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the Academy’s Health Practice Council mapped out its key issues for the coming year, including Medicare reform, prescription drugs under Medicare, and solutions for those lacking health insurance, including association health plans. On Feb. 10 and 11, members of the Health Practice Council trekked to Capitol Hill for annual visits with congressional staff and policy-makers. The top issues policy-makers wanted to discuss? Medicare reform, prescription drugs under Medicare, and solutions for those lacking health insurance. “The Hill visits always serve as a reality check on what we think are the big issues,” said council Vice Chairperson John Schubert. “This year it looks like we were pretty much on the mark.” Still, other issues surfaced. Although it’s primarily a casualty issue, medical malpractice also came up in discussions with policy-makers. Because of questions about how the medical malpractice crisis affects medical costs and access to health care, health actuaries have an interest in the issue, as well, said Al Bingham, chairperson of the Academy’s Committee on Federal Health Issues. In their meetings, council members were able to point to the Academy’s recent testimony at a congressional ATE LAST YEAR,

Academy members making Hill visits gather on the Capitol steps.


Inside New Director Meet Craig Hanna, the Academy’s new director of public policy . . . . . . . . . . . . . . PAGE 2 Come to the Forum Check out the sessions and speakers planned for the upcoming 2003 Washington Forum . . . . . . . . . . . PAGES 4-5 Register to attend the 2003 Washington Forum . . . . PAGE 6 Sarbanes-Oxley Rules The SEC has issued final rules implementing Sarbanes-Oxley . . . . . . . PAGE 8

A c a d e m y Te s t i f i e s o n M e d i c a l M a l p r a c t i c e

Weighing the Cost



higher legal defense costs, and increased claim frequency in some cases, coupled with lower prospective investment yields, are all factors that are driving up medical malpractice insurance rates, the chairperson of the Academy’s Medical Malpractice Subcommittee testified at a recent congressional field James Hurley testifies at congressional field hearing in Pennsylvania. hearing in Langhorne, Pa. “Some lines of business are more predictable than others, and medical malpractice is generally viewed as being more difficult to predict than most lines,” See COST, Page 7

Actuarial UPDATE

Health Issues Targeted in Hill Visits


Calendar MARCH 5 Academy Life Practice Council meeting, Atlanta 6-7 SOA/CCA seminar on small group and individual health insurance, Lake Buena Vista, Fla. 8-11 NAIC spring meeting, Atlanta 10-11 SOA seminar on embedded value, New York 12 Academy Committee on Professional Responsibility meeting, Washington 12-14 SOA/LIMRA/LOMA life insurance conference, Orlando, Fla. 16-19 Enrolled Actuaries meeting, Washington (Academy, CCA) 20-21 ASB meeting, Washington 21 Academy Life Products Committee meeting, Chicago 21 CAS leadership meeting, Philadelphia 24 Academy Life, Financial Reporting, and Casualty Practice Councils visit Capitol Hill, Washington 27 Academy Social Insurance Committee meeting, Washington 27-28 CAS ratemaking seminar, San Antonio

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

7 Academy Pension Practice Council visits Capitol Hill, Washington

9 Academy Life Financial Reporting Committee meeting, New York

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

Academy NEWS Briefs Academy’s New Director of Public Policy


new director of public policy. Hanna, former executive director of the House Democratic Policy Committee under Richard Gephardt (D-Mo.), has over 16 years’ Capitol Hill experience, working in a variety of positions. Most recently, he served as a senior policy adviser to Gephardt, formulating the Democratic agenda beginning with the 104th Congress. In his new job at the Academy, Hanna sees an opportunity to build on existing excellence. “The Academy does such great work in many different areas and I see my job as figuring out a way to make that work more available, accessible, and noticed by members of Congress and their staffs and other policy-makers, as well as the membership of the Academy.” Hanna brings considerable political expertise RAIG HANNA IS THE ACADEMY’S

to the task. While working on Capitol Hill, Hanna was the key legislative coordinator for legislation passed in the wake of Sept. 11, including the Patriot Act and supplemental appropriations for the war effort and recovery and cleanup. Hanna also represented Democratic leadership during budget negotiations from 1995 through 1997. Originally from Ohio, Hanna is a graduate of Kent State University, where he earned a bachelor’s degree in political science.

MAY 8 Academy Board of Directors meeting, Washington 9 Academy Washington Forum, Washington 18 Academy Pension Practice Council meeting, Washington 18-21 CAS spring meeting, Marco Island, Fla. 19 Academy Pension Committee meeting, Washington 28 Academy Life Valuation Subcommittee meeting, Washington 29-30 SOA spring meeting (life insurance), Washington

JUNE 2-3 CAS reinsurance seminar, Philadelphia 11 Academy Life Financial Reporting Committee meeting, Chicago 16-17 ASB meeting, Washington 18 CIA professionalism workshop, Victoria, B.C., Canada 19-20 CIA annual meeting, Victoria, B.C., Canada 21-25 NAIC summer meeting, New York 23-25 SOA spring meeting (health, pension, longterm care), Vancouver, B.C., Canada 24-25 Academy symposium on current pension actuarial practice, Vancouver, B.C., Canada

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

AUGUST 7-9 Actuarial Research Conference, Ann Arbor, Mich. (Academy, SOA)



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EA Advisory Several Academy members were recently appointed by the Joint Board for the Enrollment of Actuaries to serve on its Advisory Committee on Actuarial Examinations. Carl Shalit, president of Carl Shalit & Associates in Salem, Mass., and a member of the Academy’s Committee on Professional Responsibility and its Committee on Qualifications, was elected coordinator of the EA committee. Ann Gineo, vice president and actuary for The Segal Co. in Farmington, Conn., was elected secretary. Other Academy members serving on the committee are Bruce Cadenhead, a principal with Mercer Human Resource Consulting in New York; Ho Kuen Ng, a professor in the department of mathematics at San Jose State University in San Jose, Calif.; Daniel Perrine, president of Kardan Actuarial Services in Edison, N.J.; Patricia Rotello, a principal with Buck Consultants in Secaucus, N.J.; Carol Sears, Academy liaison to the International Actuarial Association’s Education Task Force, a former president of ASPA, and a princi-

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pal and consulting actuary with the Actuarial Consulting Group Inc. in Morton, Ill.; and Carolyn Zimmerman, a consultant with Towers Perrin in Pittsburgh and vice chairperson of the Academy’s Pension Committee and a member of its Pension Practice Council. Janet Eisenberg, president of Eisenberg Associates Ltd. in Skokie, Ill., and a member of ASPA, was also appointed to the committee. Hill Welcome The Academy’s Pension and Health Practice Councils hosted a Jan. 16 welcoming reception on Capitol Hill for staff members of the incoming 108th Congress. The reception was designed to acquaint newcomers with the Academy’s mission and build useful relationships for furthering the Academy’s public policy initiatives. CASUALTY NEWS

Rich Hoffman, a princi-

pal and consulting actuary with EPIC Consulting LLC in Chesterfield, Mo., is the new chairperson of the

Workers’ Compensation Subcommittee, replacing Nancy Treitel. ® Dale Ogden, president of Dale F. Ogden & Associates in San Pedro, Calif., has joined the Committee on Property and Liability Financial Reporting. HEALTH NEWS

Cori Uccello, the Academy’s senior health fellow, John Bertko, chief actuary for Humana, and Margaret Wear, chief actuary for AdvancePCS, have been meeting with staff of several congressional committees on technical aspects of adding a prescription drug benefit to Medicare. The meetings are an outgrowth of the Academy’s publication last fall of a white paper, Medicare Prescription Drug Plans: The Devil Is in the Details. The white paper was written by Uccello and Bertko. Wear is vice chairperson of the Prescription Drug Coverage Work Group, and Bertko is a work group member. ® Karen Bender, a principal with Mercer Risk Finance and Insurance Consulting in Milwaukee,

JOB CONNECTION The following jobs were recently posted in the new Contingencies job bank: The Florida Department of Financial Services seeks a casualty actuary to analyze prop-

erty and casualty insurance rates. is chairman of the new Association Health Plan Work Group. Other members of the group are Mike Abroe, a member of the Health Practice Council, chairperson of the Committee on State Health Issues, and a consulting actuary with Milliman USA in Chicago; David Bahn of Jacksonville, Fla.; Jennifer Brinker, a second vice president and actuary with Trustmark Insurance Co. in Lake Forest, Ill.; Jim Drennan, a principal with Reden & Anders in Atlanta, Ga.; Richard Niemiec, senior vice president for Blue Cross and Blue Shield of Minnesota in St. Paul, Minn.; Donna Novak, former Academy vice president for financial reporting issues and president and CEO of Novarest Consulting in Fox Lake, Ill.; John Schubert, a member of the Academy’s Board of Directors, vice chairperson of the Health Practice Council, and a senior consultant with PricewaterhouseCoopers in Chicago; David Shea Jr., executive director and actuary with Anthem Blue Cross and Blue Shield in Richmond, Va.; and Mark Wernicke, vice president and chief actuary at Humana Inc. in Green Bay, Wis. Wernicke has also joined the Defined Contribution Health Plans Work Group. ® Michael Thompson, a principal at PricewaterhouseCoopers in New York, is the new vice chairperson of the Medicare Steering Committee. ® Dan Wolak, a senior vice president of General & Cologne Life Re in Stamford, Conn., has joined the Joint Academy/SOA Committee on Communications for Health Issues. ® Jeffrey Allen, a consultant with Hewitt Associates in Lincolnshire, Ill., is the new chairperson of the Terrorism/Exw w w. a c t u a r y. o r g

treme Events Work Group. ® Cathy Murphy-Barron, a consulting actuary with Milliman USA in New York, is the new vice chairperson of the Uninsured Work Group. LIFE NEWS

At the request of the U.S. Treasury Department’s Office of Microeconomic Analysis, the Life Practice Council sent information for a study of the impact of terrorism on the availability of group life insurance. ® Kory Olsen, an actuary for Allstate Life Insurance Co. in Northbrook, Ill., is the new vice chairperson of the Life Valuation Subcommittee and a new member of the Life Financial Soundness/Risk Management Committee. ® Ruth Sayasith, vice president and actuary for Metropolitan Life Insurance Co. in Long Island City, N.Y., has joined the Life Capital Adequacy Subcommittee. PENSION NEWS

The Pension Practice Council sent a comment letter to the Internal Revenue Service (IRS) suggesting strategies for implementing phased retirement arrangements. ® The Multi-Employer Task Force submitted guidance to the IRS on alternative funding relief provisions for multi-employer plans. ® Ron Gebhardtsbauer, the Academy’s senior pension fellow, made presentations at the Treasury Department and to the AFL-CIO and affiliated unions on PBGC’s financial status. Gebhardtsbauer also spoke to staff of the House Ways and Means Committee on alternative

Deloitte Touche Tohmatsu Emerging Markets is looking for senior insurance experts with

experience with USAID projects, preferably in South Asia, for longterm assignments in Hyderabad, India. Shanghai International Multisearch seeks a chief property actuary with three to five years of relevant work experience and fluent Chinese for a Shanghai-based insurance company. Tempted? For further information and more listings, go to the Contingencies job bank ( html). New jobs in both the public and private sectors are added on a daily basis. All postings remain active for 30 days.

benchmark yields to the 30year Treasury bond. ® Howard Rog, a senior vice president and actuary with The Segal Co. in New York, has joined the Multi-Employer Task Force. ® Zenaida Samaniego, chief actuary for the Department of Labor in Washington, has joined the Social Insurance Committee. Samaniego was also recently appointed to serve as one of two Labor Department representatives on the Joint Board for the Enrollment of Actuaries. PROFESSIONALISM NEWS

Allan Ryan, a principal consult-

ant with PricewaterhouseCoopers in Newark, N.J., has been appointed as the Council on Professionalism’s liaison to the SOA’s Program Committee. ® Judy Anderson, a staff fellow with the SOA in Schaumburg, Ill., and Kerry Krantz, a valuation actuary with the Florida Insurance Department in Tallahassee, Fla., have joined the Life & Health Qualifications Seminar Task Force. IN THE NEWS

Ron Gebhardtsbauer, the Acade-

my’s senior pension fellow, was quoted in The New York Times articles on pension shortfalls and on Bush administration plans to expand tax-free retirement accounts, and in an article Actuarial U P D A T E

in the New Jersey Star-Ledger on the PBGC deficit. ® An Associated Press story on the recommendations of a Florida task force studying caps on medical malpractice awards mentioned the Academy’s 1996 issue brief Medical Malpractice Tort Reform: Lessons from the States. The

story ran in a number of Florida newspapers, including the Miami Herald. ® James Hurley, chairperson of the Medical Malpractice Subcommittee, was quoted in an article that ran in the Bergen County, N.J. Record on the efforts of New Jersey doctors to get a cap on medical malpractice awards. ON THE MOVE

Neville Arjani has been named a

principal of Findley Davies Inc. in Cleveland, Ohio. Arjani is the firm’s chief actuary. ® John Kleiman has been named chief underwriting officer for Hampton Re Holdings Ltd. in Hamilton, Bermuda. He was formerly a principal consultant in the actuarial insurance management services group of PricewaterhouseCoopers in Hartford, Conn. ® Jeffrey Burt has been named vice president of marketing for Hannover Life Reassurance Co. of America in Orlando, Fla. He was formerly an assistant actuary at Penn Mutual Life Insurance Co. in Horsham, Pa. March 2 0 0 3




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Health Issues Targeted, continued from Page 1 field hearing on medical malpractice (see story on Page 1). But the level of interest that they encountered convinced council members of the need to coordinate more closely with the Academy’s Casualty Practice Council on the issue, said Jan Carstens, the Academy’s vice president for health issues. It is for reasons such as this that the visits are such a valuable tool, said Carstens. “Based on the information we receive in our Hill visits, we are able to review and update our project lists,” Carstens said. “We have a better sense of the likely timing of the debate on key issues.” The Hill visits also give policy-makers a better sense of what the Academy can bring to those debates. By all accounts, this part continues to get easier. “The people we met with this year were very familiar with the Academy, and they referred to Academy work products,” said Bingham, adding that several congressional staffers also mentioned the recent educational policy sessions the Academy hosted in New York as being particularly helpful to them. Credit should also be given to the continuing work of Cori Uccello, the Academy’s senior health fellow, and Holly Kwiatkow-

From left, John Schubert, Cori Uccello, Jan Carstens, Holly Kwiatkowski, Al Bingham, and Rick Lawson after meeting with a special assistant to President Bush.

ski, senior health policy analyst, in maintaining a high Academy profile on the issues throughout the year, said Bingham. In addition to Bingham, Carstens, and Schubert, others participating in the health visits were Geoff Sandler, former vice president for health issues; Grady Catterall, chairperson of the Joint Academy/SOA Committee on Communications for Health Issues;

Darrell Knapp, chairperson of the Health Practice Financial Reporting Committee; Jim Murphy, chairperson of the Defined Contribution Health Plans Work Group; Donna Novak, former Academy vice president for financial reporting issues and chairperson of the Health Liquidity Work Group; Jeff Petertil; David Shea; Mike Thompson; Rod Turner; and Margaret Wear.

limits on the amount of stock investments allowed, Hurley said. In his testimony, Hurley explained that the overall profitability of insurers—as measured by the ratio of all incurred losses and expenses to premium, adjusted for other expense and income items, primarily investment income—is the worst it has been in 15 years or more. Preliminary projections for 2002 are for a combined ratio (ratio of all incurred losses to premium) of just under 140 percent. “This means insurers are expected to pay out $1.40 in losses and expenses for every dollar of premium they collect,” Hurley said. The hearing was held in the home district of Rep. James Greenwood (R-Pa.), who chairs the House subcommittee and who recently reintroduced legislation (H.R. 5)

capping noneconomic damages in medical malpractice lawsuits at $250,000 and placing limits on other lawsuits. The bill is similar to H.R. 4600, which passed in the House last year but stalled in the Senate. Modeled on California’s Medical Injury Compensation Reform Act of 1975, H.R. 5 would limit punitive damages to two times the economic damages or $250,000, whichever is greater, and limitations would be placed on lawyer’s fees to eliminate the incentive for large award requests by plaintiff’s attorneys. Also testifying at the hearing were Pennsylvania Gov. Edward Rendell, representatives of the Pennsylvania Medical Society, the American Medical Association, the Foundation for Consumer and Taxpayer Rights, and the Center for Advocacy for the Rights and Interests of the Elderly.

Cost, continued from Page 1 James Hurley told the House Energy and Commerce Subcommittee on Oversight and Investigations at its Feb. 10 hearing on Pennsylvania’s medical liability insurance crisis. “This is because of the relatively low number of claims, high and variable size of claim payouts, and the long delay between occurrence, report, and disposition of a claim.” In establishing rates, Hurley said, insurers do not recoup investment losses. Rather, they expect that underwriting losses will be offset by investment income. But “because rates are generally reduced based on prospective bond yields, when interest yields decrease, rates need to increase,” Hurley said. At the same time, state insurance laws regulate the type of allowable investments for insurers and these laws have fairly low

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Implementing Sarbanes-Oxley The Actuarial Update ASSOCIATE EDITORS

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



Becky Horst

American Academy of Actuaries PRESIDENT


Barbara Lautzenheiser SECRETARY-TREASURER


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





The American Academy of Actuaries 1100 Seventeenth Street NW Seventh Floor Washington, DC 20036 Phone 202-223-8196 Fax 202-872-1948 Statements of fact and opinion in this publication, including editorials and letters to the editor, are made on the responsibility of the authors alone and do not necessarily imply or represent the position of the American Academy of Actuaries, the editors, or the members of the Academy. ©2003 The American Academy of Actuaries. All rights reserved.


Final SEC Rules Reflect Academy Input


N JAN. 15, the Securities and Exchange Com-

mission (SEC) issued final rules implementing Section 407 of the Sarbanes-Oxley Act that are in keeping with suggested changes put forth by the Academy during the comment period. The final rules significantly modify the restricted definition of financial expert contained in the rules as they were first proposed. In a November letter to the SEC signed by Academy President Bob Anker, the Academy argued that the rules’ proposed definition of financial expert was too narrowly focused on individuals with accounting backgrounds, thereby preventing other qualified individuals, such as actuaries, from serving as financial experts on audit committees. “The Academy has a vested interest in the SarbanesOxley rules as one of the few federal legislative initiatives that specifically cite the work of our profession,” said Patricia Teufel, the Academy’s vice president for financial reporting issues. “We felt it was very important to be on the record with respect to several key components of this landmark rule-making.” “Sarbanes-Oxley has been like an elemental force of nature—with similar catastrophic potential for the actuarial profession,” said Anker. “Our ability to respond quickly to proposed rules has been notable, thanks in large part to effective leadership from Pat Teufel.” The final rules define an audit committee financial expert as a person who has ® An understanding of financial statements and generally accepted accounting principles ® An ability to assess the application of such principles in connection with the accounting for estimates, accruals, and reserves ® Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues, or experience actively supervising one or more persons engaged in such activities ® An understanding of internal controls and procedures for financial reporting

An understanding of audit committee functions. On Jan. 22, the SEC adopted rules regarding auditor independence (Sections 404 and 406). The rules, which the Academy also commented on, prohibit accounting firms that are auditing a company’s financial statements from providing certain nonaudit services at the same time. The commission’s principles of independence with respect to services provided by auditors are largely predicated on three basic rules of conduct: ® An auditor cannot function in the role of management ® An auditor cannot audit his or her own work ® An auditor cannot serve in an advocacy role for his or her client. ®

The Academy has a vested interest in the Sarbanes-Oxley rules as one of the few federal legislative initiatives that specifically cite the work of our profession, Accounting firms may still provide tax compliance, tax planning, tax advice, and other non-audit services for their audit clients, provided the services are pre-approved by the company’s audit committee. The accountant is prohibited from providing any appraisal or valuation services unless it is reasonable to conclude that the results of these services will not be subject to audit procedures. Likewise, for actuarial services, the final rules prohibit an accountant from providing any “actuarially-oriented advisory service involving the determination of amounts recorded in the financial statements and related accounts” unless it’s reasonable to conclude that the results will not be subject to audit. The rules don’t prohibit an accounting firm from utilizing its own specialists to review the work performed by the audit client or an independent thirdparty specialty, and do allow the auditor to assist clients in understanding the methods, models, assumptions, and inputs that are used in computations.

WEB INTERFACE Notice something different? In an effort to simplify your access to issue briefs, letters, and other Internet resources, we’ve created a special page on the Academy’s website listing web addresses for Academy documents mentioned in Update articles. Whenever you see a keyword underlined in blue, go to index.htm. There you can click on the link that will take you directly to that document.

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Weighing the Cost Academy Testifies on Medical Malpractice T HE N EWSMONTHLYOFTHE A MERICAN A CADEMYOF A CTUARIES Come to the Forum Check ou...