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Council Continues to Refine Reform Analysis
Survey Says ASB report reveals confidence in standard setting
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Opinions Abound Interactive seminar strengthens actuarial opinion writing
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NAIC Recap Westerfield testifies on health reform at winter meeting
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2010 Priorities A look at this year’s Academy agenda
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Council has been providing input to policymakers at each stage in the process. Most often this has involved behindthe-scenes conversations with congressional staff but has also included the submission of comment letters and technical reports. In November, the council provided its latest analysis at the request of the House and Senate, sending comment letters on both the House’s Affordable Health Care for America Act (H.R. 3962) and the Senate’s Patient Protection and Affordable Care Act prior to floor votes by both chambers. On Nov. 20, the council sent a letter to Senate Majority Leader Harry Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.), outlining the council’s three criteria for evaluating whether legislation would lead to a viable health insurance system and commenting on ways the Senate’s bill could be improved to meet those criteria. The council’s three criteria are that for insurance markets to be viable, they must attract a broad cross section of risks; that market competition requires a level playing field; and
that for long-term sustainability, health spending growth must be reduced. One of the major issues discussed in the council’s comments is the need for a strong mandate to bring in lowerrisk individuals to the risk pool, especially considering legislative measures to move to guaranteed issue and limited premium variations for age, geographic area, tobacco use, and individual/family status. The council noted that the mandate, combined with premium subsidies, could help mitigate adverse selection. However, the letter pointed out that the mandate penalties for noncompliance would need to be meaningful compared to the expected premium. Otherwise, lower-risk individuals may forgo coverage, resulting in higher premiums for the rest of the pool. The letter also addressed the need for a level playing field for a proposed public plan option and/or health insurance cooperatives, as well as the need to do more in terms of slowing the growth of health care spending. A comment letter with a similar analysis of the House bill was submitted to House Speaker Nancy Pelosi (D-Calif.) and House Minority Leader John Boehner (R-Ohio) on Nov. 6.
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s efforts to enact comprehensive health care reform legislation progress, the Academy’s Health Practice
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Academy president at the Academy luncheon and annual meeting in Boston, he made it clear that the vision of leadership central to his presidency is teamwork. Whether among volunteers, between leadership and members, or among sister actuarial organizations, Hohman stressed the need for those with competing ideas to reconcile them in the best interests of the profession. In his speech, Hohman promised that the Academy will take a hard look at the issues affecting the U.S. actuarial profession and make difficult decisions when necessary. However, the first step to doing so, according to Hohman, is to take a step back and to re-examine from the inside out the way Academy decisions are made. At the suggestion of then-President John Parks, the Academy’s Governance Task Force began the comprehensive process of reviewing the Academy’s governance processes in 2009. That initiative, headed by Parks’ predecessor Bill Bluhm, will continue to be a main priority for Hohman. “We must be prepared to be open to any change and then be willing to make those changes,” Hohman said in
Actuarial Update
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c a l e n d a r January 25 Webcast on actuarial issues of health care reform legislation (Academy, CCA, SOA) 26 IRS webcast on funding-based benefit restrictions 27 Council of U.S. Presidents meeting, Washington 28 Academy Board of Directors meeting, Washington 28 Webinar on loss reserve opinions (Academy, CAS)
February 9 Audiocast on healthcare reform (Academy, CCA)
March 3-6 IAA meeting, Capetown, South Africa 5-7 NCOIL spring meeting, Charleston, S.C. 7-12 International Congress of Actuaries, Capetown, South Africa 15-18 NAIC spring meeting, Denver 24 Webcast on retiree drug subsidy certification (Academy, ASPPA, CAS, CCA, SOA)
april 11-14 Enrolled Actuaries Meeting (Academy, CCA), Washington 15 Academy Executive Committee meeting, Washington
Academy News Briefs Professional Bodies Sport New Heads
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he Actuarial Board for Counseling and Discipline (ABCD) and the Actuarial Standards Board (ASB)
welcomed new leaders this month. Academy member Carol Sears began her term as ABCD chairperson and Al Beer began his term as ASB chairperson on Jan. 1. Sears, a principal with Actuarial Consulting Group in Morton, Ill., has served on the ABCD since 2005, most recently as the board’s vice chairperson. She also served as president of the American Society of Pension Professionals and Actuaries in 1999 and is currently a member of the Conference of Consulting Actuaries’ board of directors. Sears has more than 30 years of experience in employee benefits consulting. She succeeds Curtis Huntington as chairperson. Beer, the Michael J. Kevany/XL Professor of Risk Management, Insurance, and Actuarial Science at St. John’s University’s School of Risk Management in New York, was vice chairperson for the Actuarial Standards Board in 2009. Beer was previously president of the Casualty Actuarial Society in 1995 and, before teaching at St. John’s, retired as president of strategic business units of American Re-Insurance Corp. (now Munich Reinsurance America) in 2006, where he also served as executive vice president. He succeeds Steve Kellison as chairperson. Both were appointed to their posts by the Council of U.S. Presidents.
May 19 Council of U.S. Presidents meeting, Washington 20 Academy Board of Directors meeting, Washington
June 17 Webcast on the Qualification Standards and the SOA’s CPD requirements (Academy, ASPPA, CAS, CCA, SOA)
July 8-11 NCOIL summer meeting, Boston
August 2-3 Acturial collaboration meeting
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/
Weekly Check Up Last Friday, the Academy kicked off its first weekly e-mail newsletter to keep members apprised of the latest developments in national health care reform efforts as they happen. The Academy Health Check includes each week’s updates related to legislative movement on Capitol Hill, Academy actions directed toward Congress’s efforts, and related Academy news placements and citations. The e-newsletter will be delivered to members’ inboxes every Friday as a supplement to the more detailed reports each month in the Update on the Academy Health Practice Council’s continued contributions to the health care reform debate. Legislative Review Before turning over to 2010, make sure to catch up on all the legislative and regulatory actions undertaken in 2009 related to
Academy work. The hottest topic in Washington for most of the year, health care reform transformed by the end of 2009 from campaign bullet points to distinct House and Senate bills awaiting conference reconciliation. As each chamber finalized its version, work sped up on other legislative priorities, such as financial regulatory reform and potential pension funding relief. In addition, the National Association of Insurance Commissioners adopted long-awaited revisions to the standard valuation law. For a complete look at what happened on the Hill and in the states—as well as a summary of Academy groups’ actions in response to them—visit the 2009 Academy Legislative/ Regulatory Review.
Practice Makes Perfect Four Academy members
received media training in December as part of the Academy’s program to prepare official spokespersons. On Dec. 9, Ralph Blanchard, Casualty Practice Council member and vice president and actuary with Travelers Insurance in Hartford, Conn.; Mary Frances Miller, Academy president-elect and consulting actuary with Select Actuarial Services in Nashville, Tenn.; and Al Weller, Academy Workers’ Compensation Subcommittee member and a consulting actuary in Upper Montclair, N.J., participated in the daylong session. Academy President Ken Hohman, consulting actuary and principal with Bryan, Pendleton, Swats, and McAllister in Louisville, Ky., also participated in the training program on Dec. 21. The training for Blanchard,
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who is president-elect of the Casualty Actuarial Society (CAS), and Weller was provided in partnership with the CAS.
Sam Gutterman’s cover story “Growing Up Obese: A National Health Challenge,” visit www.contingencies.org.
We’re No. 1 The Careercast.com 2010 Jobs Rated report ranks actuaries at the top of its list of best professions. The ranking weighed work environment, physical demands, stress, income, and hiring outlook. Actuaries ranked second in the 2009 report.
In The News A technical report by a joint work group of the Academy and the Society of Actuaries on projected start-up capital requirements under different scenarios for health insurance cooperatives and a public plan option was the subject of a Nov. 2 webcast for congressional staff and media. The report and webcast were discussed in articles by National Underwriter on Nov. 2 and the Bureau of National Affairs on Nov. 3.
NAAC annual report The North American Actuarial Council’s (NAAC) 2009 annual report is now available. The second annual NAAC report recaps the council’s action from 2008-2009. Contingencies Online The January/February edition of Contingencies should have hit Academy members’ doorsteps. After celebrating its 20th anniversary last spring with a new and improved electronic edition, the latest issue marks the beginning of the first full year of the easily navigable online look. To read the magazine, which features
An Academy letter to Congress regarding the Community Living Assistance Services and Supports Act (CLASS Act), which included an actuarial analysis conducted by a joint work group of the Academy and Society of Actuaries as well as recommendations for improving this proposed long-term care program, continued to be extensively cited in various news reports and opinion pieces. Among other publications, it was cited in
2010 Life & Health Valuation Law Manual
articles in the Nov. 4 Wall Street Journal, Nov. 11 Washington Times, Nov. 16 Kaiser Health News, and the Nov. 24 Cleveland Plain Dealer and in editorials published in the Nov. 4 Columbus Dispatch and Nov. 5 Riverside, Calif., Press-Enterprise. A San Francisco Chronicle columnist’s examination of policy efforts to extend dependent health benefits to young adults included comments by Geoffrey Sandler from his July 2008 testimony on behalf of the Academy to the National Conference of Insurance Legislators. Sandler, the Academy Health Practice Council’s professionalism liaison and staff vice president and actuary for WellPoint in New York, told state legislators that “although young people age 19 to 25 generally have lower claims costs than other age groups, increasing coverage to this group will increase claims.” The Nov. 8 column was also published by the Orange County Register and Houston Chronicle on Nov. 9 and by more than a dozen other publications between Nov. 8 and 14.
2009 P/C Loss Reserve Law Manual
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Comments sent from the Academy to Senate leadership regarding health care reform legislation underscored the need to strengthen the language regarding a health insurance individual coverage mandate. Sound bites from Academy Senior Health Fellow Cori Uccello—which were taken from a complimentary news release—were included in articles by National Underwriter Life & Health on Nov. 23 and National Underwriter Property & Casualty on Nov. 30. Uccello stressed that “the viability of health care reform depends on attracting lower-risk individuals, and strengthening the individual mandate through higher financial penalties increases the likelihood that these individuals will purchase coverage.” Ken Kent, chairperson of the Academy Public Plans Subcommittee and consulting actuary with Cheiron in McLean, Va., discussed public pension plans in a Nov. 8 report by Morris News Service. Kent said it is common for mature pension systems to pay out more in benefits than the annual contribution of workers. He said the difference is made up from investment gains and that a recovered stock market could solve a lot of problems.
The Academy’s contributions to policy discussions on regulating credit default swaps were noted in several articles reporting on the National Conference of Insurance Legislators’ unanimous decision to pass model legislation. Articles include those by National Underwriter Property & Casualty on Nov. 23 and LexisNexis Insurance Law Center on Nov. 25. To find out about other actuaries in the news and for external links, visit the Academy’s newsroom.
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Hohman, continued from page 1 an interview with the Update. “I think the Governance Task Force will go into this process with an open mind and without any preconceived ideas or notions about the final outcome.” Nonetheless, whatever decisions are made to strengthen the Academy’s internal processes, Hohman knows that as an organization that seeks to serve the public on behalf of the U.S. actuarial profession, effective and open communication is essential to the Academy’s success in achieving its mission. At the annual meeting, Hohman acknowledged that he’s fielded complaints about members not being heard from enough. Therefore, Hohman has embraced a personal agenda of seeking ways to improve two-way communication between Academy leadership and members. Shortly after becoming president, Hohman reached out directly to Academy members with an introductory e-mail expressing his goals for the coming year. In addition to regular presidential columns in Contingencies, a feature that began with Parks last year, Hohman promised to continue to use direct e-mails throughout the year in order to provide updates on the progress of Academy projects. “I’m committed to keeping members informed about the Academy and its work,” Hohman told the Update. “We must find new and better ways to communicate with members.” Hohman said he considers his leadership style to be very inclusive, opening himself up to all available resources. And his term as president, he says, will be an extension of that. To that end, Hohman has already solicited input from Academy membership on ideas to improve communication, inviting members to submit their ideas to communication@actuary.org. At the end of the year, Hohman was encouraged by the responses received. “There’s been good feedback so far,” he says. “For the most part it has been favorable and useful.” Hohman isn’t a newcomer to the issues he currently sees before him. He was a member for several years of member communications and strategic planning committees for the Conference of Consulting Actuaries (CCA), during which time he says he recognized that professional organizations aren’t always at the forefront of actuaries’ minds. “The good news and bad news is that actuaries have important and demanding jobs that require their attention,” Hohman says. “That just means we need to do a better job reaching out to them. Because our members need to be aware of the fantastic work the Academy does.” As a former CCA president (2007-2008), Hohman also draws on the experience of having led another major U.S. actuarial association and of having been on the Academy board to support the Academy’s unique mission. In the July 2008 issue of the CCA online newsletter The Consulting Actuary, Hohman, then CCA president, expressed the need to create an environment in which the general public feels compelled to listen when actuaries have something to say. He also encouraged the actuarial community to embrace the Academy’s role as the voice of the profession—including through the work of the Public Interest Committee. “It is OK to disagree with an advocacy position taken by the Academy; however, it will be imperative for us to continue to support the Academy’s right (and need) to advocate,” Hohman wrote. “We must have a unified voice for the U.S. profession, and the Academy is that voice.” One aspect of cultivating that voice is continuing the progress w w w . a c t u a r y. o r g
that’s been made in encouraging collaboration across the different actuarial organizations. In 2009, the Academy teamed up twice with the Society of Actuaries (SOA) for briefings on Capitol Hill to present congressional staff with the latest actuarial analysis pertinent to pressing public policy issues, such as national retirement policy and the impact of the financial crisis on the insurance industry. Additionally, Academy health volunteers banded together with SOA volunteers over the summer to create a joint task force to provide detailed research and analysis to Congress on a proposed long-term care program included in health reform legislation. With the potential convergence of accounting standards, and perhaps someday even actuarial standards, Hohman says he also recognizes the importance of participating in the work of the International Actuarial Association (IAA). Hohman has been serving as a CCA delegate (and an Academy liaison) to an IAA section for the past year and a half. Meanwhile, Hohman is committed to focusing Academy energies on its professionalism and public policy mission, particularly increasing transparency and addressing key issues such as financial regulatory reform and the progression of health care reform, which is currently being debated in congressional conference. “Health care will continue to be a hot topic over the next year,” he says, “Regardless of what Congress ends up doing, we’re going to be actively involved in trying to make sure the regulatory environment is correct.”
Ken Hohman ➥W as born and raised in Louisville, Ky., where he still lives. ➥ I s married to wife, Sue. They have three children—daughters, Cyndi and Ruthie, and son, Jeff—and four grandchildren.
➥ B ecame an enrolled actuary in 1980, a fellow of the Society
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of Actuaries in 1981, a member of the Academy in 1982, and a fellow of the Conference of Consulting Actuaries (CCA) in 2002. He is also a member of the International Association of Consulting Actuaries, the National Center for Employment Ownership, and the ESOP Association, which advocates for employee stock-ownership benefit plans. H as served on the Joint Program Committee for the Enrolled Actuaries Meeting for several years, including as chairperson in 2003. He has presented sessions at various EA Meetings in the past. He also served on the Academy’s Board of Directors. G raduated from the University of Louisville with bachelor’s and master’s degrees in mathematics. B egan his career working for a local actuarial firm in Louisville before joining Bryan, Pendleton, Swats, and McAllister in 1978 and opening its Louisville office in 1979. He is now a consulting actuary and principal for BPS&M, which was acquired by Wells Fargo a decade ago. H as served as president of the University of Louisville Arts and Sciences Alumni Council and Wayside Christian Mission, a Louisville homeless shelter. E njoys playing tennis, rooting for the University of Louisville Cardinals sports teams, and doing anything with his grandkids. He also enjoys reading, maintaining a particular interest in U.S. history.
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U.S. Actuaries Provide Feedback to ASB By Robert Meilander and James Murphy
T
he Actuarial Standards Board (ASB) received a report at its September 2009 meeting detailing the results of a recent survey of all U.S. actuaries. The survey was commissioned by the ASB in the spring of 2009 to gauge the effectiveness of the ASB’s communication with members, to determine if the ASB’s process of developing and reviewing actuarial standards of practice (ASOPs) is meeting the needs of the profession, and to gain insight into how the ASB is viewed by the profession. The survey, which was sent to approximately 20,000 actuaries, returned more than 4,600 responses for a response rate of just under 25 percent. According to The Haefer Group Ltd., which conducted the survey, participation was extremely high for surveys of its type. According to the report, actuaries responded favorably to questions regarding the general contribution to actuarial work of the ASOPs promulgated by the ASB. Among the relevant findings:
➥ 8 6 percent agree that ASOPs promote quality work; ➥ 7 7 percent indicate that they are knowledgeable regarding the content of ASOPs in their areas of practice;
➥ 7 0 percent agree that ASOPs help improve their practice; ➥ 7 9 percent agree that current ASOPs consider the public interest. In addition, actuaries supported the level of prescription and clarity of ASOPs. According to the results:
➥ 6 1 percent agree that ASOPs provide the right balance between prescriptive rules and allowance for actuarial judgment;
➥ 4 4 percent agree that ASOPs are clearly written—whereas only 17 percent disagree.
The ASB also collected valuable data on the active participation in the process for exposing and commenting on ASOP drafts. The survey found that only 13 percent of survey respondents have submitted comments on exposure drafts of ASOPs. However, of those who have not submitted comments, 38 percent refrained because they generally agreed with the proposed ASOPs, 29 percent said they left it to other members of their firms, and 12 percent did not think their comments would make a difference. Other results related to the process include the following discoveries:
➥ 5 1 percent of respondents agree that comment periods are adequate, and among those who have submitted comments, the support for the comment period increases to 63 percent;
➥ 5 5 percent agree that the ASB responds to comments appropriately, while only 2 percent disagree;
➥O nly 34 percent indicate that they are knowledgeable regarding the ASB process for developing and amending ASOPs.
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Though the ASB will continue to evaluate this report, a few things already seem clear. First, ASOPs are believed to serve their purpose well, but there is room for improvement in clarity in the way they are written. Next, while only 29 percent agreed with the statement that ASOPs prevent poor practice, the ASB noted that this may reflect the fact that high-quality professional work requires more than just ASOPs. Third, while the ASB has been concerned about the limited number of comments received on a given ASOP exposure draft, there appear to be generally good reasons for the current level of response. And lastly, there is a need for greater understanding on the part of the profession as to how the ASB does its work. The ASB will use the survey information, along with the responses received from the request for comments on the Introduction to the Actuarial Standards of Practice, in refining its work. This information will help the ASB develop its communication strategy, expand its use of technology, and identify improvement opportunities in its development process. The ASB would like to thank the entire profession for its participation in this valuable survey. Robert Meilander, vice president and corporate actuary for Northwestern Mutual in Milwaukee, and James Murphy, a consulting actuary in Brookfield, Wis., are members of the Actuarial Standards Board.
health briefs
➥ Timothy Adams, senior adviser for analytics and outcome for CVS Caremark in Irving, Texas, and Joanne Mooney, an actuary with Towers-Watson in Boston, have joined the Academy’s Joint Committee on Retiree Health. Other Academy members joining that committee are Sam Boustani, associate actuary with Milliman in Windsor, Conn.; Zenaida Samaniego, chief actuary for the U.S. Employee Benefits Security Administration in Washington; Dan Pribe, senior consultant for Towers-Watson in St. Louis; and Colleen Driscoll, consulting actuary for the Segal Co. in Chicago. ➥ Joining the Academy’s Federal Health Committee are Stacey Lampkin, principal for Mercer in Phoenix; April Choi, principal and consulting actuary for KAC Group in West Hills, Calif.; David Tuomala, director for actuarial consulting for Ingenix Consulting in Eden Prairie, Minn.; Bela Gorman, an actuary in Marlborough, Mass.; and Ezekiel Chang, an actuary with Wellpoint in Thousand Oaks, Calif. ➥ Robert Cosway, a consulting actuary for Milliman in San Diego; Donna Novak, president and chief operating officer of NovaRest Consulting in Sahuarita, Ariz.; and Michael Thompson, principal for PricewaterhouseCoopers in West Orange, N.J., have joined the Academy’s Health Practice Council. ➥ Brian Collender, senior manager for Deloitte Consulting in Chicago, has been appointed the new chairperson for the Academy’s Medicare Part D RBC Subgroup.
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Decade-long Seminar Provides Professional Education
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or the 10th straight year, the Academy pre-
sented dozens of actuaries with critical education related to issuing annual statement reserve opinions at the Life and Health Qualifications Seminar Nov. 9-12 in Arlington, Va. The annual seminar, which attracted 76 attendees, provided educational materials and testing to assist actuaries in satisfying the basic education requirement for the Specific Qualification Standards. The standards, which list topics on which an actuary must have been examined, apply to reserve opinions for the National Association of Insurance Commissioners’ life and accident and health annual statement and/ or health annual statement. Attendees included a mix of beginning and more experienced actuaries, who continue to attend the 3 1/2-day seminar to refresh themselves on current valuation requirements and earn continuing education credits. As in past years, case-study sessions provided some of the highlights of the seminar. The interactive sessions encouraged participation, while illustrating concepts conveyed throughout the four days. For 53 of the 76 attendees, the seminar culminated in a half-day exam. Passage of the exam enables some attendees to satisfy the basic education component of the Specific Qualification Standards. The continued success of this seminar was made possible thanks to a dedicated faculty and hardworking task force. All presenters once again offered their presentations twice throughout the 3 1/2day schedule in order to keep class sizes at a level that encourages individual participation. Members of the faculty included Life and Health Qualifications Seminar Task Force Chairperson Esther Milnes; task force members Donna Claire, Darrell Knapp, Craig Morrow, Sheldon Summers, Bill Thompson, and D. Joeff Williams; Academy Committee on Professional Responsibility member Bill Cutlip; Mary Downs, Academy executive director and general counsel; and Sheila Kalkunte, Academy assistant general counsel and liaison to the Council on Professionalism. The seminar is the culmination of a full year of planning from the task force members and Academy staff. Other task force mem-
bers are Bernard Rabinowitz and F. Kevin Russell. The Academy’s legal assistant Rita Winkel handled the on-site operations. Winkel and Academy counsel Kit Pardee also played a substantial role in seminar planning.
Guidance on ASOPs Nos. 36 and 43 The Academy’s Council on Professionalism hosted an interactive educational webinar Dec. 18 providing insight into the interaction of Actuarial Standard of Practice (ASOP) Nos. 36 and 43. The webinar was co-sponsored by the American Society of Pension Professionals and Actuaries, Casualty Actuarial Society (CAS), Conference of Consulting Actuaries, and Society of Actuaries. Two years after its introduction, ASOP No. 43, Property/ Casualty Unpaid Claim Estimates, still prompts questions about its requirements and how they relate to the actuarial opinion process. Webinar presenters and participants discussed these items, as well as the exposure draft of revisions to ASOP No. 36, State-
ments of Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves, which was released in March 2009. The webinar addressed how those changes and proposals may affect actuaries who issue statements of actuarial opinion with respect to loss and loss-adjustment expense reserves for insurance or reinsurance companies (and other property/casualty risk financing systems) to comply with the requirements of the National Association of Insurance Commissioners. Webinar speakers included Ralph Blanchard, member of the Actuarial Standards Board’s Subcommittee on Reserving and CAS president-elect; Mary Frances Miller, chairperson of the International Association of Actuaries’ Education Committee and Academy president-elect; and moderator Sheila Kalkunte, Academy assistant general counsel and staff liaison to the Council on Professionalism. Academy members can view the archived video of the webinar, as well as the slides, online.
life briefs
➥ Barbara Gold, a vice president for Prudential Insurance Co. in Newark, N.J., and Robert Meilander, vice president and corporate actuary for Northwestern Mutual Financial Services in Milwaukee, are co-chairpersons of the Academy’s recently formed Deferred Tax Asset Work Group. Other Academy members joining the group are Thomas Campbell, vice president and corporate actuary for the Hartford Life Insurance Co. in Simsbury, Conn; Ann Kallus, vice president and actuary for Metlife in New York; Arnold Greenspoon, assistant vice president for AXA Equitable Life Insurance Co. in Jersey City, N.J.; Keith Osinski, director for the Teachers
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Insurance and Annuity Association in New York; Frederick Slater, associate vice president for Nationwide Financial in Columbus, Ohio; Arthur Panighetti, regulatory vice president and tax actuary for Northwestern Mutual Life Insurance Co. in Milwaukee; and Michael Gower, actuary for Allianz Life Insurance Co. of North America in Minneapolis. ➥ Leonard Reback, vice president for Metropolitan Life Insurance Co. in Bridgewater, N.J., has been named chairperson for the Academy’s Life Financial Reporting Committee, and Steve Malerich, assistant vice president for AEGON USA in Cedar Rapids, Iowa, has been named vice chairperson.
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C asualty n ews
2009 Opinion Seminar Expands Topics Again by
Dale Ogden
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he Academy held its fifth annual seminar
“Effective Property/Casualty Loss Reserve Opinions—Tools for the Appointed Actuary” Dec. 2-3 in Baltimore. The Academy continued the format begun in 2008 by again expanding the number of topics and providing different material on each day, as most participants attended both days. A faculty of nine Academy members organized and presented the relevant actuarial standards of practice (ASOPs) and regulations governing statements of actuarial opinion, along with the related documents required by the National Association of Insurance Commissioners. At the same time, the opinion seminar provided actuaries with a forum for sharing their ideas and experiences. The seminar was intensive and offered participants up to 15 continuing education credit hours. During the first day, the faculty provided attendees with the specific requirements and discussed the many disclosures required in the preparation of opinions. Regulatory actuaries from several states pointed out critical areas and some of the issues they commonly encounter in statements of actuarial opinion, actuarial opinion summaries, and actuarial reports. They also indicated that they believe the overall quality of opinions continues to improve. To end the first day, an in-depth discussion was held about when and how to disclose significant risks of material adverse deviation. On the second day, participants discussed ASOP No. 43, Property/Casualty Unpaid Claim Estimates, and the proposed changes to ASOP No. 36, Statements of Actuarial Opinion Regarding Property/ Casualty Loss and Loss Adjustment Expense Reserves. Another session explored reserve ranges, dealing with various types of ranges, the disclosure of ranges in the actuarial opinion summary and actuarial report, and the implications of ranges in evaluating and disclosing significant risks of material adverse deviation. The faculty also explored ways of dealing with difficult or unusual circumstances, and, in a new session at the end of the day, the participants worked through an interactive quiz covering many of the major topics covered during both days. Throughout both days, as a part of each session, attendees worked through several case studies. Attendance was limited to allow presentations to be interactive with questions and discussion. Participants point to these discussions as an especially valuable part of the seminar. Several participants have attended the seminar in past years, and a few have attended each year since its 2005 inception. Each participant left with a USB flash drive containing the seminar presentations and copies of various reference documents that are useful in preparing opinions. The 2009 Academy practice note Statements of Actuarial Opinion on P&C Loss Reserves, produced by the Academy’s Committee on Property and Liability Financial Reporting (COPLFR), was released in late December. Members of the faculty were COPLFR members Nicole Elliott, Tom Ghezzi, Mary D. Miller, Lisa Slotznick, and me—as well as Academy members Charles Cook, Jon Michelson, Dave Pochettino, and Chet Szczepanski. w w w . a c t u a r y. o r g
Comments from seminar participants were overwhelmingly positive, and the Academy is planning to offer the seminar again next year. On Jan. 28, the Academy and Casualty Actuarial Society will offer a 90-minute webinar based on presentations from the December seminar that will cover material adverse deviation and reserve ranges. Dale Ogden, president of Dale F. Ogden and Associates in San Pedro, Calif., headed the opinion seminar’s planning group.
risk management and Financial reporting briefs
➥ Thomas Herget, an actuary in Aurora, Ill., is the chairperson for the Academy’s recently formed Regulatory Capital Requirements Task Force. Also joining the task force are Mark Yu, senior vice president for Swiss Re in Armonk, N.Y.; Joy Schwartzman, principal and consulting actuary for Milliman in New York; Larry Rubin, partner at PricewaterhouseCoopers in New York; David Spiegler, executive vice president and chief actuary for BMS Intermediaries in East Brunswick, N.J.; Gary Josephson, principal and consulting actuary for Milliman in Brookfield, Wis.; Shari Westerfield, an actuary with Blue Cross/ Blue Shield in Chicago; Donna Novak, president and chief operating officer of NovaRest Consulting in Sahuarita, Ariz.; Al Bingham, executive director for actuarial services for Kaiser Permanente’s east region in Atlanta; Ethan Kra, worldwide partner and chief actuary for Mercer in New York; Arthur Panighetti, regulatory vice president and tax actuary for Northwestern Mutual in Milwaukee; and Alex Krutov, president of Navigation Advisors in New York. Josephson and Kra also joined the Academy’s Risk Management and Financial Reporting Council. ➥ Derek Jones, consulting actuary with Milliman in New York, has joined the Academy’s International Financial Reporting Standards Task Force. ➥ Ronald Harasym, vice president of New York Life Insurance Co. in New York, has joined the Academy’s Risk Management and Solvency Committee. ➥ Lijia Guo, deputy chief actuary for the U.S. Department of Veterans Affairs in Washington, and James Lynch, an actuary in Montclair, N.J., have joined the Academy’s ERM Subcommittee.
pension briefs
➥ Eric Lofgren, an actuary in Cranbury, N.J., has been named vice chairperson for the Academy’s Committee on Social Insurance. ➥ Jason Malone, vice president for JP Morgan Compensation and Benefit Strategies in Boston, has joined the Academy’s Pension Accounting Committee.
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NAIC W inter 2009 Meeting
Westerfield Weighs In on Reform Implications
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cademy Health Practice Council member Shari Westerfield testified to the National Associa-
tion of Insurance Commissioners (NAIC) about the future of state health regulation at the NAIC’s Dec. 4 meeting in San Francisco. Westerfield, who is also chairperson of the Academy’s State Health Committee, explained the impact that various measures in both the Senate and House health care reform proposals could have on the role of state regulation. According to Westerfield, the bills, which have both been passed by their respective chambers and await conference committee debate, would require the states to interpret, implement, integrate, and coordinate with federal regulators. She said that the NAIC particularly seems to have an advisory role to federal regulators, while overseeing the implementation of certain reform components “under some aggressive timelines.” In her testimony, Westerfield focused on rules related to policy rates and filings. Specifically, she pointed out that policy forms and rates would need to be filed and approved prior to the effective date of the new standards, which may be either 2013 (House version) or 2014 (Senate version)—adding that the NAIC individual health rate filing guidelines will likely need major, and timely, revisions. “Insurers will need to develop new premium rates that reflect all the potential new health insurance reforms, restrictions, and requirements, many of which affect utilization of health services,” Westerfield said. She also indicated that many insurers may not have adequate experience data to account for new rules such as guaranteed issue with no pre-existing condition limitations, lower member cost sharing, an expanded scope of benefits, and a new definition of “medical necessity.” Westerfield’s testimony also covered issues related to implementing risk-sharing mechanisms, such as a Senate-proposed transitional reinsurance program and the establishment of risk corri-
dors for the individual and small group markets, market dynamics and solvency standards, and financial reporting changes.
Life Notes The NAIC’s Life and Annuities Committee gave an extension through the summer meeting in August for the completion of the valuation manual, an accompanying guide to the standard valuation law that was adopted by the NAIC in the fall. It was initially hoped that the law and manual would be passed together at the meeting so that they could be brought to state legislatures for consideration as a package this year.
Governance Review In 2008, the Academy’s Governance Task Force presented governance recommendations to the board of directors based on issues raised during prior strategic planning sessions held by Academy leadership. In 2009, however, thenPresident John Parks and current President Ken Hohman turned to the task force, now headed by Penultimate Past President Bill Bluhm, to address broader issues as identified by the entire Academy membership. On Nov. 20, an invitation to volunteer for the task force or to present specific ideas to the task force was sent to Academy members. As of the Dec. 4 deadline to respond, the task force netted 72 volunteers, as well as 15 other members who provided comments to help direct the task force’s efforts. The Update will provide further progress reports as the task force begins its work.
A c t u a r i a l R e s e a r c h E x c h a n ge The Committee on Academic Relations is a joint committee of the Casualty Actuarial Society (CAS), Canadian Institute of Actuaries (CIA), and Society of Actuaries (SOA). The focus of the Committee is to encourage and facilitate the evolving relationship between the actuarial profession and the academic community in order to achieve partnership on key initiatives. The committee has established an actuarial research matching service that links faculty and business or government actuaries for collaborative work on practical business and societal problems. This service is used to match researchers and research opportunities, taking into consideration details such as the research issue to be addressed and the background, expertise, and interests of the potential researcher. The Actuarial Foundation has been asked by the Committee on Academic Relations to host the Actuarial Research Exchange. For more information, visit http://www.actuarialfoundation. org/programs/actuarial/research_exchange.shtml.
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academy Priorities for
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hough 2009 ushered in several major national reform proposals, many of those important policy details remain to be hammered out this year. Therefore, the Academy and its practice councils continue to supply technical expertise and actuarial advice to congressional conference negotiations on national health care reform and to the federal financial regulatory reform efforts that moved toward the top of the national agenda at the end of last year. If potential bills are presented to and signed by the president this year, groups like the National Association of Insurance Commissioners (NAIC) will quickly begin the task of overseeing and implementing regulatory changes that will demand continued perseverance on the part of Academy volunteers and staff. The still-smarting national economy also brings other related major public policy issues to the
Council on Professionalism ® The council
will continue to coordinate and promote actuarial professionalism to members of all five U.S.-based actuarial organizations. Through the activities of the Committee on Actuarial Public Service, Committee on Professional Responsibility, Committee on Qualifications, Joint Committee on the Code of Professional Conduct, and the Life and Health Qualifications Seminar Task Force, the council will encourage actuaries to achieve and maintain a high level of professionalism in their practices. ® The council will sponsor four low-cost (free to regulators) webcasts on various professionalism topics throughout 2010 to assist actuaries in meeting the continuing education requirements of the U.S. Qualification Standards. ® The Committee on Qualifications continues to respond to hundreds of questions and inquiries made by
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2010
forefront in 2010. The Academy seeks to advance public discourse on national retirement policy, including Social Security reforms such as raising the retirement age, and aid the NAIC’s efforts to finalize a supplementary valuation manual to the revised standard valuation law so that the documents can be presented together to states to begin adopting principle-based reforms to reserves and capital for life insurance and annuities. Whether advancing these issues or getting in front of national flood insurance reforms or continuing to provide professional education and guidance to actuaries, the Academy has an ambitious agenda for 2010. The following are some of the top priorities according to each council. Stay tuned for further developments on these and other issues in the Update and on the Academy’s website.
actuaries, employers and recruiters of actuaries, and regulators regarding actuarial qualifications under the U.S. Qualification Standards.
Casualty Practice Council ® With the
National Flood Insurance Program scheduled to expire during the first quarter of 2010, the council expects to issue a monograph on the history and future of the program. The council will be closely following the progress of other natural-disasterrelated and all-perils legislative efforts at both the state and federal levels. ® The council is planning to implement initiatives to support the Casualty Actuarial Society’s Task Force for Enhancing the Reputation of Casualty Actuaries. One effort being undertaken in that regard is an informational paper for regulators and other policymakers concerning the meaning and use of the term “actuarial soundness” in regulatory and legislative contexts. The council
hopes to work with practitioners in other areas to get a broad perspective on this subject. ® In 2009, the P/C Risk-Based Capital Committee submitted a paper to the National Association of Insurance Commissioners’ (NAIC) Property/ Casualty Risk-Based Capital Working Group, Solvency Modernization Initiative Task Force, and Rating Agency Working Group that identified potential areas for improvement to the property/casualty risk-based capital formula. The committee will be working with NAIC regulators to update the formula in accordance with the recommendations set forth in the paper.
Health Practice Council ® Health care reform
has dominated the 2009 domestic policy agenda, and 2010 is shaping up to be an equally important year. If legislation is enacted, then the council’s attentions will turn to regulatory activity and further analysis of the implications of the reform. If debate persists, however, continued on Page 10 ➜
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the council will continue to provide policymakers with objective information as they strive toward comprehensive reform. While the council and its work groups will continue to publish educational material for policymakers, Capitol Hill visits and briefings will likely play an integral part in the council’s outreach activities. ® Medicare also remains a high priority. The Medicare Steering Committee will continue to stress the message to policymakers, the media, and the public that reform is needed sooner rather than later. The annual issue brief on Medicare’s financial condition will be updated once the 2010 Medicare Trustees’ Report is released. ® The council’s agenda includes continuing to provide research and reports to the NAIC on stop-loss factors, making recommendations on updating the Medicare supplement refund formula, and continuing work on a principlebased spreadsheet model for long-term care reserves.
Life Practice Council ® In support of the
principle-based approach (PBA) to reserves and capital for life insurance and annuities, the council will focus its attention on the development of the final sections of the valuation manual that the NAIC works to adopt to support its recent revisions to the standard valuation law. In addition, the council will continue updating a “safe harbor” economic scenario generator for the stochastic exclusion test, developing scenario reduction techniques to lessen the workload associated with PBA calculations, participating in PBA training sessions for regulators, and updating the standard nonforfeiture law. Technical assistance to the NAIC is a central concern, as it finalizes RBC instructions for C-3 Phase II and C-3 Phase III and looks to begin work on C-3 Phase IV for annuities later in the year. ® Public policy issues including life settlements and government mandates
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on life insurance are also on the radar as issue briefs on both topics are planned for release. In addition, the council plans to continue its dialogues with the Treasury Department, Securities and Exchange Commission, the International Accounting Standards Board, and the National Conference of Insurance Legislators on issues affecting life insurance regulation. ® The council plans to produce practice notes on topics of interest to the profession. Proposed projects include a practice note on market-consistent embedded value and one on international financial reporting standards guidance related to life insurance. In addition, the council hopes to begin work on practice notes on principle-based reserving for life insurance, stochastic exclusion test scenario reduction techniques, and business combinations and goodwill impairment.
port the work of the Academy’s Public Plans Practices Task Force and tracking the work of the Governmental Accounting Standards Board as it follows up on its July 2009 invitation to comment on these issues. The Pension Finance Task Force, Public Plans Subcommittee, and Pension Accounting Committee contributed submissions to GASB last year. ® Changes to and implementation of the Pension Protection Act continue to be a high priority for the council. The council plans to continue conversations with Congress, the Internal Revenue Service, and the Pension Benefit Guaranty Corp. to ensure that the actuarial voice is heard.
Pension Practice Council ® The economic and financial chal-
marily through its Risk Management and Solvency Committee, will follow and respond to papers from international bodies that propose to modernize solvency regulation within the framework of Solvency II. ® The council reinstituted the International Financial Reporting Standards Task Force to prepare for Phase II of the International Accounting Standards Board’s (IASB) insurance contracts project in which the IASB is expected to release an exposure draft for comment this year. The draft will help develop a replacement to International Financial Reporting Standard No. 4, Insurance Contracts, an interim standard. The replacement would provide a basis for consistent accounting for insurance contracts in the longer term. ® The Financial Regulatory Reform Task Force will continue to be active in urging an actuarial role in the financial regulation overhaul that is occurring on Capitol Hill. The task force will work to ensure that any regulation of the financial services sector pays specific attention to the need for an actuarial role in regulatory reform, especially that related to the insurance industry.
lenges of the past year have brought retirement security to the forefront of public policy discussions on the Hill. The council continues to build relationships with policymakers through serious discussions about the design and financing of sustainable retirement security systems, focusing on the current state of retirement plans as well as envisioning new ideas for the future of retirement. Ways to encourage annuitization of retirement benefits and analyzing the financial condition and reform options for Social Security are two topics to follow. The council will also increase collaboration with the Society of Actuaries Retirement 20/20 initiative to envision a 21st century retirement system. ® The council will continue to monitor discussions related to determining appropriate disclosures on actuarial reports for public pension plans. This includes making itself available to sup-
Risk Management and Financial Reporting Council ® The council, pri-
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Health Reform, continued from page 1
Actuarial Update Associate Editors
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American Academy of Actuaries President
Ken Hohman President-elect
In addition to providing general comments on the Senate legislation, the council was asked by congressional staff to specifically address whether the Senate’s grandfather provisions would help mitigate “rate shock” for the grandfathered population. Unlike the House bill, which contains a five-year transitional grandfathering period for small groups, the Senate bill indefinitely grandfathers both small group and individual plans. According to the council’s letter, the relevant provisions would “grandfather coverage (individual and group plan policies) in which the individual is enrolled at enactment; retain the same rating rules for grandfathered coverage (i.e., new market reforms would not apply); allow for the renewal of that coverage, limited to the individual and their dependents; and allow group health plans in effect on the date of enactment to enroll new employees and dependents.” After also considering the treatment of risk adjustment and the separate pooling of the grandfathered plans and new plans, the council found and reported that the legislation appears to, in fact, insulate individuals with existing coverage from experiencing significant premium increases.
Small Group Actuarial Certification The Health Practice Financial Reporting Committee has released a new practice note on the actuarial certification of restrictions relating to premium rates in the small group market. The practice note was originally developed to provide guidance to actuaries who prepare small group actuarial certifications required by state laws and regulations. The updated version of the practice note incorporates Actuarial Standard of Practice (ASOP) No. 26, Compliance with Statutory and Regulatory Requirements for the Actuarial Certification of Small Employer Health Benefit Plans, which was adopted in 1996. It also has been updated to reflect relevant revisions of certification requirements in various states, as well as practical changes that have occurred since the original publication.
—Heather Jerbi
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Andrea Sweeny treasurer
John Schubert Vice Presidents
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Mary Downs 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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Academy Voices Heard at NCOIL Meeting
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he National Conference of Insurance Legislators (NCOIL)
held its 2009 annual meeting Nov. 18-22 in New Orleans. The meeting featured participation from several Academy volunteers. On Nov. 19, Academy Natural Catastrophe Subcommittee member Marty Simons spoke to NCOIL’s Property-Casualty Insurance Committee regarding its proposed system for public-private natural catastrophe financing. The Academy subcommittee, Simons explained, favors public discussions focused on developing actuarially appropriate ways to deal with the substantial capacity needs that are likely to arise in the wake of “mega-catastrophes.” He expressed concern that the current proposal’s state pool target would be insufficient to cover the potential risks and noted that the subcommittee feels that state and federal involvement should not supplant private market capacity. Simons’ remarks were similar to his comments at the July NCOIL meeting in Philadelphia. The next day, Academy Senior Life Fellow Nancy Bennett and National Association of Insurance Com-
missioners (NAIC) Life and Health Actuarial Task Force Chairperson Larry Bruning presented an update on the principle-based approach (PBA) project to NCOIL’s Life Insurance and Financial Planning Committee. Bennett spoke about the role of corporate governance requirements and the actuarial standards of practice in regulating the implementation and ongoing practice of PBA for the protection of the public. Bruning, who represented the NAIC, reviewed topics such as the basics of PBA provisions and the status of their consideration by the NAIC. Lastly, Shari Westerfield, chairperson of the Academy’s State Health Committee, participated in a roundtable discussion of the current federal health care reform proposals and their potential impact on the states. Westerfield also testified on these issues to the NAIC at its Dec. 4 winter meeting. (See page 8.) NCOIL also adopted several model bills and resolutions on issues that the Academy has addressed, including credit default insurance model legislation, principles of health care reform, and a resolution opposing the proposed Federal Insurance Office Act of 2009 (H.R. 2609).
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