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of spring for a growing number of actuaries is the Academy-sponsored annual Capitol Hill visits to congressional staff and policy-makers. On March 24, five representatives of the Academy’s casualty, financial reporting, and life councils joined with Academy staff to visit 15 Capitol Hill offices, including aides to senators and representatives, and officials at the General Accounting Office (GAO) and the Treasury Department. On April 7, 14 members of the Pension Practice Council and its Pension Committee joined Academy staff to visit 16 offices. Their visits included a meeting with President Bush’s special assistant for economic policy. In most cases, the Academy’s reputation — and work products — preceded them. “When we went to the GAO, they had about two to three pages of questions ready for us on medical malpractice insurance,” said Jan Lommele, the Academy’s vice president for casualty issues. Lommele, who was making his first Hill visits, said he was pleased by staffers’ knowledge and familiarity with the Academy. “They knew what the issues were, and they knew what their questions were. There was a history of their knowing the Academy and their having used our materials.” In addition to medical malpractice, other topics that surfaced in the March Hill visits included terror-

Inside Media Update The Academy is fielding a growing number of media inquiries . . . . . . . . . . . . PAGE 5 New Reserve Methodology? The Variable Annuity Reserve Work Group is on the case. . . . . . . . . PAGE 6 Social Security Report An actuarial perspective on the annual trustees report . . . . . . . . . . . . . . PAGE 6 Letter to the Editor What is the role of the valuation actuary? . . . . . PAGE 7

Making Hill visits on March 24 were, from left, Rich Hofmann, Jennifer Biggs, Jan Lommele, Henry Siegel, and Carol Salomone.

ism insurance coverage, asbestos losses in the insurance industry, and optional federal charters. “Several staffers were very interested in the Academy’s upcoming monograph on an optional federal charter,” said Craig Hanna, the Academy’s director of public policy. Interest was high enough, in fact, that the Academy is See RITE OF SPRING, Page 4

2003 Enrolled Actuaries Meeting

Upholding Pension Professionalism



the way pension actuaries do business in this country is changing. At the 28th annual Enrolled Actuaries meeting, March 17-19, about 1,200 pension actuaries listened to a variety of experts consider some of the trends forcing that change, including the continuing decline of defined benefit pensions, challenges to the traditional methods and assumptions used to value pension plan liabilities, and the rise in malpractice litigation against actuaries and other financial professionals. One assessment met universal agree-

ment: Now, more than ever, actuaries need to take professionalism seriously. “American people, through their elected officials, have said to the accountants, lawyers, and securities professionals: We don’t trust you,” said Dan McCarthy, the Academy’s immediate past president in welcoming remarks. “If we are going to have an independent profession, we need to earn it every day.” Although actuaries have become subject to more litigation in recent years, it isn’t because the quality of their work has declined, said Lauren Bloom, the AcadeSee PROFESSIONALISM, Page 4

Actuarial UPDATE

Academy Hill Visits a Rite of Spring


Calendar MAY 8 Academy Board of Directors meeting, Washington 9 Academy Washington Forum, Washington 10 Academy Council on Professionalism meeting, Pentagon City, Va. 12 Academy Life Capital Adequacy Committee meeting, New York 13 Academy Health Rate Filing Task Force meeting, Minneapolis 18 Academy Pension Practice Council meeting, Washington 18-21 CAS spring meeting, Marco Island, Fla. 19 Academy Pension Committee meeting, Washington 20 Casualty Practice Council meeting, Washington 28 Academy Life Valuation Subcommittee meeting, Washington 28 SOA seminar on capital market modeling, Washington 28 SOA seminar on hedging VA and EIA products, Washington 29-30 SOA spring meeting (life insurance), Washington

Academy NEWS Briefs ASB Action


T ITS MARCH MEETING, the ASB approved an exposure draft, enclosed with this issue of the Update, of a proposed revision to ASOP No. 1, now titled The Redetermination (or Initial Determination) of Nonguaranteed Charges or Benefits for Life Insurance Policies and Annuity Contracts. The proposed revision would apply to actuaries when performing professional services with respect

JUNE 2-3 CAS reinsurance seminar, Philadelphia 11 Academy Life Financial Reporting Committee meeting, Chicago 11 SOA seminar on UL and VUL products, Oak Brook, Ill. 12-13 SOA Product Development Symposium, Oak Brook, Ill. 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 Symposium on current pension actuarial practice, Vancouver, B.C., Canada (Academy, SOA)

JULY 2 Academy Committee on Professional Responsibility

Medicare Report Medicare’s chief actuary, Richard Foster, was the

featured speaker at a recent American Enterprise Institute panel discussion on the 2003 Medicare Trustees’ Report. Panelists considered the financial condition of Medicare over the long term, and whether the program will be able to meet the demands of future generations and the promises of better benefits that might be enacted by Congress this year.

meeting, Washington

10-12 Council of Presidents meeting, Quebec 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 4-5 Academy leadership meeting, Washington 7-9 Actuarial Research Conference, Ann Arbor, Mich. (Academy, SOA) 24-27 ASTIN 2003, Berlin

SEPTEMBER 4-5 SOA Stochastic Modeling Symposium, Toronto 8-9 Casualty loss reserve seminar, Chicago (Academy, CAS, CCA)

9-10 CAS asset liability management seminar, Chicago 11-12 SOA Valuation Actuary Symposium, Coronado, Calif. 13-17 NAIC fall meeting, Chicago 15 Academy Committee on Actuarial Public Service meeting, Washington 17-19 AFIR Colloquium, Maastricht, The Netherlands 18-19 CIA appointed actuary seminar, Montreal PLANNING AHEAD? BOOKMARK THE COMPLETE CALENDAR AT WWW.ACTUARY.ORG/CALEND.HTM.


Actuarial U P D A T E


Rial Simons, chief actuary for the Injured Workers Insurance Fund in Towson, Md., has joined the Workers’ Compensation Subcommittee. HEALTH NEWS

The Medicare Supplement Work Group has been reconstituted. Mike Abroe, a member of the Health Practice Council and a consulting actuary with Milliman USA in Chicago, is still the chairperson. Other members are David Bahn of Jacksonville, Fla.; Michael Carstens, assistant vice president and actuary for Physicians Mutual Insurance Co. in Omaha, Neb.; Michael Frank, president of Aquarius Capital in Rye, N.Y.; Peter Hendee, assisMay 2 0 0 3

to the redetermination and illustration of nonguaranteed charges or benefits for life insurance policies and annuity contracts on which nonguaranteed charges or benefits may vary at the discretion of the company. Such policies include universal life policies, indeterminate premium policies, deferred annuity contracts, and equity-indexed policies. The deadline for commenting on the exposure draft is Aug. 15.

tant vice president for United American Insurance Co. in McKinney, Texas; David Shea, executive director and actuary for Anthem Blue Cross and Blue Shield in Richmond, Va.; and William Weller, president of Omega Squared of Sedona, Inc. in Sedona, Ariz. ® Robert Yee, vice president of the long-term care division of GE Capital Assurance Co. in San Rafael, Calif., is the chairperson of the newly formed Long-Term Care Reserving Work Group. Vice chairperson is William Weller. Also in the work group are Mike Abroe; Rowen Bell, an associate actuary with the Blue Cross and Blue Shield Association in Chicago; Larry Gorski, a consulting actuary with Claire Thinking Inc. in New Berlin, Ill.; Tim Gustafson, a principal with Deloitte & Touche LLP in Chicago; Burt Jay, a consultant for Mutual of Omaha Insurance Co. in Omaha, Neb.; Warren Jones, vice president and actuary for AEGON Insurance Group in Bedford, Texas; Mark Litow, a consulting actuary with Milliman USA in Brookfield, Wis.; Ronald Lucas, vice president, long-term care pricing, UnumProvident Corp. in Portland, Maine; Neil Lund, senior vice president and actuary for Universal American Financial Corp. of Orlando, Fla.; Mark

Press, actuary for General-

CologneRe in Stamford, Conn.; Gerald Rankin, president of Ger-

ald J. Rankin and Associates Ltd. in Media, Pa.; Bruce Stahl, vice president and chief actuary of Penn Treaty Network America in Gibbsboro, N.J.; Eric Stallard, a research professor at Duke University’s Center for Demographic Studies in Durham, N.C.; Steve Sperka, an actuary with Northwestern Mutual in Milwaukee; and Gordon Trapnell, president of Actuarial Research Corp. in Annandale, Va. ® Jeff Petertil, a consulting actuary in Chicago, is the chairperson of the new Retiree Health Insurance Work Group. Also in the group are Joseph Beeler, senior manager with Ernst & Young in Clayton, Mo.; Al Bingham, a consulting actuary with Hewitt Associates LLC in Atlanta; Peter Ford, a consulting actuary with Buck Consultants Inc. in New York; Mark Olson, a principal with Towers Perrin in Boston; Adam Reese, a senior consultant with the Hay Group in Arlington, Va.; Tom Ruehle, a consulting actuary with Milliman USA in Chicago; John Schubert, a member of the Academy’s Board of Directors and a senior consultant with PricewaterhouseCoopers LLP in Chicago; George Wagoner, a principal with Mercer Human Resource Consulting

JOB CONNECTION The following jobs were recently posted in the Contingencies job bank: The General Board of Pension and Health Benefits of the United Methodist Church seeks an


Ron Gebhardtsbauer, the Academy’s senior pension fellow, and Bruce Schobel, chairperson of the Academy’s Committee on Social Insurance and vice president and actuary at New York Life Insurance Co. in New York, testified March 15 before the 2003 Social Security Technical Panel on aspects of the 2003 Social Security Trustees Report, including the assumptionsetting process, the use of stochastic presentations, and elements that the public might like to see in the report. Stephen Kellison, a consultant in Orlando, Fla., and Anna Rappaport, a consulting actuary with Mercer Human Resource Con-

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sulting in Chicago, both serve on the panel. ® Carolyn Zimmerman, vice chairperson of the Pension Committee and a consultant for Towers Perrin in Pittsburgh, testified on April 10 at an IRS hearing on proposed age discrimination regulations. The Pension Committee earlier sent two letters to the IRS on the proposed regulations. The first letter focused on issues in the proposed regulations that relate to cash balance plans. The second letter commented on issues other than those specifically related to cash balance plans. Also testifying at the hearing for their respective employers were Jeff Clymer, a consulting actuary with Hewitt Associates in Waltham, Mass.; James Durfee, director of actuarial practice for Towers Perrin in Valhalla, N.Y., Eric Lofgren, global director, benefits consulting group, for Watson Wyatt Worldwide in Philadelphia; Thomas Lowman, chief actuary for Bolton Partners Inc. in Baltimore; and Larry Sher, a member of the Pension Practice Council and the ASB, and a principal and director of research with Buck Consultants in New York. ® The Multiemployer Task Force sent a comment letter to the Pension Benefit Guaranty Corp. on issues related to the calculation of withdrawal liability for multiemployer plans.

EA or ASA for the position of senior actuary in its Illinois office. S.C. International Ltd. seeks a financial reporting actuary to analyze GAAP, IAS, and statutory periodic report products as well as universal life, fixed annuities, equity indexed annuities, variable universal life, and variable annuities in its Washington state office. The Florida Department of Financial Services seeks actuaries who are ACAS or FCAS for positions as P/C rating and P/C reserving actuaries. 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.

cle about choosing between a lump sum and an annuity as a retirement benefit. ® Anna Rappaport, a consulting actuary with Mercer Human Resource Consulting in Chicago, was quoted in a Los Angeles Times article about averting a Social Security crisis. ® Two members of the Academy’s HRBC Long-Term Care Work Group, Mike Abroe, a consulting actuary with Milliman USA in Chicago, and William Weller, president of Omega Squared of Sedona Inc. in Sedona, Ariz., were quoted in a National Underwriter article on long-term care reserving. Weller

was also quoted in National Underwriter articles on the state of the long-term care insurance market and proposals to update long-term care regulations. Peter Wick, a consulting actuary with Milliman USA in Brookfield, Wis., was quoted in a Milwaukee Journal Sentinel article about Wisconsin’s medical malpractice fund. ON THE MOVE

® Ronald Zaleski has been pro-

moted to executive vice president and chief actuary of Selective Insurance Group Inc. in Branchville, N.J. He was formerly senior vice president and chief actuary.


Russel Sutter, a con-

sulting actuary with Tillinghast-Towers Perrin in St. Louis, Mo., has joined the Committee on Professional Responsibility. IN THE NEWS

Ron Gebhardtsbauer, the Academy’s senior pension fellow, was quoted in a New York Times arti-

Joe Sutliff

in Glen Allen, Va.; Mark White, a consulting actuary with Watson Wyatt Worldwide in Washington; and Dale Yamamoto, a consulting actuary with Hewitt Associates in Lincolnshire, Ill. ® Joining the Uninsured Work Group are Donna Novak, president and chief executive officer of NovaRest Inc. in Fox Lake, Ill.; and Tom Snook, principal and consulting actuary with Milliman USA in Scottsdale, Ariz. ® Jinn-Feng Lin, a senior consultant with PricewaterhouseCoopers LLP in Chicago, has joined the Health Practice Financial Reporting Committee and the Health Liquidity Work Group. ® Herb Olson, chief actuary for GHP in Earth City, Mo., has joined the CMS Medicaid Rate Certification Work Group. ® Norman Hill, executive vice president and chief actuary for Kanawha Insurance Co. in Lancaster, S.C., has joined the Long-Term Care Risk-Based Capital Work Group.

Actuaries plan ahead. Among all the financial professions, an actuary’s ability to figure the odds and plan for contingencies is unique and valuable. Actuaries: the architects of financial security.

Actuarial U P D A T E

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Rite of Spring, continued from Page 1 now planning a Hill briefing on the monograph when it is published later this spring, Hanna said. Similarly, pension actuaries in their April visits found staff knowledgeable about the Academy’s recent testimony on the pension discount rate and interested to hear more about its opinion on the benefits of annuities versus lump sums in pension plan payouts, cash balance plans, and pension funding issues for defined benefit plans, Hanna said. “It’s nice to see that they all know about the Academy and are looking to us for assistance in explaining what the issues are that Congress will be facing in dealing with retirement plans this year,” said Don Segal, chairperson of the Pension Committee. Personal contacts that the Academy makes during Hill visits pay off throughout the year, said Ron Gebhardtsbauer, the Academy’s senior pension fellow. “People we have met continue to contact us when they need help understanding a particular issue,” Gebhardtsbauer said. In the meetings he attended, said Academy Past President Larry Johansen, it was clear that Hill staffers were very familiar with the work of both Gebhardtsbauer and Cori Uccello, the Academy’s senior health fellow. “The staffers I met with all spoke of Ron as a very objective, very available person,” Johansen said, adding that he saw this as a clear sign of the success of the senior fellow program in forging liaisons between policy-makers and the profession. Similarly, Johansen said he was heartened by the request, coming from Hill staffers in several of his meetings, that

Meeting prior to pension Hill visits were, from left, Ethan Kra, Mark Beilke, Don Segal, Allen Gorrelick, Craig Hanna, Carolyn Zimmerman, Ken Kent, Christine Mahoney, Larry Johansen, Ron Gebhardtsbauer, Dennis Graf, Dick Schreitmueller, Kasha Shelton, Brian O’Konski, Dick Barney, Heather Jerbi, Chet Andrzejewski, Eric Opanga, and Rick Lawson.

the Academy continue its educational briefings for Hill staff on current and emerging pension issues. In addition to Lommele, others participating in the combined casualty, financial reporting, and life visits were Jennifer Biggs, chairperson of the Mass Torts Subcommittee; Rich Hofmann, chairperson of the Workers’ Compensation Subcommittee; Carol Salomone; and Henry Siegel. In addition to Gebhardtsbauer, Johansen, and Segal, others participating in the pension visits were Ethan Kra, vice chairperson of the Pension Practice Council; Chet Andrzejewski; Dick Barney; Mark Beilke; Allen Gorrelick; Dennis Graf; Ken Kent; Christine Mahoney; Brian O’Konski; Dick Schreitmueller; and Carolyn Zimmerman.

Professionalism, continued from Page 1 my’s general counsel and director of professionalism, in a panel discussion of malpractice and professional standards at the meeting’s opening session. Rather, she said, litigation has increased because of other factors, including a general rise in litigation coupled with the discovery of the actuarial profession by the plaintiff’s bar, the fact that actuaries are taking on more professional assignments, and a weak economy that has highlighted possible shortfalls in pension reserves. “The work that enrolled actuaries do is very important work,” said panelist James Minogue, associate general counsel for Watson Wyatt. “Because of this, it has consequences, and some of them can be adverse consequences.” Failure to comply with the Code of Professional Conduct, qualification standards, or the actuarial standards of practice (ASOPs) may be considered malpractice, Bloom warned. But those documents also serve a vital defensive function. “Compliance with ASOPs can be an effective defense in a malpractice action,” Bloom said. However, actuaries must be diligent in their documentation. “In litigation, it is almost less important what you did than what you can prove you did,” Bloom said. While deviations from standard practice are allowed, the actuary who deviates should describe the nature, rationale, and effect of the deviation in an appropriate actuarial communication, Bloom said. And he or she should be prepared to defend it. In addition to pension-related standards, two general standards that almost always apply to an enrolled actuary’s work, Bloom


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said, are ASOP No. 23, on data quality, and ASOP No. 41, on communications. Recent advances in the use of technoloFormer Academy President Dan McCarthy (right) gy highlight the im- speaks at EA meeting while Lauren Bloom and portance of using William Falk listen. high-quality data, agreed Minogue, cautioning that errors can be repeated consistently — and endlessly — once they are embedded in a computer’s database. Not all errors that actuaries make need to lead to malpractice litigation, said attorney David Godofsky. Frequently, miscalculations of benefits can be reversed before the benefit is paid out. Or the benefit can be recovered. “Being embarrassed is not the same as actual damages,” Godofsky said. But if you do make an error, don’t try to withhold facts or bury the error. “Denying a problem is likely to make it worse and focusing on it distracts you from a solution,” Godofsky said. Other sessions at the EA meeting, which is sponsored annually by the Conference of Consulting Actuaries and the Academy, focused on topics such as pension funding issues in the new economy, current issues for cash balance plans, and the early warning program of the Pension Benefit Guaranty Corp. Look for complete coverage of these and other sessions in the summer Enrolled Actuaries Report.

Actuaries in Demand


HE ACADEMY IS ON A ROLL. Building on the success of last

year’s media relations initiatives, the Academy has continued to field an increasing number of requests for information and interviews in 2003. “Success breeds success,” said Noel Card, the Academy’s director of communications. “The more media exposure the Academy receives, the more media interest there is in the Academy’s work.” In 2002, the Academy placed 86 stories, granted 66 interviews, and managed 37 additional media inquiries. Placements included 43 stories in daily newspapers, 13 stories in trade publications, nine magazine articles, 15 web articles, five television stories, and one radio story. A total of 32.2 million media impressions (combined readers, viewers, and listeners) were generated last year. In the first three months of 2003, the Academy was cited in 40 stories, granted 29 interviews, and answered an additional 13 media inquiries. A total of 10.5 million media impressions were generated, with Academy mentions in 22 daily newspapers, six trade publications, two magazines, and 10 web articles. And major-market-media outlets are taking greater notice of the actuarial profession. So far this year, stories about the Academy and its members’ work have appeared twice in the New York Times, the Los Angeles Times, and the Chicago Tribune. Stories also have appeared in Fortune, Newsday, and the Detroit Free Press. An Associated Press story on medical malpractice awards was reprinted throughout Florida, running in the Miami Herald, the Tampa Tribune, and newspapers in three smaller cities. The trade press continues to cover the Academy’s work, with stories running in National Underwriter, Insurance Journal, and Health Plan & Provider Report. One recent high-profile placement was the announcement of Craig Hanna’s appointment as the Academy’s director of public policy in the National Journal, an w w w. a c t u a r y. o r g

influential inside-the-beltway magazine. Spurred by the Pension Benefit Guaranty Corp.’s reported deficit and the Bush administration’s savings proposals, pension stories were the most common. But medical malpractice liability also has been a hot topic. A key element in the Academy’s media success has been the careful cultivation of relationships with reporters, said Card. “Building a reputation for credibility and responsiveness with reporters is our first priority,” Card said. “Just getting called by the right people, even if we cannot help them in the end, is a sign that the Academy’s reputation is excellent.” Since the beginning of the year, the BBC, BusinessWeek, the Financial Times, CSPAN, Consumer Reports, USA Today, Kiplinger’s Personal Finance Magazines, and even Cosmopolitan have contacted the Academy for interviews or informa-

tion from the actuarial perspective. Another element is the growing circle of Academy members who have volunteered to serve as Academy spokespersons. Following the success of last year’s initial media training session, a second session with a professional media consulting firm is slated for May 8 in Washington. Among those tapped for training are Jennifer Biggs, chairperson of the Mass Torts Subcommittee and an expert on asbestos liability; James Hurley, chairperson of the Medical Malpractice Subcommittee; and Karen Bender, chairperson of the Association Health Plan Work Group. “These are key issue areas for the upcoming year,” said Chris Robichaux, the Academy’s assistant director for public affairs who manages media relations for the Academy. “We expect this training to help our key actuarial experts become more effective spokespersons on behalf of the Academy and the profession.” With the increase in news media interest and placement, Robichaux said, the Academy and the actuarial profession will benefit from the team of expert spokespersons who can speak about newsworthy subjects.

2002 Media Relations Activity

First-Quarter 2003 Media Relations Activity

® 86 stories ® 66 interviews ® 37 other media inquiries

® 40 stories ® 29 interviews ® 13 other media inquiries

Media Outlets

Media Outlets

® ® ® ® ® ®

43 daily newspapers 15 web articles 13 trade publications 9 magazines 5 television interviews 1 radio interview

® ® ® ®

22 daily newspapers 10 web articles 6 trade publications 2 magazines

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Developing a New Reserve Methodology


is currently involved in initiatives that, if adopted by the NAIC, could significantly change statutory reserve and risk-based capital (RBC) requirements for certain variable products. While the efforts on the RBC side have been ongoing for over a year and are well publicized, the work on statutory reserves has just started. The Variable Annuity Reserve Work Group was formed in January, drawing resources from two existing subcommittees: the Life Capital Adequacy Subcommittee and the Life Valuation Subcommittee. The work group’s charge is to examine issues surrounding the development of a reserve methodology for variable annuity products that use the principles of the proposed RBC C-3 Phase II approach. The C-3 Phase II approach is currently being developed by the Academy’s Life Capital Adequacy Subcommittee in conjunction with the NAIC’s Life Risk-Based Capital Working Group. The approach involves determining RBC by modeling the variable products falling under the scope of the requirement, including any guaranteed benefits over a broad range of fund performance assumptions. The work group plans to examine the effectiveness of such a methodology and identify and comment on regulatory and practicality issues. Where appropriate, the work group will work with NAIC’s Life and Health Actuarial Task Force to develop the methodology and make recommendations on strategies to address any issues that have been identified or that arise. It’s also HE LIFE PRACTICE COUNCIL

important to note that while the current LIFE RBC proposal applies to variable life products, the work group doesn’t intend to look at issues surrounding the application of such a reserve methodology to these products. The motivation for examining this approach comes from two key sources. First, the Life Practice Council has long held the position that a model-based solution that addresses both statutory reserve and RBC considerations is a methodology that is well suited for the risk profile of variable annuity products with guarantees and that such a solution should be pursued. Second, over the past year, the task force has expressed broad support for developing a reserve methodology for variable annuity products with guarantees using the RBC C-3 Phase II approach. Most notably, this was discussed during a conference call last year when the task force rejected the variable annuities with guaranteed living benefits reserve approach originally proposed in draft Actuarial Guideline MMMM. During that call, the task force decided to develop a simplified retrospective approach (since adopted as Actuarial Guideline XXXIX) to be used as an interim requirement until a long-term approach could be developed. The work group presented its first report on the issue at the NAIC spring meeting in Atlanta, in the hope that it will stimulate further discussion.

Actuarial Aspects of Social Security Report PENSION




HERE ARE MANY SOURCES of commentary on the annual Social Security Trustees Report, coming from the administration, members of Congress, think tanks, and the popular

press. But as actuaries, we bring unique skills to the task of interpreting the report’s message for Congress and the public. With that in mind, the Academy’s Committee on Social Insurance recently released an issue brief, An Actuarial Perspective on the 2003 Social Security Trustees Report, which updates similar issue briefs from previous years. Among the issue brief’s findings is the suggestion that Social Security’s trust fund could be brought into long-range actuarial balance by either raising the employee-employer payroll rate tax by 1.92 percent or cutting benefits by 13 percent for all current and future recipients. The issue brief also ® Discusses the different ways annual actuarial valuation results are presented in the report and how


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these affect the public’s perception of Social Security’s financial problems. ® Analyzes the reasons for changes in the results from the previous year’s report. ® Explains the significance of the key dates shown in the report. ® Discusses the uncertainty of the valuation results and the additional information provided in the report to quantify this uncertainty, including results from the new stochastic model developed by the Social Security actuaries. The publication of the issue brief marks the last project of Committee Chairperson Bruce Schobel, who is stepping down from that position. The committee would like to take this opportunity to thank Schobel, who has served on the committee for at least 15 years (even he doesn’t remember how long), the last four years as its chairperson. His hard work and thorough knowledge of Social Security will be sorely missed. Eric Klieber is the former vice chairperson of the Social Insurance Committee and its new chairperson.

Letters T O T H E Editor Friend of the Court Is No Friend of the Profession factor-based. No requirement of HE ARTICLE IN THE FEBRUARY UPDATE on “The Role asset adequacy analysis applied. of the Actuary” describes a friend of the court brief filed by the Academy (Cohen v. J. Huell The brief made no mention of meeting state requirements. Briscoe & Associates Inc.). This brief, when read as a It is stated in the brief whole, makes the role of the valuation actuary irrelethat the actuary bases an opinion on the data providvant in the preparation of annual statements. The stateed by management and certified by the company’s auments in the brief encompass the broad range of acditors. Auditors do not provide such a certification. tuarial services that are provided, when in fact they Moreover, the opinion is not based on the data proshould be addressing the services provided by an acvided; the actuary relies on the data provided, subject tuary acting in the role of valuation actuary. to a test of reasonableness. In the role of valuation actuary, an actuary is not The tenor of the brief and the misstatements mena member of a team of advisers. The valuation actutioned above do not serve the profession. Rather than ary must take responsibility for the opinion that is renprotecting the profession from an adverse judicial dered. In this particular case, the statement of required precedent, the brief may result in a holding by the opinion in limiting adequacy to the coming year was court that the actuarial standards of practice are selffalse. The statement was that reserves allowed adequate provision for the anticipated cash flows required serving and therefore to be disregarded by the court. Herbert S. Wolf by the contractual obligations and related expenses of Glencoe, Ill. the company. Moreover, the reserves in question were


Academy Alerts Looking for timely summaries of major legislative, regulatory, and judicial developments affecting your practice? Think you might be, but aren’t sure? Sign up for a halfyear subscription to Academy Alerts. As a subscriber, you can receive e-mailed Alerts in the practice areas that interest you. You also get web access to those Alerts and receive complimentary Alerts that cover gen-

Academy President Bob Anker Replies: WOULD LIKE TO THANK Mr. Wolf for taking the time and showing the interest to comment on the Academy’s friend of the court brief described in the February Update. Unfortunately it appears Mr. Wolf may have interpreted the brief and its discussion of the role of the actuary absent the context of the court documents it addressed or the time at which the matters alleged in the case occurred. The Academy’s brief was submitted to clarify the role of the actuary and actuarial standards in a situation in which the court could potentially significantly misinterpret them. As the brief notes: “…without a fully informed appreciation of the nature and scope of actuaries’ professional responsibilities and the standards that the actuarial profession requires them to meet, the court could issue an opinion that would impose an undue burden on all of the actuaries practicing in this jurisdiction.” The undue burden would be to hold the actuary solely responsible for the ongoing and overall solvency of a company; i.e., to expand the role of the actuary extraordinarily beyond the role the valuation actuary typically fulfills. Mr. Wolf is correct that the valuation actuary is not merely a member of a team of advisers with re-


eral insurance issues.

spect to the valuation work and must take responsibility for the opinion rendered on the company’s reserves. However, the valuation actuary is very much part of such a team with respect to the overall and ongoing solvency of a company, which is the issue the brief addressed. I am sorry that Mr. Wolf apparently misread or misconstrued a statement in the brief as limiting adequacy to the coming year. In the latter part of his second paragraph, Mr. Wolf gets into the facts of the case, something on which the Academy specifically took no position. Mr. Wolf is, of course, free to express his opinion on the facts. The data issue has nothing to do with whether company auditors certify data. Rather, it has everything to do with valuation actuaries’ audit responsibilities or lack thereof. As stated in the brief: “The lower court erred to the extent it found that valuation actuaries are required by law to audit data.” The Academy does not believe it should passively let such a finding be upheld on appeal. Finally, it is Mr. Wolf’s prerogative to feel as he does. The Litigation Review Committee of the Academy respectfully disagrees with his conclusions.

Generally, Alerts are offered as a paid annual subscription that starts each January. The discounted rates for a half-year subscription, running from July to December 2003, are as follows: Health insurance . . . . . . . $15 Life insurance . . . $15 Pension and employee benefits . . . . . . . . $25 Property and liability insurance . . . . . . . $15 For more information, contact Eric Opanga,

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

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

Actuarial U P D A T E

the Academy’s legislative assistant (; 202-223-8196).

May 2 0 0 3


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

ABCD Annual Report


N 2002, requests for guidance from the ABCD nearly doubled from the previous year, jumping from 23 requests in 2001 to 44 requests in 2002. This was one of several interesting statistics tucked away in the ABCD’s 2002 annual report, included in the annual combined professionalism report for 2002 that was enclosed with last month’s Update. As 2002 ABCD Chairperson Robert Sturgis wrote in his accompanying letter, “The increased level of requests for guidance is a good sign that actuaries are becoming more aware of professionalism issues and that help in dealing with them is available through the ABCD.” Also of note: in response to a report by a Council

Cases Considered During 2002


Barbara Lautzenheiser SECRETARY-TREASURER


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



of Presidents task force charged with reviewing the ABCD’s practices and performance, the ABCD is establishing a group of investigators who will be available to conduct investigations of cases pending before the board. The new investigative group will be composed of senior actuaries who are skilled in different aspects of actuarial practice and able to commit the time necessary for conducting investigations. They will be paid an honorarium for cases they investigate. In contrast to the previous system, where the ABCD looked to the profession at large whenever an investigator was needed, investigative actuaries who are invited to join the group will be expected to serve for a minimum number of years.

Type of Case Conduct Practice Conduct and practice Requests for guidance Total Cases by Practice Area Casualty Health Life Pension Nontraditional

Pending from 2001 and Earlier

Received in 2002


17 6 2 3 28

11 4 2 44 61

28 10 4 47 89

Pending from 2001 and Earlier

Received in 2002


3 5 5 15 0

15 11 7 28 0

18 16 12 43 0



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.


Sharpen Your Life and Health Certification Skills The Academy is offering its seminar on life and health annual statement certifications in Crystal City, Va., on Nov. 11-14.

The seminar is intended to help life and health actuaries meet the basic education requirements of the specific qualification standards. The seminar covers such topics as statutory accounting, valuation and nonforfeiture requirements, and expense analysis, and it is designed to help actuaries meet the eligibility requirements for issuing annual statement reserve opinions for life and health insurers. Actuaries who are taking Society of Actuaries examinations also may want to take the seminar

Actuarial U P D A T E

May 2 0 0 3

to receive 18 units of professional development credit. For those seeking to meet the continuing education requirements of the Qualification Standards for Prescribed Statements of Actuarial Opinion, the seminar provides attendees with 15.8 life, 16.8 health, and 3.1 professionalism credit hours. Need more information? Contact Rita Winkel the Academy’s legal assistant, at, or 202-223-8196.


Upholding Pension Professionalism 2003 Enrolled Actuaries Meeting T HE N EWSMONTHLYOFTHE A MERICAN A CADEMYOF A CTUARIES Media Update The Ac...


Upholding Pension Professionalism 2003 Enrolled Actuaries Meeting T HE N EWSMONTHLYOFTHE A MERICAN A CADEMYOF A CTUARIES Media Update The Ac...