice president of

public affairs and reinsurance for the Florida Farm Bureau Insurance Co. in Gainesville, spoke to NCOIL’s State-Federal Relations Committee about the Academy as an unbiased source of information on policy options facing NCOIL. The Academy will follow up this month with written comments drawing on Academy statements on reinsurance funds and catastrophe reserves. CASUALTY NEWS

Joining the Casualty Practice Council are Paul Braithwaite, president-elect of the Casualty Actuarial Society and a consulting actuary in New York,

and Scott Weinstein, actuarial senior manager for KPMG in Atlanta. ® Chet Szczepanski, chief actuary for the Pennsylvania Insurance Dept. in Harrisburg, has joined the P/C Risk-Based Capital Committee. ® Joining the Committee on Property and Liability Financial Reporting are Andy Kudera, a member of the CAS Board of Directors and chief reserving actuary for Endurance Services Ltd. in White Plains, N.Y.; Rae Taylor, casualty actuary for the Oregon Insurance Division in Salem; and Tom Wallace, senior actuary for GE Insurance Solutions in Barrington, Ill. FINANCIAL REPORTING NEWS

The Financial Reporting Committee sent comments on Oct. 22 to the International Accounting Standards Board on its proposed standard about financial instrument disclosures. ® Jay Morrow, vice president and actuary for American International Underwriters in New York, has joined the Financial Reporting Committee. HEALTH NEWS

Jan Carstens,

former Academy vice president for health issues, has joined the Medicare Supplement Work Group. LIFE NEWS

Joining the Universal Life Work Group are Clifford Angstman, second vice president and actuary with Berkshire Life Insurance Co. in Pittsfield, Mass.; Michael Barsky, an actuary with Guardian Life Insurance Co. in New York; Arnold Dicke, senior manager for KPMG in New York; Alan Emmer, an actuary with Guardian Life Insurance Co. in New York; w w w. a c t u a r y. o r g

Dieter Gaubatz, vice president

and pricing actuary for Swiss Re in Fort Wayne, Ind.; Nathan Greenlee, senior actuary with American International Group in New York; Jeffrey Lane, second vice president – pricing, Swiss Re in Fort Wayne, Ind.; Barbara Lautzenheiser, the Academy’s immediate past president and principal in Lautzenheiser Associates in Hartford, Conn.; Dwayne McGraw, managing actuary for Genworth Financial in Lynchburg, Va.; Carol Meyer, an actuary for Principal Financial Group in Des Moines, Iowa; Esther Milnes, vice president and chief actuary for individual life insurance for Prudential Financial in Newark, N.J.; John Morris, principal consultant with PricewaterhouseCoopers in Downingtown, Pa.; Kory Olsen, an actuary with Allstate Life Insurance Co. in Northbrook, Ill.; Lawrence Segal, an actuary with Travelers Life & Annuity in Hartford, Conn.; Thomas Skillman, vice president with Swiss Re in Fort Wayne, Ind.; Michelle Smith, consulting actuary with Towers Perrin in Atlanta; and David Weinsier, a consulting actuary with Towers Perrin in Atlanta. ® Victor Kwong, an actuarial associate with PolySystems Inc. in Chicago, has joined the Standard Valuation Law 2 Work Group. ® Hubert Mueller, a principal with Towers Perrin in Weatogue, Conn., is the chairperson of the Variable Annuity Practice Note Work Group, a subgroup of the Practice Note Steering Work Group that is developing a practice note to provide guidance on proposed C-3 Phase 2 and variable annuity CARVM regulations. Other members are Fred Andersen, supervising life actuary with the New York State Insurance Department in Albany; Richard Ash, vice president and appointed actuary for Jackson

National Life Insurance Co. in Lansing, Mich.; Robert Brown, a consultant with Cigna in Hartford, Conn.; Larry Bruning, chief actuary for the Kansas Insurance Dept. in Topeka; Tom Campbell, vice chairperson of the Life Practice Council and vice president and corporate actuary for Hartford Life Insurance Co. in Weatogue, Conn.; Richard Combs, actuarial vice president of AIG Retirement Services in Houston; Robert DiRico, an actuarial consultant with Watson Wyatt Insurance and Financial Services Inc. in Berwyn, Pa.; Mark Evans, vice president and actuary for Aegon USA Inc. in Louisville, Ky.; Timothy Gaule, vice president and valuation actuary for the Security Benefit Group of Cos. in Topeka, Kan.; Larry Gorski, a member of the Life Practice Council, chairperson of the Life Capital Adequacy Subcommittee, and a consulting actuary with Claire Thinking Inc. in New Berlin, Ill.; Kerry Krantz; Jim Lamson, president of Actuarial Resources Group in Overland Park, Kan.; Dennis Lauzon, life supervising actuary for the New York State Insurance Dept. in Albany; Jeffrey Leitz, a consulting actuary with Towers Perrin in Weatogue, Conn.; Bob Meilander, a member of the Life Practice Council, chairperson of the Life Operating Committee of the Actuarial Standards Board, and vice president-corporate actuary with Northwestern Mutual in Milwaukee; Craig Morrow, assistant vice president and actuary with the Hartford Life Insurance Cos. in Hartford, Conn.; Kory Olsen; Tony Phipps, actuary for State Farm Life Insurance Co. in Bloomington, Ill.; Dave Sandberg, vice chairperson of the Life Practice Council and second vice president and corporate actuary for Allianz Life Insurance Co. in Minneapolis; Scott Schneider, vice presi-

dent and actuary with Cigna in Bloomfield, Conn.; Donald Skokan, MG-Triton actuary with Milliman in Hartford, Conn.; Steven Sorrentino, a consulting actuary for Milliman in New York; Sheldon Summers, a member of the Life Practice Council and chief actuary for the California Department of Insurance in Los Angeles; and William Wilton, senior vice president and actuary for Chase Insurance in Elgin, Ill. PENSION NEWS

Ken Kent, the Academy’s vice

president for pension issues, sent a Nov. 23 letter to the Economist correcting misinformation in two articles in the Oct. 28 issue on the role of U.S. actuaries in determining investment returns for defined benefit pension plans. Kent also wrote to the Wall Street Journal on Nov. 23, pointing out that there was no mention of principal security, a key benefit of cash balance plans, in an article about a suit lodged against Bank of America by its employees. ® Donald Barnes, vice president of the Pension Board of the United Church of Christ in New York, has joined the Pension Committee and the Pension Practice Council. Also joining the Pension Practice Council is Mark Ruloff, vice president of Wintech in Greenwich, Conn. IN THE NEWS

Academy questions on retirement policy were included in a Pension Forum query that was sent to both presidential candidates in October. The questions and Sen. John Kerry’s answers were published in the Oct. 22 Pensions & Investments. Correction The phrase “de minimis” was misspelled in Barbara Lautzenheiser’s column in the November Update.

A c t u a r i a l U P D AT E




SECOND HA L F 2 0 04 Casualty Practice Council Casualty Vice President: Mary D. Miller Senior Casualty Policy Analyst: Greg Vass (, 202-785-7865) COMPLETED:

® The Committee on Property and Li-

ability Financial Reporting (COPLFR) updated its annual practice note on reserve opinions to include actuarial opinion summary model law issues. ® COPLFR published guidance on new NAIC data testing requirements for loss

reserve opinions. ® In conjunction with the CAS and the CCA, the council sponsored its annual casualty loss reserve seminar. ® The Risk Classification Subcommittee provided suggestions to the FTC for a study on the effects of credit scores and credit-based insurance scores on the

availability and affordability of insurance products. PENDING:

A comprehensive review of all RBC factors for P/C insurance ® A monograph on medical malpractice ®

Health Practice Council Health Vice President: Michael Abroe Senior Health Policy Analyst, Federal: Holly Kwiatkowski (, 202-785-7871) Policy Analyst, State: Geralyn Trujillo (, 202-785-6924) COMPLETED:

The Medicare Steering Committee and the Actuarial Equivalence Work Group developed three comment letters to CMS on proposed regulations for Medicare prescription drug plans and Medicare Advantage plans, focusing on issues such as actuarial equivalence, submission of bids, and payments of bids to prescription drug plans and Medicare Advantage organizations. ® The Mental Health Parity Work Group published an issue brief on the scope of mental health coverage, the effect of mental health parity on medical costs, and related issues. ®

® The Long-Term Care Risk-Based Capital Work Group prepared a supplement to its June report to the NAIC on RBC

factors in long-term care insurance. ® The Health Rate Filing Task Force created a user’s guide to be used in conjunction with its June report to the NAIC on potential regulatory solutions for the closed block problem. PENDING:

A practice note on CMS regulations that require actuaries to certify that Medicaid rates are actuarially sound, as well as practice notes by other work groups on small group medical busi®

ness, statutory reserves for individual disability income insurance, and individual major medical business ® A number of Medicare-related activities, including a Capitol Hill briefing, an updated issue brief on Medicare’s financial situation, a briefing packet for new members of Congress, and a practice note on the requirement that actuaries certify the actuarial equivalence of retiree health plans ® Papers on various health issues, including emerging consumer-driven health plan data, medical reinsurance, the uninsured, disease management, and risk pooling

Council on Professionalism Vice President: Geoffrey Sandler General Counsel and Director of Professionalism: Lauren Bloom (, 202-785-7869) COMPLETED:

® The council updated its applicability guidelines, a chart detailing which actuarial

standards should be consulted for specific actuarial tasks in each area of practice. ® Coordinating with the Pension Practice Council, the council commented to the Joint Board for the Enrollment of Actuaries on potential revisions to regulations governing services provided by enrolled actuaries under ERISA. ® The council published papers on the history and framework of U.S. actuarial professionalism and on actuarial practice


A c t u a r i a l U P D AT E

in the absence of published standards. ® The council contributed to comments sent in response to a U.K. review of the actuarial profession. ® The fifth annual Life and Health Qualifications Seminar was held in November. ® The council published the annual combined professionalism report for 2003. PENDING:

Speakers’ kits on professionalism for distribution to actuarial clubs ® A discussion draft of a paper on the role of actuaries in the application of ®


actuarial models ® Continuing publication of articles and cartoons on professionalism in the Update and newsletters of other actuarial organizations ® Ongoing presentations on professionalism at meetings of North American actuarial organizations ® Ongoing oversight of mutual recognition discussions and the Academy’s membership in the IAA ® The development of documentation to facilitate members’ cross-border temporary entry under NAFTA


Vice President: Donna Claire Senior Policy Analyst: Steve English (, 202-223-8196) COMPLETED:

Life Valuation Subcommittee work groups completed a new practice note updating initial practice notes written in 1995 regarding asset adequacy analysis practices used by appointed actuaries. ® The Life Capital Adequacy Subcommittee and the Variable Annuity Reserve Work Group sponsored a seminar on the C-3 Phase 2 project that was

attended by 80 actuaries.



Practice notes on FASB Statement No. 133, variable annuities, fixed annuity nonforfeiture, and reinsurance reserve credits that may be taken on financial statements ® Continued involvement with the NAIC, including drafting a model regulation for ®

annuity nonforfeiture, an actuarial guideline on reserving for variable annuities and risk-based capital requirements for variable annuities, and revisions to the standard valuation and general nonforfeiture laws ® A monograph on purchase GAAP accounting ® Ongoing monitoring of federal legislative proposals on insurance regulation

Risk Management and Financial Reporting Council Vice President: Burt Jay Policy Analyst: Ethan Sonnichsen (, 202-785-7866) COMPLETED:

® The Financial Reporting Committee commented to FASB on its “Fair Value Mea-

and pension assumptions. PENDING:

Comments to the IAA on certain aspects of international actuarial standards of practice currently under development ® A white paper cataloging the various definitions of best estimate, and how best estimates are determined in different areas of actuarial practice ® A paper on the desired characteristics of a regulatory accounting system ® An educational paper for nonactuaries on understanding ranges ®

Pension Practice Council Vice President: Kenneth A. Kent Policy Analyst: Heather Jerbi (, 202-785-7869) COMPLETED:

The joint Academy/SOA Task Force on Financial Economics and the Actuarial Model held an educational roundtable on financial economics for actuaries and leaders in the pension community. ® The Pension Practice Council, in coordination with the Professionalism Council, commented to the Joint Board for the Enrollment of Actuaries on potential revisions to regulations governing services provided by enrolled actuaries under ERISA. ® The Stock Options Task Force held meetings with FASB and the SEC to discuss ®

w w w. a c t u a r y. o r g

the role actuaries could play in the valuation of employee stock options. The task force also drafted two comment letters to FASB on accounting for stock options. ® The Multiemployer Plans Task Force commented to the International Financial Reporting Interpretations Committee on its draft D-6 on reporting issues for multiemployer plans. PENDING:

A white paper on current minimum funding rules and reform alternatives for single-employer DB plans and a paper on alternatives for reform to the ®

multiemployer system ® A practice note on employee stock option expensing and how actuarial science can be applied to the valuation of stock options ® Issue briefs on various topics, including principles for retirement security, the advantages and disadvantages of a yield curve as part of permanent funding reform of the DB system, the concept of cash balance conversions and the scope of acceptable conversion factors in current practice, and a comparative look at lump sums and annuities for overall retirement security ® A guide to financial economics for actuaries

A c t u a r i a l U P D AT E



surements” exposure draft and participated in a roundtable discussion on the issue. The committee also participated in the first FASB Insurance Industry Forum and later met separately with the board to discuss accounting issues of actuarial significance. ® The Financial Reporting Committee commented to the NAIC’s International Accounting Standards Working Group on common themes for discussing fair value and insurance accounting with the IASB.

Separately, the committee commented to the IASB on its exposure draft “ED7 Financial Instruments: Disclosures.” ® The Risk Management and Solvency Committee responded to an IAA letter on the IAIS paper “Draft Supervisory Standard on Suitable Forms of Capital” and provided guidance to Academy leadership on withholding support for the letter. ® Members of the Financial Reporting Committee met with representatives of the SEC to discuss issues of mutual interest including loss reserve disclosures, international accounting developments,


Life Practice Council


Promoting and Advancing the Profession


HE ACTUARIAL FOUNDATION, established in 1994

to facilitate and broaden the actuarial profession’s contribution to society, recently announced its 2004 prize, grant, and scholarship winners.

John Culver Wooddy Scholarship Awarded annually to college seniors who have successfully completed at least one actuarial examination, the scholarships are funded from the estate of John Culver Wooddy. Scholarship recipients for 2004 are Andreea Brezaie, University of South Carolina; Eric Geissler, Murray State University; Natalia Lysenko, Simon Fraser University; and Wendy Yawen Tu, University of Waterloo. David Garrick Halmstad Prize Thomas Moeller, the author of a paper (“On Valuation and Risk Management at the Interface of Insurance and Finance”) that was published in the British Actuarial Journal, is the 2004 recipient of this prize, given annually for actuarial research. John Hanson Memorial Prize The 2004 winners of this prize, given annually by the Conference of Consulting Actuaries in recognition of distinguished papers on employee benefit topics, are Tony Day, for his paper “Financial Economics and Actuarial Practice,” and Ed Burrows, for his paper “Fixing the Pension Plan Funding Rules.” Winners of the John Hanson Memorial Prize also receive a monetary award from the foundation.

Individual Grants Competition The foundation’s AERF Committee and the Society of Actuaries’ Committee on Knowledge Extension Research sponsor the individual grants competition to support the advancement of knowledge in actuarial science. Recipients of 2004 research grants are: ® Patrick Brockett, University of Texas, for a study of biological and psychological correlates of risk taking, credit scoring, and auto losses ® Steven Craighead and Gregory Slone, Nationwide Insurance, for a game theoretic analysis of competitive rate setting ® Daniel Dufresne, University of Melbourne, for a study on the distribution of the sum of lognormals ® Edward Frees, University of Wisconsin, for a study of credibility using copulas ® Jose Garrido and Manuel Morales, Concordia University, for a study of levy processes in risk theory ® Mary Hardy, University of Waterloo, for a study of bootstrap methods of calibrating equity models ® Rob Kaas and Roger J.A. Laeven, University of Amsterdam, for a study of dependence modeling for economic capital allocation within financial conglomerates ® Krzysztof Ostaszewski and Richard MacMinn, Illinois State University, for a study of the effect of improvements in mortality on the annuities market and the U.S. Social Security system.

For more information about the foundation’s awards, prizes, and scholarships, go to

Financial Economics,

continued from Page 1

ternative plan designs that could fit within the new paradigm. Financial economics is most often characterized by measuring the value of plan liabilities as similar market instruments and hedging the risks through investment moves in pension plans from equities to bonds. It is important in financial economics that policy-makers, shareholders, participants, and employers understand the difference between funding and accounting for pension plans. Accounting for pension plans will most likely be the first area to move to a methodology embraced by financial economists, as indicated by a recent


A c t u a r i a l U P D AT E

Financial economics is characterized by measuring the value of plan liabilities as similar market instruments and hedging the risks through investment moves from equities to bonds. decision of the Financial Accounting Standards Board and the International Accounting Standards Board to jointly undertake a convergence project aimed at moving Financial Accounting Standard 87 to something that looks more like Financial Reporting Standard 17


(the current standard in Great Britain). Despite an occasional divergence of opinion on the appropriate paradigm for the management of DB plans, several speakers reiterated the importance of promoting the value of DB plans as a necessary component of retirement security. The discussion highlighted how the principles of financial economics could support this vision. Task force member Jeremy Gold moderated the roundtable discussion, with Mark Ruloff, chairperson of the task force, providing introductory and concluding remarks. —HEATHER JERBI

Academy Speaks at FASB Insurance Forum



(FASB) hosted its first Insurance Industry Forum on Oct. 15, bringing together representatives from all corners of the insurance industry to discuss accounting concerns. Burt Jay, the Academy’s vice president for financial reporting and risk management issues, represented the Academy at the meeting, joined by Tim Tongson, vice chairperson of the Academy’s Risk Management and Financial Reporting Council, and by Ralph Blanchard and Henry Siegel, chairperson and vice chairperson, respectively, of the Academy’s Financial Reporting Committee. The Academy delegation participated in a roundtable discussion with representatives from a wide range of the insurance industry, including the American Insurance Association (AIA), the American Council of Life Insurers (ACLI), the Blue Cross/Blue Shield Association, the Reinsurance Association of America, and the Group of North American Insurance Enterprises. FASB also invited representatives from Merrill Lynch and Moody’s to speak for those who use financial statements issued by insurers. Rounding out the group were the chairperson of the AICPA’s Insurance Experts Panel and three participants from FASB’s international counterpart, the International Accounting Standards Board (IASB). The ultimate goal of the meeting was to seek ways of developing a financial reporting process that ac-

curately reflects the unique risks of insurers and fairly assesses their overall economic condition while providing useful information for investors and users of financial statements. The forum was divided into morning and afternoon sessions, with the morning session devoted to an open discussion among all participants and the afternoon divided into individual FASB meetings with the Academy, the AIA, and the ACLI. The morning portion of the discussion offered stakeholders an opportunity to air concerns and express ideas on improving accounting guidance and requirements for insurers. Among the topics: ® GAAP versus non-GAAP disclosures (led by the Academy) ® AICPA’s risk transfer paper ® FASB’s business combinations project ® EITF–03-01 (FASB guidance on the interpretation of other-than-temporary impairments) ® The IASB’s insurance contracts project During the Academy’s afternoon session with FASB, Rowen Bell and Dave Sandberg, both members of the Academy’s Risk Management and Financial Reporting Council, joined the Academy’s delegation to discuss issues from the morning session in greater detail. — ETHAN SONNICHSEN

Updated Applicability Guidelines



aries to satisfy applicable Actuarial Standards of Practice (ASOPs) whenever they provide or oversee the provision of professional services to their principals. The standards that govern actuarial practice in this country are published by the Actuarial Standards Board (ASB). Many of the ASB’s standards are specific to a particular task or area of practice, with only some that apply to particular assignments. This leaves the actuary with the responsibility of determining which of the more than 40 ASOPs promulgated by the ASB need to be reviewed and satisfied when completing a professional service. To assist actuaries in this potentially formidable task, the Academy’s Council on Professionalism has developed and recently updated applicability guidelines. The guidelines are organized by practice area and list the various categories of work that actuaries typically perform in each practice area (for example, reserving, ratemaking, or audit support). The guidelines then list by w w w. a c t u a r y. o r g

number the individual standards that usually apply to particular assignments in each category. Not surprisingly, ASOP No. 23, Data Quality, and ASOP No. 41, Actuarial Communications, nearly always apply, while other standards appear less frequently. “The applicability guidelines are a valuable tool for practicing actuaries,” said Geoff Sandler, the Academy’s new vice

president for professionalism issues. “My predecessor, Bob Rietz, and the Council on Professionalism worked hard to create this resource. Its value to Academy members is considerable.” The guidelines can be downloaded from the Academy’s website at Hard copies are available upon request from Rita Winkel, the Academy’s legal assistant (; 202-223-8196).

The Framework of U.S. Actuarial Professionalism


n October 2003, the Actuarial Standards Board withdrew the preface to the Actuarial Standards of Practice and issued an exposure draft of a new introduction to replace it. Recognizing that the preface contained useful historical information about the development of U.S. actuarial professionalism, the Council on Professionalism established a task force, chaired by former Academy president Jack Turnquist, to incorporate the historical material and other useful information into a discussion paper on U.S. actuarial professionalism. Currently available on the Academy’s website, Structural Framework of U.S. Actuarial Professionalism offers a broad conceptual perspective on professions as well as professional conduct, qualifications, and principles and practices. It deals specifically with the U.S. actuarial profession’s standards of conduct, practice, and qualification, in addition to its discipline process. The paper also discusses relationships of the U.S. actuarial profession with other professions, organizations, and public policy-makers, and addresses the role of the Academy’s Council on Professionalism in furthering professionalism among U.S. actuaries.

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Michael Abroe Donna Claire Burt Jay Ken Kent Mary D. Miller Geoffrey Sandler EXECUTIVE DIRECTOR


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SPRING MEETING 2005: An Academy Forum



The American Academy of Actuaries 1100 Seventeenth Street NW Seventh Floor Washington, DC 20036 Phone 202-223-8196 Fax 202-872-1948 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.

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