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F E B R U A RY 2 0 0 3

T HE N EWSMONTHLY

OF THE

A MERICAN A CADEMY

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The Role of the Actuary

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HEN LITIGATION INVOLVES issues of impor-

tance to its membership, the Academy sometimes files “friend of the court,” or “amicus curiae,” briefs to address those issues. In filing these briefs, the Academy has the opportunity not only to educate courts about the important role actuaries play in providing professional services to insurance companies, pension plans, and others, but also to address potential misconceptions about the profession and its standards. The Academy has filed amicus curiae briefs on a wide range of issues, including the weight to be assigned to actuaries’ testimony in multi-employer pension plan arbitrations (Concrete Pipe and Products of California Inc. v. Construction Laborers Pension Trust for Southern California); the importance of permitting pension plan fiduciaries to rely on the expert conclusions of their actuaries (Shay v. Howard); the appropriate definition of fiduciary activity under ERISA (Lockheed Corp. v. Spink); and the importance of recognizing actuaries as professionals for the purposes of statutes of limitations and other state laws (Michigan Employees’ Retirement System of Michigan et al. v. Gabriel, Roederer, Smith & Co.). Most recently, the Academy submitted an amicus curiae brief to the Court of Appeals for the State of Arizona in Cohen v. J. Huell Briscoe & Associates Inc. The case

Inside Got a Bright Idea? New online service links academic researchers with practicing actuaries . . . . PAGE 2 Public Statements The Academy’s 2002 public statements at a glance . . . . . . . . PAGES 4-5 All Aboard ISO nominations for the Academy’s Board of Directors . . . . . . . . . . PAGE 7 Washington Forum It’s slated for May 9. Read about it now . . . . . PAGE 8

arises out of the insolvency of AMS Life Insurance Co. While the Academy explicitly takes no position on the facts of the case, the findings of the trial court raise several issues that could affect all Academy members who provide valuation services to life insurers in Arizona. It appears that the trial court may have held the actuarial firm, J. Huell Briscoe & Associates Inc. significantly reSee FRIEND OF THE COURT, Page 7

Calculating Coverage in Terror’s Wake

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health coverage be affected if a suicidal terrorist detonated a bomb on a busy street near your office? What if that bomb spread radiation? How would the insurance marketplace react if biological agents were used to poison your city’s water and food supply? In its new monograph Group and Health Coverage in the Wake of September 11, the Academy’s Terrorism/Extreme Events Work Group considers the impact of such catastrophic terrorist events on group and health coverage, including coverage for medical benefits and nonmedical benefits such as group life, disability, and long-term care. The monograph tackles isOW WOULD YOUR

sues such as the availability of insurance and reinsurance, cost and underwriting issues, and solvency concerns. Since the Sept. 11 terrorist attacks, which had a substantial effect on the insurance industry, particularly in the property/casualty, workers’ compensation, and reinsurance areas, there has been a heightened awareness of the possibility of future terrorist attacks that could affect the health insurance marketplace. Any catastrophic terrorist attack would have a broad and varied effect on individuals, employers, health care providers, insurers, reinsurers, and the government. Depending on the type and the extent of the See TERROR, Page 7

Actuarial UPDATE

Academy Serves as Friend in Court

A CTUARIES


Calendar FEBRUARY 2 Academy Pension Practice Council meeting, New Orleans

3 Academy Pension Committee meeting, New Orleans

Academy NEWS Briefs

3 Academy Life Capital Adequacy Subcommittee meeting, Orlando

4 Academy Committee on State Health Issues meeting, Chicago 10-11 Academy Health Practice Council visits Capitol Hill, Washington 11 Academy Health Practice Council meeting with Academy Committee on Federal Health Relationships, Washington 20-21 SOA seminar on underwriting, San Antonio

MARCH 6-7 SOA/CCA seminar on small group and individual health insurance, Lake Buena Vista, Fla.

8-11 NAIC spring meeting, Atlanta 10-11 SOA seminar on embedded value, New York 12 Academy Committee on Professional Responsibility meeting, Washington 12-14 SOA/LIMRA/LOMA life insurance conference, Orlando, Fla. 16-19 Enrolled Actuaries meeting, Washington (Academy, CCA) 20-21 ASB meeting, Washington 21 CAS leadership meeting, Philadelphia 27-28 CAS ratemaking seminar, San Antonio

APRIL 6-8 SOA/LIMRA/LOMA pension and annuity conference, Baltimore

10-11 SOA advanced retiree group benefits seminar, New Orleans

MAY 8 Academy Board of Directors meeting, Washington 9 Academy Washington Forum, Washington 18 Academy Pension Practice Council meeting, Washington 18-21 CAS spring meeting, Marco Island, Fla. 19 Academy Pension Committee meeting, Washington 29-30 SOA spring meeting (life insurance), Washington

JUNE 2-3 CAS reinsurance seminar, Philadelphia 16-17 ASB meeting, Washington 18 CIA professionalism workshop, Victoria, B.C., Canada 19-20 CIA annual meeting, Victoria, B.C., Canada 21-25 NAIC summer meeting, New York 23-25 SOA spring meeting (health, pension, longterm care), Vancouver, B.C., Canada 24-25 Academy symposium on current pension actuarial practice, Vancouver, B.C., Canada

JULY

Recognizing Public Service

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O YOU KNOW AN ACTUARY who has made a single noteworthy public service achievement or who has devoted a career to public service? Are you willing to name names? Since 1994, the Academy has presented the Robert J. Myers Public Service Award to actuaries who have made an outstanding contribution to the common good. Named for the chief actuary of the Social Security Administration from 1947 to 1970, the award recognizes individuals who have served in federal or state agencies or other organizations in the public sphere. Previous award-winners are Harry Ballantyne

Connecting actuarial research

The Actuarial Research Exchange, an online service linking academic researchers with practicing actuaries for collaborative work on business problems, was recently launched by the Committee on Academic Relations, a joint committee of the Casualty Actuarial Society, the Canadian Institute of Actuaries, and the Society of Actuaries. Located at www.aerf.org, the exchange matches faculty researchers with research opportunities, taking into consideration the topic of research and the background, expertise, and interests of the researcher. The goal, says Dale Porfilio, committee chairperson, is to increase collaboration between practitioners and academics. Organizations may post their research needs on the website, using a free

and Dwight Bartlett, both former chief actuaries for Social Security; Guy King, former chief actuary of the Health Care Financing Administration; and former state regulators Robert Bailey (Mich.), Ted Becker (Texas), Robert Callahan (N.Y.), James Gardiner (N.Y.), and John Montgomery (Calif.). There is still time to make your nomination for the 2003 Myers award, which will be presented at the Academy’s May 9 Washington Forum. A nomination form can be found on Page 8, or you can email your nomination to Tom Griffin, the Academy’s senior staff attorney (griffin@actuary.org). All nominations are due by March 1.

online form. Similarly, academic researchers can post their contact information, research interests, and a brief vita at no charge. Completed research projects that aren’t proprietary will be published on the website. ASB action At its December meet-

ing, the ASB approved the exposure draft of a proposed revision to Actuarial Standard of Practice No. 4, now titled Measuring Pension Obligations and Determining Pension Plan Costs. The proposed revision applies to actuaries performing, or giving advice on performing, the measurement of pension obligations, the assignment of plan costs to time periods, the development of a funding policy, and determination of the type and levels of benefits supportable by specified contribution levels. The comment deadline is June 15.

14-15 CAS seminar on loss distributions, New York 27 Academy Pension Practice Council meeting, Seattle 28 Academy Pension Committee meeting, Seattle 28-29 CAS risk and capital management seminar, Washington 29-30 CAS seminar on basic DFA, Washington 29-30 CAS seminar on advanced DFA, Washington

WEB INTERFACE Notice something different? In an effort to simplify your access to issue briefs, letters, and other Internet resources, we’ve created a special page on the Academy’s website listing

SEPTEMBER

web addresses for Academy documents mentioned in Update

8-9 Casualty loss reserve seminar, Chicago (Academy,

articles. Whenever you see a keyword underlined in blue, go to

CAS)

www.actuary.org/update/ index.htm. There you can click on the SAVE THE DATE! ACADEMY WASHINGTON FORUM MAY 9, 2003

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link that will take you directly to that document.

February 2003

GASB comment Focusing on common premium concerns, Jan Carstens, the Academy’s vice president for health issues; John Parks, the Academy’s vice president for pension issues; and Pat Teufel, the Academy’s vice president for financial reporting; wrote to the Governmental Accounting Standards Board about a proposed accounting standard for post-retirement benefit plans. Order manuals Both the 2003 Life

and Health Valuation Law Manual and the 2002 Property/Casualty Loss Reserve Manual can still be ordered online from the Academy’s website, www.actuary.org. EA meeting The 2003 Enrolled Actuaries meeting is just around the corner, running March 1619 in Washington. Panelists at this year’s general sessions will explore how actuaries can protect themselves from liability; the new paradigm in setting actuarial assumptions for determining pension liabilities; and the impending retirement crisis in the United States. To view a preliminary schedule of sessions and register online, go to www.ccactuaries.org/meetings/ ea2003/index.html.


JOB CONNECTION The following jobs were recently posted in the new Contingencies job bank: The Florida Department of Financial Services

EA Directory Every three years,

the Academy publishes a directory of enrolled actuaries. To order the first EA directory of the new century, e-mail Sue Steinbach, the Academy’s membership manager, at steinbach@ actuary.org. The cost is $75. 2003 Yearbook The 2003 Acad-

emy Yearbook is enclosed with this issue of the Update. CASUALTY NEWS

The Committee on Property and Liability Financial Reporting has updated its practice note on statements of actuarial opinion on property and casualty loss reserves to make it current as of Dec. 31, 2002. FINANCIAL REPORTING NEWS

Academy President Bob Anker recently sent two letters to the Securities and Exchange Commission, the first commenting on the interpretation of proposed disclosure rules required by Sections 404, 406, and 407 of the Sarbanes-Oxley Act of 2002 and the second commenting on proposed auditor independence rules required by Sections 201 to 208 of the same law. HEALTH NEWS

Eric Stallard, a research

professor at Duke University’s Center for Demographic Studies in Durham, N.C., and Thomas Tomczyk, a principal with Mercer Human Resource Consulting in Pittsburgh, have joined the Health Practice Council. ® Joining the Joint Academy/ SOA Committee on Communications for Health Issues are Mike Abroe, a consulting actuw w w. a c t u a r y. o r g

ary with Milliman USA in Chicago; Donna Novak, former Academy vice president for financial reporting issues and president and CEO of NovaRest Inc. in Fox Lake, Ill.; and Harry Sutton, a senior adviser at Reden & Anders Ltd. in Minneapolis. Abroe has also joined the Committee on Federal Health Issues and the Federal Long-Term Care Task Force. Also joining that task force is Jim Robinson, a senior scientist at the University of Wisconsin’s Center for Health Systems Research in Madison, Wis. Sutton and Corey Berger, a consultant with Reden & Anders Ltd. in Duluth, Ga., have joined the Prescription Drug Work Group. ® The following members have joined the Medicare Steering Committee: Stuart Alden, a senior heath care consultant with Watson Wyatt Worldwide in Philadelphia; David Bahn of Jacksonville, Fla.; Tony Hammond, chief actuary, senior products, for Humana Inc. in Louisville; Jay Ripps, a consulting actuary with Milliman USA in San Francisco; Gordon Trapnell, president of Actuarial Research Corp. in Annandale, Va.; and Lynette Trygstad, a principal with Reden & Anders Ltd. in Minneapolis. ® Mike Jones, an assistant vice president for Aon Consulting in Atlanta, has joined the Defined Contribution Health Plans Work Group. LIFE NEWS

The VAGLB Work Group finalized a practice note for the application of Actuarial Guideline XXXIX — Reserving for Variable Annuities with Guaranteed Living Benefits. Based on a Dec. 2001 draft, the practice note provides guidance on minimum re-

seeks a director of insurance regulation. Candidates must have at least five years of pertinent private sector insurance experience or at least five years’ experience as a senior examiner or other senior employee of a state or federal agency with regulatory responsibility over insurers or insurance agencies. A Bermuda reinsurance company seeks actuarial students with prop-

erty and casualty experience. The North Carolina Department of Insurance seeks an associate property and casualty actuary to render actuarial guidance, review rate filings, and evaluate and develop proposed legislation. Tempted? For further information and more listings, go to the Contingencies job bank (www.contingencies.org/career. html). New jobs in both the public and private sectors are added on a daily basis. All postings remain active for 30 days.

serve requirements, reinsurance, and asset adequacy analysis. PENSION NEWS

Ken Kent, a consulting

actuary with Mercer Human Resource Consulting in Washington and former president of the Conference of Consulting Actuaries, has joined the Pension Practice Council. ® Nancy Luttrell, a senior consultant with Crowden & Associates in Pittsburgh, has joined the Public Plans Task Force. IN THE NEWS

Ron Gebhardtsbauer, the Academy’s senior pension fellow; Ethan Kra, vice chairperson of the

Academy’s Pension Practice Council and chief actuary for Mercer Human Resource Consulting in New York; and Ken Steiner, a member of the Academy’s Pension Practice Council and a resource actuary with Watson Wyatt Worldwide in Washington; were quoted in a Business Insurance article on losses at the Pension Benefit Guaranty Corp. Gebhardtsbauer and Kra were also quoted in a similar article in Pensions & Investments. ® Eugene Connell, a senior vice president and chief actuary for Erie Insurance Group in Erie, Pa., was interviewed live by Jer-

ry Nachman on MSNBC about the damage caused by deer-vehicle collisions and Erie’s annual auto-deer claim study. Connell was also quoted in a Chicago Tribune article on the topic. ® The draft executive summary published in the Winter Enrolled Actuaries Report of a new Academy issue brief on DB-K Plus, a defined benefit plan with 401(k) features, was featured on Benefitslink.com. ON THE MOVE

Marilyn Oliver has been appoint-

ed by California Gov. Gray Davis to serve on the state’s Continuing Care Contracts Committee, which advises the Department of Social Services on continuing care retirement communities and contracts in the state. Oliver is principal and actuary of Oliver Consulting in Sausalito, Calif. ® George Wise III has been appointed chief financial officer of Financial Industries Corp. in Austin, Texas. He was formerly president and consulting actuary for Wise, Mitchell & Associates. ® Rodney Keefer has been promoted to vice president and manager of the life actuarial department at Erie Family Life Insurance Co. in Erie, Pa. He was formerly associate life actuary.

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February 2003

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Note: To read the Academy public statements listed on pages 4 and 5, go to the index at http://www.actuary.org/issues.htm.

The issues index is organized by subject and date, with the most recent document in each category listed first.


P U B L I C S TAT E M E N T S

THE ACADEMY’S 2002 PUBLIC

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As part of its public policy mandate, the Academy has always used a variety of approaches — including testimony before Congress, comment letters on legislation and regulatory proposals, and monographs and issue papers — to get its message out to policy-makers, the regulators, the media, and members of the public. 2002 was no different. The Academy provided oral and written testimony at a House Ways and Means Oversight Subcommittee hearing on defined benefit plans and at a House Energy and Commerce Health Subcommittee hearing on medical malpractice, and provided written testimony for a Senate Judiciary Committee hearing on asbestos litigation. During the course of the year, the Academy released issue briefs on topics such as medical privacy in workers’ compensation, defined contribution health plans, and individual accounts as CASUALTY to the IAA about a proposed riskbased solvency capital structure for insurance companies APRIL 8 comments to the NAIC on proposed revisions in instructions for P/C statements of actuarial opinion APRIL 25 letter to the Department of Health and Human Services on privacy regulations for workers’ compensation MAY monograph, “Terrorism Insurance Coverage in the Aftermath of September 11th” MAY 1 comments to the NAIC on using index-based insurance derivatives to hedge risk JUNE 3 comments to the NAIC on potential revisions to loss-reserve opinion instructions JUNE 9 comments to the NAIC on indemnity provisions in the instructions for P/C statements of actuarial opinion JULY 17 testimony for a House Energy and Commerce Health Subcommittee hearing on medical malpractice JULY 19 letter to the Environmental Protection Agency on actuarial issues in the voluntary pay-as-you-drive initiative JULY 31 follow-up comments on medical malpractice for the House Energy and Commerce Health Subcommittee AUGUST issue brief, “Medical Privacy in the Workers’ Compensation System” SEPTEMBER 25 testimony for a Senate Judiciary Committee hearing on asbestos litigation SEPTEMBER 27 comments to the IAA on proposed guidelines of actuarial practice for social security programs OCTOBER 2 supplemental testimony for MARCH 14 comments

Actuarial U P D A T E

an element of Social Security reform. Terrorism was the focus of two Academy monographs, one focusing on property/casualty coverage in the wake of Sept. 11 and the other on group and health coverage. In a culmination of several years’ work with the SOA, the Academy presented its final report on the 2001 CSO mortality tables to the NAIC. And following the passage of the Sarbanes-Oxley Act of 2002, the Academy has been in regular contact with legislators and regulators over implementation issues. Here are the public statements issued by the Academy in 2002. All are available online at www.actuary.org/pubs.htm or www.actuary.org/issues. htm. If you’re interested in more information, contact Legislative Assistant Eric Opanga (opanga@ actuary.org; 202-223-8196).

the Senate Judiciary Committee on asbestos litigation OCTOBER 7 further comments to the IAA on proposed guidelines of actuarial practice for social security programs OCTOBER 10 letter to a House-Senate conference committee about a federal backstop for potential terrorism-related workers’ comp losses NOVEMBER 12 comments to the CAS on a proposed update of the Statement of Principles Regarding P/C Loss and Loss Adjustment NOVEMBER 15 report to the NAIC on credit scoring and its impact on personal lines pricing DECEMBER practice note on statements of actuarial opinion on P/C loss reserves as of Dec. 31, 2002 FINANCIAL REPORTING FEBRUARY 12 updated comparison of the NAIC’s life, P/C, and health risk-based capital formulas JULY 19 letter to House-Senate conferees asking for clarification of the definitions of “actuarial services” and “appraisal or valuation and fairness opinions” in the Sarbanes-Oxley Act of 2002 AUGUST 28 letter to the Securities and Exchange Commission (SEC) recommending the appointment of former Academy President Richard Robertson to the Public Company Accounting Oversight Board SEPTEMBER monograph, “Fair Valuation of Insurance Liabilities: Principles and Methods” DECEMBER 3 letter to the SEC on proposed disclosure rules under the Sarbanes-Oxley Act of 2002 DECEMBER 13 letter to the Governmental

February 2003

Accounting Standards Board on a proposed accounting standard for post-retirement benefit plans HEALTH JANUARY issue brief, “What Is the Role of the Federal Medicare Actuary?” JANUARY comments to the NAIC on accounting guidelines JANUARY 30 letter to the Centers for Medicare and Medicaid Services on Medicare+Choice risk adjustment methodology FEBRUARY 13 statement for a House Ways and Means Committee hearing on health care tax credits SPRING issue brief, “The Use of Genetic Information in Disability Income and Long-Term Care Insurance” MARCH report to the NAIC on stop-loss health risk-based capital (RBC) MARCH report to the NAIC on pricing long-term care insurance MARCH report to the NAIC on long-term care RBC MARCH report to the NAIC on health organization liquidity MARCH 1 presentation to the National Conference of Insurance Legislators (NCOIL) on Medicare supplement insurance and claim cost trends APRIL statement on the 2002 Medicare Trustees Report APRIL 9 letter to House Speaker J. Dennis Hastert on association health plan provisions in patient protection legislation APRIL 11 discussion outline to the Equal Employment Opportunity Commission (EEOC) of possible methods for addressing the ruling in Erie County Retirees Association v. Erie County


STATEMENTS JUNE issue brief,

“Understanding Defined Contribution Health Plans” JUNE report to the NAIC on long-term care RBC JUNE report to the NAIC on stop-loss health RBC JUNE report to the NAIC on health liquidity JUNE 20 letter to all members of Congress on the actuarial implications of adding a prescription drug benefit to Medicare JULY issue brief, “Applying the Defined Contribution Approach to Medicare: A Primer” SEPTEMBER paper, “Medicare Prescription Drug Plans: The Devil Is in the Details” SEPTEMBER report to the NAIC on long-term care RBC SEPTEMBER report to the NAIC on stop-loss health RBC SEPTEMBER report to the NAIC on health liquidity OCTOBER 16 letter to the EEOC on the implementation of methods for addressing the Erie County ruling NOVEMBER presentation to NCOIL on patients’ bill of rights and prescription drug issues DECEMBER monograph, “Group and Health Coverage in the Wake of September 11” DECEMBER report to the NAIC on the individual health insurance market DECEMBER report to the NAIC on long-term care RBC DECEMBER report to the NAIC on pricing longterm care insurance DECEMBER report to the NAIC on health organization liquidity DECEMBER 13 letter to the Governmental Accounting Standards Board on a proposed accounting standard for post-retirement benefit plans LIFE JANUARY 10 comments on the New York Insurance Department’s Circular Letter XX JANUARY 31 comments on an NAIC draft liquidity report FEBRUARY follow-up report to the NAIC on RBC instruction and formula modifications MARCH report to the NAIC on a proposed new RBC method for separate accounts that guarantee an index MARCH report to the NAIC on C-3 phase II recommendations MARCH report to the NAIC on clarification of C-3 phase I instructions MARCH comments to the NAIC on proposed revisions to Actuarial Guideline MMMM APRIL 15 letter to California Department of In-

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surance on Actuarial Opinion and Memorandum Regulation APRIL 19 letter to the NAIC on exposure draft of Issue Paper 118 MAY 28 letter to the NAIC announcing the new Annuity Nonforfeiture Interest Rate Work Group and giving its recommendation about determining an appropriate indexing method MAY 30 comments to the NAIC on draft fund demand disclosure for institutional business JUNE draft FAQs on the valuation of embedded derivatives in life and annuity contracts in accordance with FAS 133 JUNE report to the NAIC containing proposed 2001 CSO tables JUNE response to the NAIC on questions about Section 8 opinions for Category C companies JUNE follow-up report to the NAIC on a proposed RBC method for separate accounts that guarantee an index JUNE report to the NAIC on RBC instruction and formula changes JUNE report to the NAIC on joint valuation JUNE 14 report to the NAIC on the impact of the Generalized Nonforfeiture Law JULY 13 statement to the National Conference of Insurance Legislators on a proposed model law on genetic discrimination SEPTEMBER outline to the NAIC on future changes in the U.S. solvency framework SEPTEMBER report to the NAIC recommending that the 2001 CSO tables be adopted SEPTEMBER report to the NAIC on the latest version of Actuarial Guideline MMMM SEPTEMBER report to the NAIC on total adjusted capital for modified coinsurance reinsurance OCTOBER 30 letter to the American Institute of Certified Public Accountants on proposed position statement “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts” DECEMBER report to the NAIC on low interest rates and standard nonforfeiture law for individual deferred annuities DECEMBER proposal on workers’ comp carve-out DECEMBER revised report to NAIC on total adjusted capital and its effect on dividends DECEMBER report to NAIC on implementing C-3 phase II DECEMBER report to the NAIC on RBC impact of reinsurance cessions to unauthorized reinsurers DECEMBER report to the NAIC on life insurers’ deferred tax assets

DECEMBER follow-up report to the NAIC on an RBC method for indexed separate accounts DECEMBER report to the NAIC on revisions to the Actuarial Opinion and Memorandum Regulation DECEMBER practice note for the application of Actuarial Guideline XXXIX

PENSION APRIL issue brief, “Quantitative Measures for Evaluating Social Security Reform Proposals” APRIL issue brief, “An Actuarial Perspective on the 2002 Social Security Trustees Report” MAY 31 letter to Speaker Larry Adair of the Oklahoma House of Representatives on legislation affecting Oklahoma’s public retirement systems JUNE 20 testimony by Ron Gebhardtsbauer before the House Ways and Means Oversight Subcommittee on defined benefit pension plans JULY 16 letter to the IRS about temporary regulation 401(a)(9)-6T JULY 17 public statement offering alternatives to the 30-year Treasury rate in determining pension plan funding AUGUST 13 letter to the Treasury Department commenting on areas under IRC Section 412 that lack regulatory guidance or need clarification AUGUST 20 letter to the Financial Accounting Standards Board on cash balance accounting SEPTEMBER issue brief, “Social Security Reform: Voluntary or Mandatory Individual Accounts?” SEPTEMBER updated issue brief, “Automatic Adjustments to Maintain Social Security’s Long-Range Actuarial Balance” OCTOBER updated issue brief, “Social Security Benefits: Changes to the Benefit Formula and Taxation” OCTOBER updated issue brief, “Raising the Retirement Age for Social Security” OCTOBER 9 testimony by Larry Johansen to the IRS on temporary regulation 401(a)(9)-6T regarding treatment of COLAs and optional forms of benefits OCTOBER 23 letter to the IRS on proposed rules to eliminate certain optional forms of benefit payments from DB plans DECEMBER 30 letter to IRS on phased retirement

PROFESSIONALISM AUGUST draft discussion paper, “Application of Professional Standards in International Practice” NOVEMBER discussion draft of proposed revisions to the Qualification Standards

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Membership Matters

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ince last May, the Academy has added 273 new members to its rolls. By joining the Academy, these actuaries have indicated their interest in staying on top of key policy debates affecting them and their profession in a changing financial environment. And they recognize that they can rely on the Academy to establish and uphold the highest standards of professional conduct. We welcome them.

John Adduci Rhonda Ahrens Scott J. Alexander Gilbert Allard Catherine C. Allen Denise M. Ambrogio Paul D. Anderson David Anenberg Richard T. Arnold Kevin James Atinsky Rob Austin Blake Andrew Baietto Aryeh Bak Michael Barth John Carl Baumann Mary Pat Bayer Rick D. Beam Bill Beck Kenneth S. Beck David Beckelman Elizabeth Bedard Bruno Benoit Jonathan Berenbom Anna Berezovskaya Margaret Berger Jason Berkey Julie Berquist Michael J. Beuoy Mark Robert Bird Donna Bono-Dowd John T. Bonsignore Andrew J. Bradford Thomas Martin Buckingham George E. Burleton II Edward F. Card Mary Ellen Cardascia Noel Winfred Carden Anthony Casale Jennifer L. Caulder John Celidonio Joesph Cella Hei Chan Sharmila Chatterjee Chen-Te Cheng Allison H. Chu Lance Christenson George Christopher Christian Patrick Ciavarro Benjamin Clark Will Clark Kevin Cleary Linda Brant Collins Sean Conrad Brandon Conroy Cameron Cook

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Peter Cooper Huiying Cui David Dahl James C. Dahl David W. Dahlen James Todd Daniels Ryan Daniels Tim Daniels Achim Matthias Dauser Alan Frederick Davis Scott Howard Davis Christopher DeMeo Robert Dennison Paul W. Denu Krikor Derderian Ryan M. Diehl David M. Dillon Marc Dinerman Jeanette D’Mello Christopher A. Donahue Kevin Donnelly Timothy Michael Doyle Dennis H. Dunham Tammy L. Dye Dale Embers James C. Epstein Aleksandr Falikson Brian Fannin Wendy Ann Farley John Ferguson Kristine M. Fitzgerald Robin A. Fleming William J. Fogarty Greg Frankowiak Dana Frantz David Fridell Marnie Alexis Friedman Bruce Fuller Scott Fuller Scott Fullerton Paul Kin Yan Fung William Ronald Gardner Jill Ann Garofalo Timothy J. Geddes Hassan Ghazi Ivan Grabowski Paul L. Graf Gaelle Gravot Matthew John Griffin Stephania A. Groharing Serhat Guven Thomas Hamm David L. Hanzlik Guo Harrison Lisa Hayes

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Kandace A. Heiser Brandon Heutmaker Jim R. Hill Rahim Hirji Jay Hohensee Melissa S. Holt David Joseph Horn, Jr. Chad Hueffmeier Vladimir Itkin Craig Micah Jacobs Bruce Arthur Johnson Julie Jordan Vincent M. Kane Bill Karch Yuichi Kato Susan M. Keaveny Todd Spencer Kennedy Ziv Kimmel Jeff Kluck Christine K. Kogut Greg Kratz Adrian Kryszak Brandon E. Kubitz Charles Kullmann Elizabeth Kurina Eric Kurzrok Clay D. Lambiotte Thomas P. Langer Scot Larson Francis A. Laterza Michael Laufer Richard J. Lauria Jennifer N. Lawn Khanh M. Le David Leblanc-Simard Chengwei Lee Patrick L. Lee Gerald Lenis Allan Mark Levin Jennifer Lewis Miao Li Kok Bin Liew Kenneth Lin Yuan-Huei Robin Lin Bret D. Linton Deborah Livingston Nataliya Loboda Harold Luber Douglas Lynch Jason Chusn-Shuo Ma Eric A. Madia Richard J. Manship Jonathan C. Marsden John Marsteller Susan Lynn Mateja Timothy Maxson

February 2003

Laura A. Maxwell Michael Anthony McHugh Alan Boyd McLemore Sylwia S. McMichael Lawrence J. McTaggart III Vadim Mezhebovsky Marissa Ann Moje Nigel Brendan Moodley David Andrew Moore Celso Miguel Moreira Jennifer Morris Kyle S. Mrotek Paul Mylet Saumya Nandi Beverly Navabpour Yuk Wei Ngai Khanh K. Nguyen William S. Ober David O’Brien Nancy Eugenia O’DellWarren Jade L. Olson Bridget P. Orr Brian O’Shields Kelly Paluzzi Brenda Papillon David W. Parsons Robert Penwick Heather Bertelloitti Phelps Elaine C. Pierce Faith M. Pipitone Jorge Eric Pizarro Dylan Place Daniel P. Post Michele Cook Raad Laura Louise Ramos Mary Angela Ranson Olga Rasin Julie Ratsun Dennis M. Reddington Thomas V. Reedy Lance D. Regis Brent F. Reis Ronald G. Robertson Michelle Rockafellow Charles A. Romberger Scott Rosenthal Anthony C. Scattone Megan Elaine Schaffernocker Ron Schuler Jennifer L. Scott Bonnie Shaw Xiaotie She Summer Sipes

Daniel Lewis Smith Thomas M. Smith Joao Manuel Soares Joshua A. Sobol Dana Spangher Howard R. Spencer Theodore Spitalnick Jennifer Sponseller Steven J. Stender Anne Stewardson Joel E. Stewart Sara Marie Stewart Scott Stewart Mark Strakowski Christopher Styrsky Lisa Sun Adam Swope Erica W. Szeto David B. Taylor Mary A. Theilen Brad Allen Thomas Clinton J. Thompson Ellen M. Tierney Henri V. Tran Arthur Jude Tyll William Tyrlick Stephen Underhill Jennifer Vadney Yuri Peter Veomett Jeremy R. Vessels David Paul Vincent Jeff Vipond Dale J. Visser Michael Von Behren John E. Wade Zorast Wadia Matthew John Walter David M. Weinreb Joseph Wenc Wyndi S. White Gregory A. Whittaker William B. Wilder Duane Willis Wing F. Wong Chunlai Xiao Armand Millar Yambao Run Yan Carolyn Yau Mark M. Yu Bradley J. Zarn Larry Xu Zhang Lianmin Zhou Yiheng Zhu Hayden Zou


Friend of the Court, continued from Page 1 sponsible for the insurance company’s overall solvency, and in doing so may have misconstrued the annual statement opinions filed on the insurer’s behalf as guarantees that the company would not fail. Additionally, the trial court appeared to have expected the actuarial firm both to have audited the data provided by the company and to have complied with an Actuarial Standard of Practice prior to its effective date. The Academy’s brief clarifies the role of the valuation actuary as an expert in the identification and quantification of contingent risk (and in the development of strategies to handle it), who works as part of a team of professional experts (including accountants, attorneys, and auditors) to advise the company’s management. The

brief also explains the scope of valuation opinions and the highly contingent nature of the projections on which they are based and points out that many factors unrelated to the level of policy reserves held by a company can affect its overall solvency. The Academy’s brief also makes clear that, absent unusual circumstances, actuaries look to management to provide them with data that has been certified by the company’s auditors to be complete and accurate, rather than independently auditing data. Indeed, applicable insurance laws make specific provision for actuaries to rely on management to provide such data. Finally, the Academy’s brief addresses the application of Actuarial Standards of Practice. Under common law, actuaries are required to

conform to generally accepted practice. Standards typically reflect the efforts of the Actuarial Standards Board (ASB) to describe generally accepted practice and, therefore, can provide some evidence of what generally accepted practice was prior to their adoption. However, in some situations actuarial practice has not evolved to the point where a particular practice or practices have become generally accepted. In those cases, the ASB is called upon to define the practice(s) that will be accepted within the profession. Prior to the date of their adoption, the brief explains, these standards should not be deemed to reflect generally accepted practice. A decision in this case is expected later this year. — LAUREN BLOOM

Terror, continued from Page 1 attack, the monograph states, “Insurers could experience increased claims and reinsurance premiums, decreased availability of reinsurance, and possible insurer insolvency,” which could threaten the financial security provided by insurance and employee welfare benefit programs. Whether the attack was biological, chemical, or conventional, health care costs would rise. Medical claims would likely increase as people directly affected by the attack sought treatment both for physical injuries and illnesses and for psychological reactions. In an already inflationary environment for medical costs, the monograph predicts that the primary effect of a terrorist attack would be higher premium increases assessed on attack survivors as a result of the increased claim costs. The threat of a terrorist event has already had an impact on the group life and disability insurance marketplace. According to the monograph, it is estimated that “$600 million to $800 million of claims arose from group life and accidental death coverages due to the events of Sept. 11, with catastrophic reinsurance covering over 50 percent of those claims.” Since Sept. 11, the availability of catastrophic reinsurance for group life and accidental death has plummeted, forcing insurers to consider such alternatives as ® Obtaining aggregate stop-loss reinsurance that provides reimbursement for lossw w w. a c t u a r y. o r g

es above a certain percentage of expected losses in a year, up to a maximum dollar amount ® Establishing reinsurance purchasing cooperatives ® Obtaining reinsurance on selected concentrated risks or quota share reinsurance, which covers a percentage of the risk ® Obtaining financial reinsurance to spread losses over several years ® Pooling risk among direct carriers. While catastrophic terrorist events are neither predictable nor preventable, the monograph states that “their impact on financial security can be minimized through appropriate risk-sharing mechanisms that involve the partnership of all the entities

that may be affected by them.” Janet Carstens, the Academy’s vice president for health issues, chaired the work group that developed the monograph. Other members of the work group are Jeffrey Allen, Rowen Bell, Joseph Bogdan, Cecil Bykerk, Lina Cheung, Warren Cohen, Thomas Corcoran, Alan Ford, Scott Guillemette, P. Anthony Hammond, Burton Jay, Darrell Knapp, Leonard Koloms, Scott Lockwood, Karl Madrecki, Charles Meintel, Craig Morrow, Michael Peninger, Kevin Rease, Bruce Richards, Albert Riggieri Jr., Geoff Sandler, Mike Thompson, Lisa Tourville, George Wagoner, Thomas Wildsmith, Laurence Williams, and Reginald Yoder. — HOLLY KWIATKOWSKI

ALL ABOARD The Academy’s Nominating Committee is looking for nominations for the 2004 Academy Board of Directors. Four regular directors will be elected at the Academy’s annual meeting in Lake Buena Vista, Fla., in October. You may send in a nomination by filling out and mailing or faxing the form below. Or e-mail your nomination to Rita Winkel, the Academy’s legal assistant (winkel@actuary.org). All nominations must be received by May 1. Name __________________________________________________________________________ Name __________________________________________________________________________ Name __________________________________________________________________________ Mail your nomination to: Rita Winkel, Board of Directors Nominations, American Academy of Actuaries 1100 17th Street, NW, 7th Floor, Washington DC 20036 Or fax it to: 202-872-1948

Actuarial U P D A T E

February 2003

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The Actuarial Update ASSOCIATE EDITORS

Michael Braunstein William Carroll Ronald Gebhardtsbauer Rade Musulin Peter Perkins Adam Reese EDITOR

Linda Mallon (editor@actuary.org) DESIGN AND PRODUCTION

BonoTom Studio Inc. PRODUCTION ASSISTANT

Becky Horst

American Academy of Actuaries PRESIDENT

Robert Anker PRESIDENT-ELECT

Barbara Lautzenheiser SECRETARY-TREASURER

Peter Perkins VICE PRESIDENTS

Jan Carstens Jan Lommele John Parks Stephen Preston Robert Rietz Patricia Teufel EXECUTIVE DIRECTOR

Richard Lawson DIRECTOR OF COMMUNICATIONS

Noel Card ASSISTANT DIRECTOR FOR PUBLICATIONS

Steven Sullivan MANAGING EDITOR, NEW MEDIA

Anne Richardson EXECUTIVE OFFICE

The American Academy of Actuaries 1100 Seventeenth Street NW Seventh Floor 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. ©2003 The American Academy of Actuaries. All rights reserved.

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NOMINATIONS SOUGHT FOR MYERS SERVICE AWARD

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DO YOU KNOW AN ACTUARY WHO HAS MADE AN OUTSTANDING PUBLIC SERVICE CONTRIBUTION? The Academy is looking for nominations for the 2003 Robert J. Myers Service Award, to be presented at the Academy’s 2003 Washington Forum on May 9. THE AWARD, named for the former chief actuary of

Social Security, recognizes candidates with a single noteworthy public service achievement or those who have devoted careers to public service. The nominee may be a current or former government employee, the employee of an organization whose primary focus is government work, or an unpaid volunteer working at a philanthropic organization. Public work

completed by a paid consultant, by a member of an actuarial committee, or by someone who is an officer of an actuarial organization is ineligible. You may send in a nomination by filling out and mailing or faxing the form below. Or e-mail your nomination to Tom Griffin, the Academy’s senior staff attorney (griffin@actuary.org). All nominations

are due March 1, 2003.

I nominate the following actuary for the 2003 Robert J. Myers Public Service Award: _____________________________________________________________________________________________ How did this individual’s public service make outstanding contributions to the public good? (Use a separate sheet of paper if necessary.) _____________________________________________________________________________________________ _____________________________________________________________________________________________ Please print your name and telephone number (optional). Thank you. Name _________________________________________________

Work phone _________________________

MAIL YOUR NOMINATION TO: American Academy of Actuaries, Attn: Myers Award, 1100 17th Street, NW, 7th Floor, Washington, DC 20036 Or fax it to: 202-872-1948

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