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T he N ewsmonthly
A merican A cademy
Academy Gives Testimony on Health Care Costs
hari Westerfield, chairperson of the Academy’s State Health Committee, testified before
the National Association of Insurance Commissioners’ (NAIC) Health Innovations Working Group at a public hearing on health care costs during the NAIC summer national meeting May 30-June 2 in San Francisco. Westerfield offered an actuarial perspective to a discussion of rising health care costs in a hearing that elicited testimony from state officials as well as representatives of physicians, insurers, integrated health systems, large employers, and organized labor. Westerfield’s presentation centered on elements that drive up health care costs and options to address them. She identified cost drivers that increase utilization, including new technology and treatments, lifestyle factors, and more generous benefit packages. She said there should be more research on the effectiveness of new technology and treatments compared to existing less-expensive treatments, and she also suggested that wellness and disease management programs may help lower long-term costs of treating chronic
Inside PBA Seminar An overview of principle-based proposals. . . . . . . . . . . . PAGE 5 IAA Meeting Working group discusses liability measurements. . . . . . . . PAGE 6 Catastrophe Comments Academy gives input on possible natural catastrophe program . . . PAGE 6 IRS Testimony Academy suggests changes to proposed regulations . . . . . . . . . . PAGE 7 Academy Awards Nominations due for Farley Award. . . . . . . . . PAGE 8
Summer NAIC Meeting
illness that may be caused by lifestyle choices. In identifying cost drivers that increase per-unit costs, Westerfield addressed the impacts of inflation, expanded provider networks, and provider consolidation. She noted that cost-sharing requirements should provide incentives to seek needed care while discouraging unnecessary care. She also warned that in attempting to address rising health care costs, care must be taken not to encourage cost shifting, which occurs when the burden of public costs is shifted to the private sector, and adverse selection, which generally occurs when unhealthy people are more likely to purchase health insurance than healthy people. See Testimony, Page 8
Capitol Hill Health Briefing
Wading Through Risk Pools
isk-pooling methods have recently made their way
into national conversations about health care reform. In order to educate policymakers on the fundamentals of medical insurance pools, the Academy hosted a briefing May 20 on Capitol Hill to explain the potential effects of health reform involving risk pooling on the individual and small-group markets. In the first of a series of planned health insurance Hill briefings throughout the summer and fall, Academy Senior Health Fellow Cori Uccello and David Shea, chairperson of the Academy’s Committee on Federal Health Issues, gave a presentation to nearly 50 Hill staffers, reporters, and interested parties. See Health Briefing, Page 4
David Shea explains the effects of risk pooling.
Calendar JULY 10-13 NCOIL summer meeting, New York 13-16 IAA ASTIN colloquium, Manchester, England
17 CUSP meeting, Banff, Alberta, Canada 17-19 NAAC meeting, Banff, Alberta, Canada
AUGUST 4 Actuarial collaboration meeting, Arlington, Va. 5 Academy leadership meeting, Arlington, Va. 6 Academy Executive Committee meeting, Arlington, Va.
14-16 Annual Actuarial Research Conference, Regina, Saskatchewan, Canada
September 15-16 ASB meeting, Washington
Academy News Briefs Walking With a Purpose
he Academy staff is “Everyday People.” At least that was the name under which the Academy team entered the 2008 Susan G. Komen National Race for the Cure June 7 in Washington. However, the seven Academy staffers, four children of staff members, and one former employee achieved extraordinary results as they participated in the 5-kilometer (3.1-mile) walk/run and raised $2,620 for breast cancer research and community health programs. While Everyday People didn’t quite top the charts (as Sly and the Family Stone’s song did in 1969), the Academy acquitted itself well in its fundraising efforts, finishing in the top 13 percent of all the teams. In total, the 50,000 participants in the D.C. race raised nearly $5 million. Participating staff members were Kate Callahan, Tina Getachew, Joe Grimes, Doreen Moaning, Tireaka Peppers, Kasha Shelton, and Denise Winston.
18-19 Casualty Loss Reserve Seminar
(Academy, CAS, and CCA), Washington
22-24 NAIC fall meeting, Washington 24 PBA case study seminar (Academy, SOA), Washington 25-26 SOA valuation symposium, Washington
October 2-4 NAAC meeting, Sedona, Ariz. 5 CUSP meeting, Paradise Valley, Ariz. 6 Joint orientation for U.S. boards, Paradise Valley, Ariz.
7 Academy Board of Directors meeting, Paradise Valley, Ariz.
19-22 SOA annual meeting, Orlando, Fla.
The Joint Board for the Enrollment of Actuaries has approved the Academy’s application for recognition as a qualifying sponsor of continuing professional education programs for enrolled actuaries. Enrolled actuaries may now be able to receive continuing education credit from the Academy and continuing professional education credit from the Joint Board for select Academy events. Eligible events must advertise in advance that participants can receive both kinds of credit. For those Academy events that are eligible to receive Joint Board credit, participants must verify their attendance via an online process through the Academy’s website that will automatically send them a certificate of attendance.
19-22 ASPPA annual meeting, Washington 26-29 CCA annual meeting, Bonita Springs, Fla.
27 Academy annual meeting, Bonita Springs, Fla.
November 1-4 IAA meeting, Limassol, Cyprus 10-13 Academy Life and Health Qualifications Seminar, Arlington, Va.
13-14 CIA general meeting, Toronto 16-19 CAS annual meeting, Seattle 20-23 NCOIL annual meeting, Duck Key, Fla.
December 3-4 Academy Casualty Effective Loss Reserve Opinion Seminar, Baltimore 6-8 NAIC winter meeting, Grapevine, Texas 8-9 ASB meeting, Washington February
February 26-March 1 NCOIL spring meeting,
Links to documents underlined in blue are included in the online version of this issue at www.actuary.org/update/index.asp
tions were again recognized by their peers for outstanding quality. In June, the Update and Contingencies magazine both took home Excel Awards presented by the Society of National Association Publications (SNAP). The Update won a silver award for general excellence. Contingencies earned one of two honorable mention distinctions for Daniel Skwire’s feature article, “Uncalculated Risk: The Working Lives of Wallace Stevens,” which appeared as the cover story of the September/October 2007 issue. Skwire, a member of the Academy’s Terrorism Risk Insurance Subcommittee, is a principal for Milliman in Portland, Maine. Academy Annual Meeting
Paid In Sterling
Multiple Academy publica-
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The Academy’s 2008 annual meeting will be held Oct. 27
in Bonita Springs, Fla., in tandem with the Conference of Consulting Actuaries’ annual meeting. The Academy meeting, open to all members, will consist of a twohour luncheon in which new members of the Board of Directors will be elected and John Parks will succeed Bill Bluhm as the new Academy president. The meeting will also feature a keynote speaker and the presentation of the Jarvis Farley Service Award and the Robert J. Myers Public Service Award (See Page 8), both given by the Academy annually. The Hyatt Regency Coconut Point Hotel in Bonita Springs will host the meeting. More details will be released as they are finalized. Meanwhile, if you have any other questions, please contact Denise Winston at the Academy (Winston@actuary.org; 202-223-8196).
In The News
Financial Reporting Committee Chairperson Henry Siegel, vice president for New York Life Insurance Co. in New York, and Risk Management and Financial Reporting Council Vice Chairperson Ralph Blanchard, vice president and actuary with The Travelers Cos. Inc. in Hartford, Conn., were quoted in a May 7 Bureau of National Affairs report on a May 6 Financial Accounting Standards Board roundtable meeting. Blanchard and Siegel commented on an International Accounting Standards Board discussion paper on accounting for insurance contracts. The Academy’s September 2006 issue brief on medical insurance pools was discussed by state Sen. Donald Williams during a May 6 Connecticut Senate floor statement on a bill that would open the state employee insurance pool to municipal employees on a voluntary basis. The session was broadcast the following day on the Connecticut Network (CT-N). The Academy Flood Insurance Subcommittee’s letter to congressional leadership on a proposal to expand the National Flood Insurance Program was cited in an editorial from the May 9 edition of Michigan’s Battle Creek Enquirer. The letter was signed by Stuart Mathewson, chairperson of the subcommittee and chief pricing actuary for the industrial risk insurers division of Swiss Re in Eden Prairie, Minn. The Academy’s comment letter responding to Internal Revenue Service (IRS) Notice 2008-18 was the subject of articles appearing in the May 12 and May 19 issues w w w. a c t u a r y. o r g
of National Underwriter Life and Health. Chairperson of the Life Tax Steering Group Dave Sandberg, vice president and corporate actuary with Allianz Life Insurance Co. of North America in Minneapolis, was also quoted in the articles. Sandberg explained the standards and parameters in place for actuaries working under a principle-based system. The Academy’s written comments to the IRS on a proposed regulation for measuring assets and liabilities for pension funding and the Academy testimony during a related May 29 IRS hearing were included in Bureau of National Affairs articles on May 28 and 30. The written comments were signed by Pension Committee Chairperson James Verlautz, a consulting actuary for Mercer in Minneapolis. Testifying at the hearing were the Pension Committee’s Donald Segal, vice president and consulting actuary for JPMorgan Compensation and Benefit Strategies in New York, and Christine Mahoney, a consulting actuary for Mercer in Washington. (See Page 7.) Book Ends
The Academy’s former Senior Pension Fellow Ron Gebhardtsbauer contributed to two books that recently hit the shelves of bookstores nationwide: High Wire by the LA Times’ Peter Gosselin, which looks at the financial lives of American families, and Pension Dumping by Institutional Investor’s Fran Hawthorne. The latter also includes commentary from numerous actuaries, including Michael Peskin, member of the Academy’s Pension Practice Council and an investment adviser with Morgan Stanley Invest-
ment Management in New York, and Anna Rappaport, member of the Academy’s Retirement Security Principles Task Force and a consulting actuary in Chicago. Kudos
Art Cadorine, vice president
of Insurance Service Offices in Jersey City, N.J., is the recipient of the Insurance Accounting and Systems Association (IASA) President’s Award for outstanding contributions to the growth of IASA, volunteer service to the organization, and contributions to the financial services industry. On the Move
® Charles Emma is now
director of the actuarial consulting practice for Navigant Consulting Inc. in Geneva, Ill. He was previously one of the founding principals at Pinnacle Actuarial Resources Inc. in Geneva. ® Graham Schmidt, vice president with EFI Actuaries, will head EFI’s San Francisco office. He was formerly based in New York City. ® James Morris has been named chairman of Pacific Mutual Holding Co. and Pacific LifeCorp, owner of Pacific Life Insurance Co. in Newport Beach, Calif., where Morris has been president and chief executive officer. ® Michael Farley is now senior vice president for Conseco Inc. in Carmel, Ind. He was previously chief financial officer and chief insurance risk officer at ING Re in Minneapolis. ® Don Mango is the new chief actuary for Guy Carpenter and Co. in Morristown, N.J. He was previously managing director in Guy Carpenter’s Instrat analytical unit. ® Anton Zalesky is now a
director for The Travelers Cos. Inc. in Hartford, Conn. He was previously an actuarial research supervisor for Country Insurance and Financial Services in Bloomington, Ill. ® Terry Lillis has been named senior vice president for Principal Financial Group in Des Moines, Iowa. He had been vice president and chief financial officer for the retirement and investor division of Principal. ® Peachtree Settlement Funding named Nicola Barrett as vice president for capital markets in Boynton Beach, Fla. She was previously an actuary for ABN AMRO in New York. ® Anders Ericson has been named managing director of North American operations for Ultimate Risk Solutions in Chicago. He was previously vice president and chief risk officer with Allianz Global Corporate and Specialty in Chicago. ® Dwayne McGraw is now supervising actuary for life insurance at Genworth Financial in Lynchburg, Va. He was vice presidentcorporate actuarial at FBL Financial Group in West Des Moines, Iowa. ® Jeffrey Leitz is now chief executive officer for Walbridge Capital in Hartford, Conn. He was previously a consulting actuary with Towers Perrin in Weatogue, Conn. ® Marshall Greenbaum is now a director for Swiss Re Financial Products in New York. He was previously director for SG Americas Securities in New York. ® Daniel Patterson is now an actuary with Forethought Life Insurance Co. in Indianapolis. He was previously with Asset Marketing Systems in San Diego.
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Uccello started the briefing with an introduction to the basics of risk pools, which for the purposes of the briefing were defined as large groups of individuals (or groups) whose medical costs are combined to calculate premiums. In general, Uccello said, the larger a risk pool, the more predictable and stable the premiums can be. However, Uccello warned that creating larger risk pools will not necessarily lower premiums because large pools can still be subject to adverse selection, or the tendency to draw less healthy participants, which can put upward pressure on premiums. Shea followed Uccello by elaborating on the practical implications of risk pooling in the small-group and individual markets. Generally, he explained, insurance carriers pool the revenue and claims experience based on each market segment (individual, small group, large group) to determine periodic rate increases. Within a given market segment, however, a carrier can further segment the population based on the insured’s state of residence, network differences (e.g., HMO, PPO), and benefit design.
“There is a delicate balance in determining the appropriate level of risk pooling to avoid disaggregating experience in such a way that sacrifices predictability,” Shea said. He also explained the impact of other rating variables carriers use to minimize adverse selection in a voluntary market. When regulations allow (or, in many cases, don’t specifically disallow), age, regional location, gender, and health underwriting can play a role in pricing premiums. However, those variables are usually not themselves separate risk pools but factors at work within the larger pools. “There are few absolutes when it comes to health insurance markets,” he said. “There are actuarial standards we have to follow to guide us, but there are no hard and fast rules about groups.” With the help of a flipchart, Shea showed an example of how an insurance carrier would go about updating premium rates based on emerging experience. His example illustrated how a carrier could set an overall premium rate increase for the pool but set different increases for dif-
continued from Page 1
ferent segments of the pool—based on product type and geographical region, for example. In the aggregate, however, the average rate increase will match that of the pool overall. Shea concluded the presentation by pointing out similarities and differences between the small-group and individual markets. For instance, medical underwriting often plays a large role in both markets. Where allowed in the individual market, underwriting helps determine rates for the individual purchasers, and some states limit the allowable rate variations. Where allowed in the smallgroup market, underwriting helps determine rates for the group as a whole, and nearly every state limits the allowable rate variations. In addition, while small groups are more price-sensitive than large groups, the individual market is the most sensitive because the insured pays 100 percent of the premium. More information on risk pooling, including the presentation slides, can be found at http://www.actuary.org/ briefings/pool08.asp.
Life and Health Qualifications Seminar Nov. 10-13, 2008, Arlington, Va.
If you are a fellow in the Society of Actuaries (effective 2000-2006) or if you were not examined on the topics listed in Section 3.1.1 of the Qualification Standards for actuaries issuing statements of actuarial opinion in the United States, the Life and Health Qualifications Seminar provides stateand country-specific basic education that may not have been provided as part of the Society of Actuaries examination process. It can also serve as a basic education refresher or as a source of continuing education for more experienced actuaries.
Attendance will be limited to the first 100 registrants. For more information or to register online, go to www.actuary.org/seminar/index.asp or contact Rita Winkel, the Academy’s legal assistant (202-223-8196; firstname.lastname@example.org).
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Seminar Presents PBA Basics
he Academy’s Life Practice Council held a two-day semi-
nar June 9-10 in Orlando to give attendees a basic understanding of the current proposals for a principle-based approach (PBA) to reserves and capital. The seminar began with an up-todate overview of the development process for these proposals and introduced the basic elements of the system. Regulator Mike Boerner, managing actuary for the Texas Department of Insurance, spoke of the need to include everyone in the development and implementation process, including industry stakeholders, consumers, and state regulators and legislators. He also gave a thorough breakdown of the structure of the new valuation manual and how it is expected to work. Several Academy members also spoke about specific products. Dave Neve, chairperson of the Academy’s Life Reserves Work Group, presented current proposals for life products, while Thomas Campbell, Academy vice president for life issues, and Jim Lamson, chairperson of the Academy’s Annuity Reserves Work Group, addressed variable and non-variable annuity products. Todd Erkis, member of the Academy’s Life PBA Practice Note Work Group, spoke about the work that has taken place in risk-based capital. After presenting the products, presenters went on to speak about implementation and tax issues. In a luncheon session, Donna Claire, former member of the Council on Professionalism and member of the Life Practice Council, spoke to the increased importance of professionalism under PBA, providing an overview of the Academy’s new continuing education requirements and offering suggestions on where actuaries can look for guidance under the new system. In particular, Claire emphasized the importance of documentation and monitoring where a company stands relative to other companies with regard to its assumptions. w w w. a c t u a r y. o r g
Throughout the two-day seminar, participants were engaged and asked a number of questions. Among them were inquiries about the status of the proposed actuarial guideline for variable annuities (AG VACARVM) and its prospects for implementation by the end of 2008, as well as questions about the timing for products beyond life principle-based reserving (PBR), which is currently the section nearest to completion. Convergence with international regulatory standards was also of interest, as participants wanted to know how PBA compared to international frameworks under development. The speakers then turned around and posed questions to the audience, asking how many of the participants felt that their companies were ready for PBR. Only a small number responded in the affirmative. When prompted to explain why they didn’t feel that their companies were ready, some responded that they didn’t yet understand PBR well enough and that there were still “more questions than answers.” Others cited concerns that the application of PBR
to new policies would only cause inefficiencies by requiring companies to apply two different valuation methods. Regulatory issues were also raised, including concerns that some states would compromise uniformity by changing the requirements in the manual or that the regulators would rely too heavily on floors that would interfere with actuarial judgment. —Natalie Jones
life briefs ➤ Scott Claflin, an actuary with Unity Mutual Life Insurance Co. in New York, has joined the Academy’s Annuity Reserves Work Group.
➤ Shawn Loftus, vice president for modeling and analysis with USAA Life Insurance Co. in San Antonio, has joined the Academy’s Life Practice Council.
➤ Sandeep Kumar, a senior actuarial consultant with Metropolitan Life Insurance Co. in New York, has joined the Academy’s C3 Work Group.
Mike Boerner speaks at the Academy seminar.
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risk management and financial reporting news
Weighing In on Liability Measurements By Kris DeFrain
Risk management and financial reporting briefs ➤ The Academy’s Financial Regulatory
he Academy participated in discussions on current estimates, risk margins,
Reform Task Force has been formed and is headed by Chairperson James Rech, an actuary with AmeRisk Consulting in Phoenix, and Vice Chairperson Cande Olsen, consulting actuary with Actuarial Resources Corp. in Chatham, N.J. Also joining the new task force are Dave Sandberg, vice president and corporate actuary for Allianz Life Insurance Co. of North America in Minneapolis; Brad Spenney, a vice president for AFLAC in Columbus, Ga.; Chester Szczepanski, vice president and chief actuary for Donegal Mutual Insurance Group in Marietta, Pa.; Henry Siegel, a vice president for New York Life Insurance Co. in New York; Jim Reiskytl, an actuary in Mequon, Wis.; John MacBain, consulting actuary with Actuarial Resources Corp. in Clearwater, Fla.; Joeff Williams, an actuarial consultant with Actuarial Management Resources Inc. in WinstonSalem, N.C.; and Ralph Blanchard, vice president and actuary for The Travelers Cos. Inc. in Hartford, Conn.
and discount rates at the International Actuarial Association’s (IAA) Risk Margin Working Group meeting held in Quebec City on June 11. The working group reviewed and discussed comments submitted by the Academy and others on the second exposure draft of the working group’s paper, Measurement of Liabilities for Insurance Contracts: Current Estimates and Risk Margins. In a May 28 letter to the IAA, the Academy’s Risk Margin Task Force suggested that the working group lay out narrower objectives to make the paper more focused. Some participants at the meeting expressed agreement with the task force that the paper is too long. There were also others who identified additional topics that needed to be included in the paper. At the Quebec meeting, the working group stressed that the paper is a research paper and not a position paper, and it also identified areas for future work: ® Cost-of-capital issues, including what the cost of capital should be; ® Market-consistent measures, including the potential use of a reference entity in the cost-of-capital approach; ® Revenue recognition; ® Measurement for areas with underdeveloped methods, data, or markets; ® Methods to calculate options and guarantees in contracts. The IAA working group said it plans to provide a revised draft of the paper for informal circulation and comment by the end of the summer. No further formal exposures are anticipated before finalization of the paper by the end of this year. The working group also plans to disband after completion of this paper, with any future work to be handled by other IAA groups. Kris DeFrain, chief managing actuary-property/casualty for the NAIC in Kansas City, Mo., is a member of the Academy’s Risk Margin Task Force.
➤ Alex Krutov, president of Navigation Advisors in New York, has joined the Academy’s Natural Catastrophe Subcommittee.
Academy Considers Catastrophe Reinsurance
n a May 23 letter, the Academy’s Natural Catastrophe Insurance Subcommittee responded to a National Con-
ference of Insurance Legislators’ (NCOIL) proposed resolution in support of creating a federated natural disaster reinsurance program. In the letter, signed by the subcommittee’s chairperson, Shawna Ackerman, the Academy suggested amending the language to include aggregate damage from multiple natural disasters within a specified period. Currently, the proposal explicitly supports allowing a state to tap into the proposed fund only when the financial damage from a single “megacatastrophe” exceeds a designated threshold. The Academy also suggested that the loan program in the proposed resolution should include interest. The subcommittee’s concern was that an interest-free loan would create a subsidy for catastrophe-prone states (which are more
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likely to access the federal loan program) at the expense of those less prone to natural disasters. The letter recommended that the states be required to repay the Treasury interest equivalent to the then-current rate for a 20-year Treasury bill. This would be consistent with the National Flood Insurance Program, which borrows money from the Treasury at a rate of 4 percent. Finally, the subcommittee recommended that the initial funding should be reasonably sufficient to cover the state’s longterm exposure to minimize the need for the federal backstop. “The resolution as written creates an expectation that the system will dramatically lower rates well before the assessment of the rates’ impact can be measured,” the letter says. “If this expectation is not met, the perceived success of the system may be compromised.” —Lauren Pachman
Mahoney, Segal Testify at IRS Hearing
Christine Mahoney and Donald Segal testified May 29 to the Internal Revenue Service (IRS) during a hearing on proposed regulations for measuring assets and liabilities for pension funding. The Academy testimony echoed written comments the Pension Committee sent to the IRS in a March 31 letter regarding proposed regulations that the IRS issued in December. The Academy members were the first of five witnesses to testify to the panel of IRS and Treasury Department officials. Much of their testimony covered hybrid plans and valuing ancillary benefits, such as a disability or death benefit that is not based on service but is paid after a low-probability event. The pair requested that the regulations create a consistent funding target for the valuation of both lump sums and annuities for hybrid plans. Such a regulation would echo a provision in the proposed regulations that does the same thing for conventional plans. They also requested that the proposed regulations permit the use of the yield curve in projecting the interest credits in a hybrid plan so that the target liability would equal the sum of the account balances. Mahoney and Segal also suggested changes to Proposed Regulation 1.430(d)-1(c)(1)(ii)(C), which calls for an ancillary benefit to be fully accrued at the date of hire. However, since those benefits will be paid only in the case of certain contingencies, Mahoney suggested that actuaries cademy Pension Committee members
should be able to accrue those benefits over an employee’s full career, not up to eligibility, for fear of quickly overfunding the account. “This is the way our world has operated for 30 years,” Segal said. One solution, the two explained, is to treat a non-servicerelated benefit as a term cost. “You could do it so that you pay for just the next year’s probability of the event,” said Mahoney, “so that the probability that it happens in the very next year is funded.” Other items the pair briefly discussed with the IRS were issues related to yield-curve elections and yield-curve measurement, defining actuarial assumptions, and leaving at-risk status. Segal also thanked the IRS and the Treasury Department for their work on the proposed regulations. “We recognize that it was a very large task, and from the [regulations], it’s evident that a lot of thought went into what we have been presented,” he said. “And in general,” he added jokingly, “we’d like to say you got it mostly right.” pension briefs ➤ Alan Milligan, managing actuary for the California Public Employees’ Retirement System in Sacramento, Calif., has joined the Academy’s Public Plans Subcommittee.
Advanced Seminar on Principle-Based Approach for Reserves and Capital Sept. 24, 2008 • Renaissance Washington Hotel • Washington, D.C. The Academy and Society of Actuaries’ jointly-sponsored seminar will provide an in-depth discussion of several critical topics and specific implementation challenges related to the proposed principle-based approach (PBA) for statutory reserves and capital (for both life and annuity products). It is designed for those who are familiar with PBA and would like to gain a deeper understanding of several key issues. Active participation by attendees in the discussion of these topics will be encouraged. Attendees will learn practical information regarding the implementation of PBA, covering such topics as: ® Efficient modeling techniques ® Development of economic scenarios ® Stochastic exclusion test
® Development of assumption margins ® Implementation of VACARVM ® Practicalities and implementation challenges of PBA
Early-bird registration ends Aug. 25. To register, visit http://www.soa.org/meetings-and-events/landing.aspx w w w. a c t u a r y. o r g
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Actuarial Update Associate Editors
William Carroll Patrick Collins Andrew Erman Rade Musulin Geoffrey Sandler Donald Segal Editor
Tim Dougherty (email@example.com) Design and Production
BonoTom Studio Inc. Marketing and publication production manager
American Academy of Actuaries President
William Bluhm President-Elect
John Parks Secretary-Treasurer
Andrea Sweeny Vice Presidents
Thomas Campbell Robert Miccolis James Rech Kathleen Riley John Schubert Thomas Terry
NAIC Health Notes ® The NAIC Accident and Health Working Group discussed draft instructions for producing the statement of actuarial opinion for the 2009 annual health statement. The working group is still taking comments on the draft, which has not been finalized yet. ® The NAIC Capital Adequacy Task Force (CATF) received updates on the activities of three Academy work groups at its meeting. The health riskbased capital (RBC) trend test, stop-loss factors report, and report on Medicare Part D RBC factors continue to make progress. CATF adopted an Academy report on revising underwriting risk factors in a conference call prior to the meeting. NAIC Life Notes ® The Life and Health Actuarial Task Force (LHATF) reviewed all of the proposed amendment change forms for the standard valuation law that were submitted for discussion at the meeting, and an updated draft of the law was exposed for comment. However, LHATF didn’t reach agreement on a few important remaining issues, most notably the definition of a minimum floor for principle-based reserving (PBR). LHATF formed a small group to outline the necessity for creating a minimum floor before the next meeting. If introduced, the specifics of the floor will be defined in the
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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.
The Academy is looking for nominations for the 2008 Farley Award, which is given annually to an actuary who has provided sustained exemplary volunteer service to the profession. With the exception of current Academy officers, all Academy members are eligible for the award. Past Academy presidents are eligible for consideration only for the volunteer work they have done after completing their terms of office. For more information, e-mail
©2008 The American Academy of Actuaries. All rights reserved.
valuation manual. LHATF expects to adopt the new standard valuation law at the fall national meeting in Washington. ® Five sections of the standard valuation law’s supporting valuation manual were amended, and four of them (VM-00, VM-01, VM-31, and VM-51) were released for comment. VM-20 is expected to be re-exposed for comment later this summer. ® The Academy’s Life Reinsurance Work Group presented a set of examples, originally submitted at the March meeting, of scenarios for reinsurance under the current exposure of VM-20. LHATF is considering whether the treatment of reinsurance under PBR should include the risk transfer rules that currently determine whether insurers receive reserving credit for their reinsurance treaties. ® Mary Bahna-Nolan and Donna Claire, members of the Joint Academy/Society of Actuaries Preferred Mortality Project Oversight Group, presented the group’s latest report. This report covers the development of margins for the group’s proposed new mortality tables for PBR. In its presentation, the group sought feedback from LHATF on a number of issues, including whether margins for reserves should cover one-time catastrophic events and the impact of credible company and industry data on margins. —Dianna Pell and Natalie Jones
Assistant Director for PublicAtions
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a w a r d s @ a c t u a r y. org .
Nomination Deadline: July 18
Under the revised standards, what does the “grandfather” clause for basic education and experience mean for actuaries? An actuary who met the basic education and experience (BEE) requirements to
issue prescribed statements of actuarial opinion (PSAOs) in a particular area of practice prior to Jan. 1, 2008, (i.e., under the old standards) continues to meet the basic requirements for that area of practice after Dec. 31, 2007, under the new standards. The actuary is “grandfathered” in whether or not he or she issued any PSAOs in 2007. An actuary who was unqualified, under the BEE requirements, to issue PSAOs in 2007 (i.e., under the old standards) must meet the new BEE requirements under the revised Qualification Standards to issue SAOs. Actuaries who begin issuing SAOs in a new area of practice after Dec. 31, 2007, must also meet the new BEE requirements in the revised Qualification Standards for that practice area.