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Risk Pooling No Panacea


ISK POOLING is a fundamental and effective way

same as forming a pool of all the employees of a single of insuring risk that has its advantages, but it’s employer, Shea warned. not a panacea and it doesn’t address the un“A single employer with 999 employees,” said Shea, derlying cause of increasing health insurance “is not the same as 333 groups with three employees each.” premiums: The cost of health care is high and continues It’s the glue of a common employer, not the existence of to increase. health care, that in this case makes That was the message, deliva strong risk pool, he said. ered on one of the hottest days of Shea also doubted that a July in the nation’s capital, at the risk pool formed by small groups Academy’s Capitol Hill briefing would substantially increase the on the basics of risk pooling. The ability to negotiate favorable rates briefing for congressional staffers or decrease administrative costs. and members of the press, moderKaren Bender, a principal at ated by Academy Health Fellow Mercer Oliver Wyman in MilwauCori Uccello, was well attended. kee and chairperson of the AHP “Simply forming a risk pool Work Group, elaborated on the isn’t enough to guarantee that costs unintended consequences of antiwill stay low and stable in the fu- David Shea answers questions following the briefing. selection that might result from ture,” said David Shea, an actuary AHP pooling. Eliminating the glue with Wellpoint in Richmond, Va., and a member of the of common employment, she said, increases the likeliAcademy’s Association Health Plan (AHP) Work Group. hood of anti-selection. AHPs are a mechanism, proposed by the Bush adBender examined two approaches to risk pooling. ministration and others, that would allow small employ- One would allow entities to create a pool and select a ers to band together to offer health insurance. But allowsingle state’s rating rules to play by. Another would creing small groups of employers to form a pool is not the ate a nationwide pool that would require modified comSee RISK POOLING, Page 12


Pension Testimony The Academy testifies on proposed IRS regulations for qualified plans . . . . . PAGE 4 Valedictory Remarks Three retiring Academy vice presidents discuss progress in their councils . . . . . . . . . . PAGES 6–7 CRUSAP Advisers CRUSAP names 15 individuals to its advisory panel . . . . . . . . PAGE 8 Shaping ERM The Academy is a charter member of the Enterprise Risk Management Institute International . . . . . . . . . PAGE 9

Academy Celebrates 40 Years; Thanks Volunteers



no such thing as a free lunch. But a free annual meeting? That’s another thing. As part of its celebration of 40 years of service to the actuarial profession and the public, the Academy is waiving the registration fee for all Academy volunteers at its Oct. 10–11 annual meeting in Washington. Not an Academy volunteer, but still want to come? Not to worry. Academy members who are not volunteers can register to attend the meeting for a nominal fee of $200.

What you get for attending the annual meeting is worth way more than the price of admission. More than seven hours of continuing education credit are being offered for sessions on emerging issues such as enterprise risk management, financial economics, principle-based regulation, and litigation risk. In concurrent sessions broken down by practice area, panelists will discuss public policy challenges facing pension and insurance actuaries and then seek your input as the Academy sets its public policy agenda for the coming year. And you will be feted at See ANNUAL MEETING, Page 10

Actuarial UPDATE

Capitol Hill Briefing

SEPTEMBER 5–7 IAA ASTIN colloquium, Zurich, Switzerland 7 Academy Life Practice Council meeting, New Orleans Canceled

7–9 IAA AFIR colloquium, Zurich, Switzerland 8–9 NAIC Life and Health Actuarial Task Force meeting, New Orleans Canceled

10–13 NAIC fall meeting, New Orleans

Canceled 12–13 Casualty loss reserve seminar (Academy, CAS, CCA), Boston 12–13 ASPPA Central and Mountain States Benefits Conference, Denver 12–13 SOA critical illness insurance conference, Baltimore 13–14 CAS seminar on ALM and principles of finance, Boston 14 Academy COPLFR meeting, Boston 14 Academy Life Financial Reporting Committee meeting, Chicago 15 Academy Pension Accounting Committee meeting, Washington 15 Joint Board meeting, Washington 16 Academy Universal Life Work Group meeting, Chicago 19–20 SOA health insurance underwriting seminar, Chicago 19–20 CAS seminar on predictive modeling, Chicago 20 ABCD meeting, Boston 20–21 SOA taxation of life insurance companies seminar, Orlando, Fla. 22–23 Valuation actuary symposium (Academy, SOA), Orlando, Fla. 22–23 CAS appointed actuary seminar, Montreal 26 CAS seminar on reinsurance, New York 27 Academy Council on Professionalism meeting, Washington 29–Oct. 2 North American Actuarial Council meeting, Miami

Academy NEWS Briefs Academy in Demand on Speaking Circuit


s the Academy’s engagement in Soic of Social Security reform before the Oregon cial Security and pension funding Portland Actuarial Club on June 23. On July reform and other important policy 28, Kent spoke on trends shaping retirement issues grows, so does the demand before the Texas County and District Retirement for Academy speakers. Since May, Academy System in Austin. John Parks, the Academy’s representatives have made secretary-treasurer and a former nine appearances before acAcademy vice president for tuarial clubs and other orgapension issues, spoke on pennizations around the country, sion reform before the Central with an additional five apPennsylvania Actuarial Club pearances planned. in Harrisburg on June 21, and Ron Gebhardtsbauer, the Academy President-elect Peter Academy’s senior pension Perkins gave a report on Acadfellow, spoke on May 18 emy activities May 10 to the at the National Press Club Actuaries Club of Philadelphia. Ken Kent speaking to Texas policyFoundation in Washington And on Aug. 1, Academy Legal makers in July on retirement savings and Counsel and Director of Profeson June 8 at the Adirondack Actuaries Club in sionalism Lauren Bloom spoke about actuarial Albany, N.Y., on Social Security reform. Bruce professionalism and liability issues at Lynchval Schobel, chairperson of the Retirement Security Systems Worldwide in Dulles, Va. Principles Task Force, spoke on Social Security In the works for this fall: speeches before reform May 5 at the Actuaries Club of Hartford the Tri-State: Actuaries Club of Indiana, (Conn.)/Springfield (Mass.). Ken Kent, the Kentucky, and Ohio, the Actuaries Club Academy’s vice president for pension issues, of Boston, the Columbus (Ohio) Actuarial spoke before the Hartford/Springfield club on Club, the Nebraska Actuaries Club, and the June 9 on pension reform, and took up the top- Southeastern Actuaries Conference. TCDRS


OCTOBER 6 Academy Social Insurance Committee

meeting, Arlington, Va. 6–7 SOA equity-based guarantees seminar, New York 7 Academy Capitol Hill briefing on Social Security, Washington 9 Academy Board of Directors meeting, Washington 10–11 Academy annual meeting, Washington 12 Academy Casualty Practice Council meeting, Washington 12 Academy Health Practice Council fall planning meeting, Washington 16–21 IAIS annual meeting, Vienna, Austria 19 Academy loss reserve opinion seminar, Chicago 27 Academy Risk Management and Financial Reporting Council meeting, New York 30–Nov. 2 CCA annual meeting, Asheville, N.C.


Links to documents identified in bold blue are included in the online version of this issue at


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Media Savvy The Academy

hosted another media training session on Aug. 4 as part of its official spokesperson program. Participating in the day-long training were Paul Braithwaite, president-elect of the Casualty Actuarial Society (CAS), a member of the Academy’s Board of Directors, and managing director in the financial services practice of Navigant Consulting in New York; Larry Gorski, chairperson of the Academy’s Life Capital Adequacy Subcommittee and a consulting actuary with Claire Thinking Inc. in New Berlin, Ill.; and Patricia Teufel, a member of the Academy’s Board of Directors, former Academy vice presiSeptember 2005

dent for financial reporting issues, and a consulting actuary and principal with KPMG in Hartford, Conn. Braithwaite’s and Teufel’s participation in the media training session was sponsored by the CAS.

with confidence. ® Al Weller, a consulting actuary with MBA Actuaries Inc. in Mountain Lakes, N.J., has joined the Workers’ Compensation Subcommittee. HEALTH NEWS


In an Aug. 2 letter, the Academy’s Extreme Events Committee disagreed with some aspects of a Treasury Department assessment of the effects of the Terrorism Risk Insurance Act of 2002, particularly with regard to limitations in loss-simulation models and the market’s ability to price terrorism coverage

On several dates in July and August, members of the Actuarial Equivalence Retiree Practice Note Work Group served as presenters at audio seminars on actuarial equivalence certifications under Medicare Part D and advanced topics of Medicare Part D. The Academy and the Conference of Consulting Actuaries cosponsored the series. A third audio

seminar exploring employer options for Medicare Part D integration is planned for this fall. For more information, go to ® The Medicaid Rate Certification Work Group has published a new practice note on Medicaid managed care certification. ® Comments are invited for a draft update of an Academy practice note on Medicare supplement work. The comment deadline is Sept. 15. ® The Committee on Federal Health Issues sent a July 19 letter to Congress opposing a proposal that would authorize non-actuarial statements of opinion for health reserves. ® Paul Schultz, the director of actuarial pricing for National Medical Health Card Systems, Inc. in Port Washington, N.Y., has joined the Actuarial Equivalence Work Group and the Prescription Drug Work Group. ® Sharon Rivais, Rochester, N.Y., director of Excellus BlueCross BlueShield, has joined the Health Practice Financial Reporting Committee. LIFE NEWS

Robert DiRico,

an actuary in the insurance risk management area for ING USA Annuity & Life Insurance Co. in West Chester, Pa., has joined the Life Practice Council and the Nonforfeiture Improvement Work Group. PENSION NEWS

The Pension Committee updated its analysis of the administration’s savings account proposals, finding that some have merit but that others are cause for concern. The report also notes that the proposals would modify rules for defined contribution plans without giving similar consideration to defined benefit (DB) plans. w w w. a c t u a r y. o r g

The Academy sent a letter on July 27 to Rep. John Boehner (ROhio) and Rep. William Thomas (R-Calif.), respective chairmen of the House Education and the Workforce Committee and the House Ways and Means Committee, urging that Boehner’s proposed Pension Protection Act include a “look-back” option for determining 2006 quarterly pension contributions. ® The Academy commented to the IRS on Aug. 11 about proposed Sec. 415 regulations on pension benefit and contribution limits (see related story on Page 4). ® Academy Senior Pension Fellow Ron Gebhardtsbauer has published a white paper explaining how cash balance plans can adapt features of traditional DB designs. ®


A July 25 National Underwriter cover story on how principlebased reserving (which relies on the professional judgment of the actuary rather than formulas) would measure up in the face of a pandemic outbreak of a relatively new illness such as avian flu quoted a number of Academy members, including Academy President Bob Wilcox, a consulting actuary with Wilcox & Co. in Alpine, Utah; Barbara Lautzenheiser, the Academy’s immediate past president and principal of Lautzenheiser & Associates in Hartford, Conn.; Donna Claire, the Academy’s vice president for life insurance issues and president of Claire Thinking in Fort Salonga, N.Y.; Larry Gorski, chairperson of the Life Capital Adequacy Subcommittee and an actuary in the New Berlin, Ill., office of Claire Thinking; Dave Sandberg, chairperson of the Life Financial Soundness/ Risk Management Committee and vice president and corporate actuary with Allianz Life Insurance Co. of North America

in Minneapolis; and Jim Van Elsen, president of Van Elsen Consulting in Pella, Iowa. ® Academy Senior Pension Fellow Ron Gebhardtsbauer was quoted in a July 25 Pensions & Investments article about the Senate Finance Committee’s pension reform legislation. ON THE MOVE

Paul Braithwaite, president-

elect of the Casualty Actuarial Society and a member of the Academy’s Board of Directors, has been named managing director in the financial services practice of Navigant Consulting in New York. He was formerly president of PB Risk Advisors in New York. ® Peter Vogt has been named executive vice president and chief financial officer for the Penn Mutual Life Insurance Co. in Horsham, Pa. He was formerly senior vice president and chief financial officer for Cigna Group Insurance in Philadelphia. ® Mike Stickney has been promoted to executive vice president, U.S. development, at Industrial Alliance Pacific in Vancouver, British Columbia. He was formerly vice president

and general manager, group insurance. ® Robin Davis Williams has joined KPMG’s Property/Casualty Actuarial Services Group in San Francisco as a manager and actuarial consultant conducting loss reserve reviews for insurance, self-insured, and captive insurance companies. She was formerly an agent with New York Life in San Jose, Calif. ® Steven Wright has been named vice president of actuarial services for LifeMasters Supported SelfCare Inc. in San Francisco. He was formerly a principal at Reden & Anders. ® Kevin Brady has been appointed PMA Capital Corp.’s vice president and chief corporate actuary. He was formerly vice president and associate actuary for the PMA Insurance Group. ® Lisa Larsen has been named an actuary with Milliman in Windsor, Conn. She was formerly an in-house actuary with EDS in Plano, Texas. ® Michael Schooley has been named an assistant vice president of Aon Consulting in Tampa, Fla. He was formerly an actuary with Bolton Partners, Inc. in Baltimore.

Even if you know what you’re trying to say, your audience may not. Precept 4 of the code requires you to make a reasonable effort to be clear to your intended audience.

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September 2005


IAA Adopts Practice Guidelines


the world gathered June 13-16 in Rome for the semiannual meeting of the International Actuarial Association (IAA). At the meeting, the IAA Council approved the release of seven non-binding practice guidelines for actuaries working for companies that complete their financial statements under international accounting rules published by the International Accounting Standards Board (IASB). The new guidelines were developed by a subcommittee of the IAA’s Insurance Accounting Committee, whose chairperson is Sam Gutterman, a past president of the Society of Actuaries and a past Academy vice president. Paul McCrossan, a past president of the Canadian Institute of Actuaries, chairs the subcommittee that developed the guidelines. The first guideline broadly discusses actuarial practice under the IASB’s new international accounting rules for insurance, while the CTUARIES FROM AROUND

remaining six address more specific topics such as current estimates, liability adequacy testing, and changes in accounting policies. Although the practice guidelines were prepared with legal and editorial assistance from the Academy and the Actuarial Standards Board, they are advisory and not intended to be binding. Called “Class 4 standards,” which under the processes developed by the IAA’s Professionalism Committee means they are advisory, the new guidelines are somewhat akin to Academy practice notes. This is reflected in their language. They offer advice and describe various ways to practice under the IASB’s accounting standards but don’t mandate any single method or approach. The IAA intends to issue four more practice guidelines on various aspects of insurance financial reporting soon. The IAA’s next meeting will take place in Rio de Janeiro in November. — LAUREN BLOOM

Academy Testifies on Proposed Pension Regulations


a member of the Pension Practice Council, testified at an Aug. 17 IRS public hearing on proposed revisions to Internal Revenue Code Sec. 415 limits on benefits and contributions for qualified plans. Kra’s testimony was based on the Academy’s Aug. 11 comment letter to the IRS. In his testimony, Kra outlined several concerns with the proposed regulations, provided alternatives to some of their proposed methodologies, and stressed the profession’s willingness to work with the IRS and Treasury to develop a “rational approach” for the final regulations. The testimony focused on a number of issues, including: ® Multiple annuity starting dates—Kra expressed concerns with the methodology used to convert past payments to current offsets to the Sec. 415 limit. He recommended instead determining how much of the Sec. 415 limit was used at initial retirement and ensuring that amount is offset from the Sec. 415 limit at any subsequent retirement or benefit change date. ® Early retirement adjustments—The age-adjusted dollar limit in the proposed regulations is determined based on the plan’s mortality basis in conjunction with the plan’s interest rate. Currently, Sec. 415 requires that actuarial assumptions used for determining this amount refer to an interest rate not less than the greater of 5 percent or the rate specified in the plan and the mortality table prescribed by the secretary of the Treasury.


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September 2005

Kra pointed out, using an example from the comment letter, that a dollar limit that is calculated based on the proposed regulations could be lower than the proper limit required by the code. ® Definition of final average compensation—The proposed regulations limit the definition of compensation to the period of participation and also the Sec. 401(a)(17) maximum. The change limiting compensation to the Sec. 401(a)(17) maximum will effectively limit post-age-65 increases in the dollar limit, essentially providing a cutback if the participant defers retirement to a later age. In its comment letter, the council requested clarification on how the late retirement increase would work when a plan provides the greater of continuing accrual or actuarial increase; how the new proposed methodology for rollovers and transfers to defined benefit plans would apply after the new regulations’ effective date; and whether the new rules on post-severance compensation would diminish the value of the W-2 (box 1 pay) safe harbor used for Sec. 415 limits, as well as nondiscrimination testing and highly compensated employee determination. The council also sought a clarification that would allow a plan embedding cost-of-living increases not greater than those provided under Sec. 415(d) in its formula to be treated similarly, not requiring an adjustment in the original benefit. —HEATHER JERBI

Medical Reinsurance: Intelligent Design


Academy Senior Health Fellow Cori Uccello and Rob Bachler, a member of the Academy’s Medical Reinsurance Work Group, met with Rep. Paul Ryan (R-Wis.) at his request to answer questions on medical reinsurance. Rep. Ryan is one of several legislators and policy-makers interested in the possibility of offering government-provided reinsurance to health plans as part of an overall solution to rising costs in private health insurance. In the meeting, Uccello and Bachler focused on the various issues and pitfalls that would need to be addressed when designing a government reinsurance program. These include whether the system would be mandatory or voluntary, whether disease management programs would be used, different attachment points, and different co-pay percentages above the attachment points. Uccello and Bachler also gave Rep. Ryan a copy of the Academy’s January issue brief, Medical Reinsurance: Considerations for Designing a Government-Sponsored Reinsurance Program, a primer on the current commercial medical reinsurance market that outlines some of the issues for consideration in designing and implementing a N JULY 12,

From left, Rep. Paul Ryan discusses medical reinsurance with Rob Bachler and Cori Uccello.

government program. As an outgrowth of the meeting and to provide further insight, the Academy’s Medical Reinsurance Work Group is currently developing a supplemental backgrounder for distribution on Capitol

Hill and to other interested policy-makers. Also attending the meeting were the Academy’s director of public policy, Craig Hanna, and its senior health policy analyst for federal issues, Holly Kwiatkowski.

Addressing Actuarial Credibility


on a recent report on actuarial credibility by a Casualty Actuarial Society (CAS) task force, the Academy has joined a new interorganizational steering committee that will pursue the report’s recommendations. At the same time, the Academy has formed its own task force to determine which recommendations have the potential to enhance actuarial credibility in multiple practice areas. In its May report, the CAS Task Force on Actuarial Credibility made several recommendations for change, including a recommentation that differences between management’s recorded reserves and the actuary’s estimate of the reserve be publicly disclosed in statements of actuarial opinion. The Academy’s new Appointed Actuary Task Force will be exploring issues surOLLOWING UP

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

rounding implementation of the CAS task force recommendations, as well as examining those recommendations to see which ideas could be adapted for appointed life and health actuaries, and for pension actuaries and others who make actuarial certifications. “The effort to improve actuarial credibility is important to us all,” said Academy President Bob Wilcox. “When actuarial credibility is enhanced in any part of the profession, we all benefit. And when actuarial credibility is diminished in any part of the profession, we all suffer.” The Academy’s new task force will be chaired by Burt Jay, the Academy’s vice president for risk management and financial reporting issues, and is composed of one representative from every other Academy council; currently those representatives are

the Academy’s other vice presidents. Pat Teufel, a member of the Academy’s board of directors and its former vice president for financial reporting issues, is chairperson of the new interorganizational steering committee. Teufel was chairperson of the CAS task force that made the original report. The Academy’s representatives on the steering committee are Mary D. Miller, the Academy’s vice president for casualty issues, and Jay. Representatives of the Actuarial Standards Board and the Actuarial Board for Counseling and Discipline have also been asked to serve on the steering committee. If you have questions or comments about the Academy’s task force, contact Craig Hanna, the Academy’s director of public policy (; 202223-8196).

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September 2005


P A R T I N G Active Lives


DONNA CLAIRE S I LOOK BACK over the past two

years of my term, the question arises—what did I accomplish? The answer for me, individually, is perhaps not so much. But the Academy’s Life Practice Council did an amazing amount of work in that time. A critical juncture has been reached in the area of life insurance. Throughout the past century, life insurance regulation was structured around formulaic reserves and nonforfeiture. However, as consumer needs grew more diverse, products became more complex. In recent years, regulators have put Band-Aids on the system, trying to govern developing products with rules that conform to the formulaic requirements. Now the consensus is that the system is broken: As fast as rules are developed, new products or methodologies come into being. Consequently, the Academy has taken the position that principle-based reserves and solvency, which rely to a greater extent on the professional judgment of the actuary rather than the more formulaic approach that is currently used, are the way to go. The goal is to set the reserves and capital of life companies at an appropriate level for the risks being taken, and we are making a concentrated effort to move projects in this direction. One major accomplishment is the C3 Phase 2 risk-based capital (RBC) project, which covers capital requirements for variable annuities. C-3 Phase 2 provides guidance on certain assumptions but leaves it up to actuaries to use reasonable assumptions for their particular companies. Other council work groups are currently developing principle-based reserve requirements for variable annuities and for universal life. There is also work on the product side to develop more flexible nonforfeiture regulations. Another aim of the Life Practice Council during my tenure has been to reach out to other groups and add our expertise where useful. Our Life Financial Reporting Com-


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mittee, which interacts with counterparts in the U.S. accounting profession, has been very active in the past two years. Finally, in recognition of the difficulty Academy members might have staying current with all the new requirements and methodologies in life insurance practice, the council has undertaken a major rewrite of life practice notes (some of which were a decade old) and is developing a number of new practice notes. Council volunteers have also worked hard to keep Academy members informed about council activities by writing articles for a various publications. On a personal note, I was diagnosed with cancer the month after I became vice president. My vice chairs, the rest of the

council, and other volunteers and Academy staff pitched in to cover through my surgery, chemotherapy, and radiation. There are so many people to thank I could not possibly name them all. I wanted to at least mention my husband, Martin Claire, Lauren Bloom, Mike Boerner, Bob Brown, Tom Campbell, Eric Carlson, Errol Cramer, Steve English, Andrew Erman, Larry Gorski, Craig Hanna, Ken La Sorella, Barbara Lautzenheiser, Bob Meilander, Kory Olsen, Tracey Polsgrove, Steve Preston, Dave Sandberg, Sheldon Summers, and Amanda Yanek. Donna Claire completes her term as the Academy’s vice president for life insurance issues in October.

There Is Much to Do



and Social Security reform are the two issues that have dominated my term as vice president. Academy volunteers across the country have worked hard to help set the stage and define our professional position on these two key programs for retirement security in America. But much remains in play, and now may be the time for individuals from the profession to add their voices to the debate. Will we see one or two legs of the traditional three-legged stool of retirement security gradually filed down to nothing? What are the social implications? As retirement becomes a less obtainable or desirable alternative, the solution to retirement security and baby boomer demographic issues may eventually cause Ameri-

September 2005


cans’ retirement expectations to evolve toward living healthier and longer—but on the job. We have been focusing our energies on the policy-makers, and now we need to turn our attention to the general public. There is so little educational effort applied to financial risk and the implications for the individual or household. And for too many Americans, limited financial resources limit their options. What needs to be said about older retirement ages for both Social Security and voluntary retirement systems is still held as the untouchable message even while the realities of living longer and working longer are obvious to most of us. We are seeing rapid changes in attitudes and a decline in support of traditional retirement plans from businesses and the administration at the same time that these plans still offer the most financially efficient way


T H O U G H T S New Kid on the Block Gets Busy



and Financial Reporting Council is a relative youngster compared with the Academy’s other councils. Created in 1996 as the Financial Reporting Council, the council’s mandate has since expanded to include risk management issues that affect multiple practice areas. Partly in recognition of the fact that career opportunities in enterprise risk management (ERM) are increasingly attracting actuaries from all practice areas (along with others in competing professions), the council changed its name last year. During my two years as vice president, the council focused on a number of issues, including: ® Federal regulation of insurance, including optional federal charters ® Implementation of Sarbanes-Oxley ® Fair-value accounting of financial /insurance liabilities ® Assessment of insurer solvency and other insurance regulatory issues HE RISK MANAGEMENT

to secure retirement (even when financial economics is appropriately applied). Policy-makers support individual empowerment as the basis for anticipating growth in individual savings, but all the tax incentives that can be thought up cannot help people living off their paychecks save more. And there is much skepticism as to whether the individual investor can fare as well in self-annuitization as with the support of a robust group-based system for retirement security. So I want to warn the Academy’s army of volunteers, as well as our other members, that the job isn’t over. If we are going to be heard and make the differences in financial security that are needed, the target

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® Development of international accounting and actuarial standards ® Definition of “best estimate” of insurance and other balance-sheet liabilities ® Support of ERM initiatives for actuaries. Actuaries from every practice area have an interest in these issues, but differences in education and professional customs of practice sometime intervene. It has been a challenge for the council to understand those differences and to build consensus. The extent of council activity in these and other issues is one indication of our success in bridging those gaps. Major projects that the council undertook during my term include: ® Regularly meeting with the Federal Accounting Standards Board and representatives of the American Institute of Certified Public Accountants on insurance and pen-

of our efforts needs to expand to include the general public. As my term comes toward an end, I thank those same hordes of volunteers that dedicated their time and expertise to the issues. I wish to extend my appreciation to the Academy’s senior policy analyst, Heather Jerbi, for standing up against a bunch of actuaries to get things done thoughtfully and with the highest level of quality. I also need to thank Ron Gebhardtsbauer for letting me carry his bags to a number of very stimulating meetings with interesting people.

sion accounting issues. ® Meeting with representatives of the Public Company Accounting Oversight Board and the Securities and Exchange Commission on finite reinsurance, pension accounting, loss reserve estimates, “use of experts,” international insurance accounting, and the implementation of SarbanesOxley. ® Responding to queries from the Government Accountability Office (GAO) on the definition of insurance and other issues relating to any federal government role in regulating insurance. ® Leading sessions at Academy meetings on Sarbanes-Oxley, international insurance accounting, international actuarial practice standards, and ERM (including information about the Academy’s new ERM Task Force). ® Commenting to the International Accounting Standards Board (IASB) and the International Actuarial Association (IAA) on draft international accounting standards for insurance contracts, and to the International Association of Insurance Supervisors (IAIS) and the IAA on using a principles-based approach in the development of international solvency and other regulatory standards. ® Achieving consensus from other practice councils in the ongoing development of an Academy white paper on best estimate of insurance liabilities, a difficult project that has required working through and documenting different points of view. As my term as vice president comes to an end, I would like to express my pride and gratitude to all council members who have worked so hard to accomplish this. I particularly would like to recognize Ralph Blanchard, Jim Reiskytl, Tim Tongson, who succeeds me as vice president, and Ethan Sonnichsen, our talented and hardworking policy analyst.

Ken Kent completes his term as the Academy’s vice president for pension issues in October.

Burt Jay completes his term as the Academy’s vice president for risk management and financial reporting issues in October.

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September 2005


CRUSAP Advisory Panel Named


issues, a former president of the Conference of Consulting Actuaries, and a consulting actuary with Cheiron in tial task force, is moving forward on several McLean, Va. fronts in its mission to identify and analyze ® W. James MacGinnitie, past president of the Acadrisks and opportunities the profession faces and to deemy, the Casualty Actuarial Society, the Society of Actuvelop forward-looking strategies to deal with them. aries (SOA), and the International Actuarial Association Last month, CRUSAP named 15 individuals—in- and an actuarial consultant in Atlanta cluding actuaries who practice in each of the major ® Cynthia Martin, senior financial services markets specialty areas and members of each of the major U.S. specialist for the Federal Reserve Bank of Boston actuarial organizations, as well as non-actuaries, all of ® Dan McCarthy, a former Academy president and a whom are familiar with the actuarial profession and principal with Milliman in New York some of whom are recent or potential users of actuarial ® Harry Panjer, a former president of the SOA and proservices—to serve as members of an advisory panel. fessor of statistics and actuarial science at the University Joining the advisory panel are: of Waterloo in Ontario, Canada ® Joseph Antos, Wilson H. Taylor Scholar for health ® Ken Porter, finance director for corporate insurance care and retirement policy at the American Enterprise and global benefits financial planning for the DuPont Institute in Washington and a member of the Maryland Co., in Wilmington, Del. Health Service Cost Review Commission ® A. Haeworth Robertson, president of the Retirement ® Paul Boyle, chief executive of the U.K. Financial RePolicy Institute in Washington and a former Social Seporting Council in London curity chief actuary ® Charles Bryan, a former Academy president and ® Ken Steiner, a resource actuary for Watson Wyatt president of C.A.B. Consulting in Columbus, Ohio Worldwide in Washington ® Lance Burma, a principal with Milliman in ® Paul Thornton, a senior partner with Watson Wyatt Minneapolis Partners in Reigate Surrey, England ® Richard Foster, chief actuary for the Centers for ® Jack Turnquist, a former Academy president residMedicare and Medicaid Services in Baltimore ing in Dallas. ® Ken Kent, the Academy’s vice president for pension CRUSAP is currently testing two online questionnaires, one for actuaries and another for non-actuaries, for distribution later this year. The questionnaire for actuaries asks about perceptions of the actuarial profession and how well it meets the needs of the public. There are also questions about current actuarial education, standards, discipline, and the organization of the profession. The questionnaire for non-actuaries focuses, among other things, on how well the profession meets current actuarial needs and how well actuaries commuShould You Attend? nicate. The task force plans to test both questionnaires on selected groups before reaching out to a much larger New FSAs (effective 2000 or later) community within and beyond the profession. may not meet all of the life- and Fred Kilbourne is the chairperson of CRUSAP. Othhealth-specific qualification staner members are Bob Collett, Guy King, Jim Rech, and dard requirements to be able to Terri Vaughan. CRUSAP members will be participating issue Prescribed Statements of AcSOA – ACTUARIES FINAL CAMPAIGN LOCKUP BONFIRE COMMUNICATIONS in an update on the group’s work at the Academy’s Oct. tuarial Opinion. The L&H Semi10–11 annual meeting in Washington. nar can solve that problem. Others HE CRITICAL REVIEW OF THE U.S. ACTUARIAL PROFESSION (CRUSAP), an Academy presiden-

Last Year, the Academy’s Life and Health Qualifications Seminar SOLD OUT!

This Year, Don’t Miss Out. Nov. 8-11, 2005

can take this opportunity to earn significant PD and CE credit. See the Academy website for more information on the seminar’s content, credits, and faculty.

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For more information and to register online, go to, or contact the Academy at 202-223-8196 or


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ing on replacing formulaic reserving with a principle-based system conducted by the NAIC’s Life Insurance and Annuities “A” Committee. A principle-based system would rely more on the professional judgment of the actuary, unlike the current approach that is based more on formulas. Representing the Academy at the Minneapolis hearing were Barbara Lautzenheiser, the Academy’s immediate past president; Dave Sandberg, vice chairperson of the Life Practice Council and chairperson of the Life Financial Soundness/Risk Management Committee; and David Neve, co-chairperson of the Universal Life Work Group. In the Academy’s presentation, speakers outlined Academy efforts to implement within the next few years a principle-based approach to reserving, capital requirements, and a number of other risks. The Academy is already working on applying such an approach to universal life products and the Academy’s speakers cited recent experience in the development of the C-3 Phase 2 project—a principle-based system for risk-based capital—in discussing all of the regulatory and governance implications of making a shift to a principles-based system. The C-3 Phase 2 project was adopted by the Financial Conditions “E” Committee at the NAIC’s June summer meeting in Boston. It is expected that the project will receive final approval from the NAIC’s executive committee when it next meets.

Academy Joins ERM Institute



to become a charter member of the Enterprise Risk Management Institute International (ERMII), a new nonprofit educational and research institute. Former Iowa insurance commissioner Terri Vaughan will serve as the Academy’s representative on the ERMII board, with Executive Director Kevin Cronin serving as her alternate. “Joining ERMII is a natural move for the Academy,” said Academy President Bob Wilcox. “It reinforces the importance of actuarial expertise in risk management and furthers the profession’s efforts to expand actuarial roles into promising new areas. As a charter member of ERMII, the Academy is on the ground floor of an organization that will help shape the direction of ERM.” The Casualty Actuarial Society and the Institute of Actuaries of Australia are also charter members of ERMII, which has been established by an international group of universities and professional organizations. Headquartered at Georgia State University and headed by Academy member Dr. Shaun Wang, ERMII plans to create an international educational program for ERM, and is working with member professional bodies to establish a new professional certification, the Chartered Risk Analyst (CRA) designation. ERMII’s goals include: ® Developing and promulgating international standards for quantitative risk education ® Creating an internationally recognized professional certification for individuals specializing in the practice of ERM ® Promoting multidisciplinary international research. w w w. a c t u a r y. o r g

Wang will be discussing ERM as the featured speaker at the Academy’s annual meeting luncheon, Oct. 10 in Washington (see story on Page 1). Other members of ERMII include Carnegie-Mellon University, Georgia State University, and the University of Illinois in the United States, the University of New South Wales in Australia, the University of Waterloo in Canada, Heriot-Watt University in Scotland, and Wuhan University in China. Look for further information on ERMII in upcoming issues of the Update.

Changing Your Academy Records IF YOU MOVE, CHANGE YOUR NAME, OR LAND A NEW JOB, it’s easy to let the Academy know. Just go to the home page of the Academy website (, click on “Update your record,” and follow the instructions to change your Academy file. From there, you can take hyperlink shortcuts to the online directory of actuarial memberships (where changed listings also update the corresponding SOA and CCA records) and to the CAS and ASPPA member pages. You can also e-mail your information to corrections @actuary. org. Be sure to provide identifying information, including your name and phone number, and the information that is new (name, address, phone, fax, e-mail, or employer). If you prefer, you can call the Academy office at 202-223-8196 or write to Membership Operations, American Academy of Actuaries, 1100 17th St. N.W., 7th floor, Washington, D.C. 20036.

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Annual Meeting,

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an elegant 40th anniversary reception and banquet, co-hosted by the Smithsonian American Art Museum, at the Renwick Gallery on Pennsylvania Avenue, across the street from the White House and next door to historic Blair House. But there’s more: ® Fred Kilbourne, chairperson of the Academy’s new Critical Review of the U.S. Actuarial Profession task force, will offer an update in the meeting’s lead-off session on the task force’s preliminary findings as it begins its evaluation of the risks and opportunities facing the profession. ® At the Oct. 10 annual meeting luncheon, Shaun Wang, director of actuarial science programs in the Department of Risk Management and Insurance at Georgia State University, will discuss the current state of enterprise risk management (ERM) development, the role actuaries can play, and the impact ERM could have on the future of actuarial practice.



EPRESENTATIVES OF ALL FIVE U.S. actuarial organizations and the Canadian Institute of Actuaries (CIA) attended the July 27 Academy-sponsored meeting of a newly-formed data synchronization group. The group’s goal is to develop a one-stop-shopping mechanism for changes in members’ contact data, thereby synchronizing information in the membership databases of the Academy, the American Society of Pension Professionals and Actuaries, the CIA, the Casualty Actuarial Society, and the Society of Actuaries (SOA), whose database also serves the Conference of Consulting Actuaries. “The overriding goal of this effort is to improve service and provide convenience to all members of the profession,” said Peter Perkins, the Academy’s president-elect, who has been a major proponent of the system. Meeting attendees agreed on an action plan for the development of a web-based system that would transmit automatically any changes in a member’s contact information (name, address, phone, e-mail, etc.) to other organizations, as appropriate. The plan calls for the web-based system to be operational by the spring of 2006. “There are thousands of actuaries who are members of two or more actuarial organizations, with many belonging to three or more,” said Perkins. “This new system will simplify their lives while ensuring that all the actuarial organizations’ databases are accurate.” Another priority of the group is to improve the integrity of the data in the master actuarial directory maintained by the SOA. “The directory is an invaluable resource to both actuaries and the users of actuarial services. Keeping it up to date is important to all of the actuarial organizations,” said Margaret Ann Jordan, the SOA’s managing director of finance and administration.


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® Terri Vaughan, former Iowa insurance commissioner and president of the NAIC, will speak at the Oct. 11 Academy luncheon on financial convergence, international issues, and regulatory modernization. ® The annual meeting luncheon will feature the installation of Peter Perkins as the new Academy president, and a slate of nominees to the Board of Directors will be presented to the membership for a vote. ® Donna Claire, the Academy’s outgoing vice president for life insurance issues, will be presented with the Jarvis Farley Service Award for her contributions as a longtime Academy volunteer. The meeting is being held at the Renaissance Mayflower Hotel, located just blocks from the White House and museums and monuments on the National Mall. For more information and to register, go to Questions? Contact the Academy’s Denise Winston (202-223-8196;

Members Verify Online for Medicare Part D


HE SYSTEM WORKS! Since the Academy’s new membership

verification system went online July 31, more than 700 Academy members have successfully logged on to get their Academy ID numbers and send their membership information to Medicare’s retiree drug subsidy (RDS) program. Developed by the Academy in conjunction with the Centers for Medicare and Medicaid Services, the online system is for actuaries who attest to the actuarial equivalence of retiree health plans seeking a Medicare Part D subsidy. Membership in the Academy is a legal requirement for actuaries filing an attestation. Haven’t logged on yet? To send your membership information to the Medicare subsidy program, go to attest.shtml and follow the instructions. By opting in, you give the Academy permission to send membership information to the RDS program for the sole purpose of verifying your membership in the Academy. Only members who opt in will have their membership information sent to the RDS program. While you are online, check out a draft practice note on the procedural and professional aspects of RDS attestations that was developed by the Academy’s Actuarial Equivalence Retiree Practice Note Work Group. The comment deadline for the exposure draft is Nov. 15. If you have questions about the member verification process, contact Mark Paster, the Academy’s assistant director for technology (; 202-223-8196). If you have questions about the subsidy program itself, contact the RDS Center at www.rds.cms.hhs. gov/contact/ or call the RDS help line at 877-737-4357.

Academy Annual Meeting Oct. 10-11, 2005 ▲ Mayflower Hotel ▲ Washington “The Actuarial Profession at the Crossroads” ANNUAL MEETING AGENDA

DAY 1—MONDAY, OCT. 10 8:00–9:00 AM Breakfast Session

Speaker: Robert Wilcox, 2005 Academy president

9:15–10:15 AM General Session:

The Risks and Opportunities Facing the Profession This session offers an update on the work of the Academy’s Critical Review of the U.S. Actuarial Profession (CRUSAP). ® Speaker: CRUSAP Chairperson Fred Kilbourne

DAY 2—TUESDAY, OCT. 11 8:30–9:20 AM Breakfast Session ®

9:30–11:20 AM Concurrent Session C1:

Public Policy Challenges Facing the Pension Actuary Following a report on high-priority pension-related public policy issues, experts will discuss prospects for 2006. Speakers: ® Ron Gebhardtsbauer, Academy senior pension fellow ® John O’Neil, majority staff, U.S. Senate Finance Committee ® Mildeen Worrell, tax counsel, House Ways and Means Committee ® Portia Wu, minority staff, U.S. Senate Health Committee

10:30 –11:45 AM Concurrent Sessions A1 – A4:

Implications for the Profession Members of CRUSAP will lead discussions and solicit input on some of the major challenges facing the profession. ® Moderator: CRUSAP Chairperson Fred Kilbourne

NOON–2:30 PM Annual Meeting Luncheon

9:30–11:00 AM Concurrent Session C2:

Public Policy Challenges Facing Insurance Actuaries Speakers will cover high-priority insurance-related public policy issues and prospects for 2006. Speakers: ® Mike Abroe, Academy vice president for health issues ® Kevin Bingham, chairperson, Academy Medical Malpractice Subcommittee ® Steve Lieberman, partner, Moran Co., former assistant director for health and human resources at CBO and former senior adviser to the administrator of CMS

The annual meeting will feature the installation of Peter Perkins as the new Academy president, the presentation of the Jarvis Farley Service Award, and voting on a slate of nominees to the board of directors. ® Luncheon speaker: Shaun Wang, director of actuarial science program, Georgia State University

2:45–4:30 PM Concurrent Session B1:

Financial Economics: Truly the Wave of the Future? Experts will discuss the impact financial economics is having on the profession today and how actuarial practice may change as a consequence in the future. Speakers: ® R. Evan Inglis, member of the joint Academy/SOA Task Force on Financial Economics and the Actuarial Model ® Ken Kent, Academy vice president for pension issues

2:45–4:30 PM Concurrent Session B2:

Principle-based Methodologies: What Will Be the New Role for the Actuary? Experts will discuss how principle-based regulation will affect actuarial practice and how actuaries should prepare themselves.

6:30–10:00 PM 40th Anniversary Celebration:

A Salute to Academy Volunteers Join your colleagues at an elegant reception and banquet in the Renwick Gallery, across the street from the White House.

Go to to find out more information. Call the Academy’s meeting planner, Denise Winston, at 202-223-8196, if you have questions.

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Speaker: Peter Perkins, 2006 Academy president

11:30 AM– 12:20 PM

Concurrent Sessions D1–D4: Setting the Public Policy Agenda Attendees will break into practice-area groups to discuss the Academy’s public policy agenda for 2006. Moderators: ® Mike Abroe, Academy vice president for health issues ® Donna Claire, Academy vice president for life issues ® Ken Kent, Academy vice president for pension issues ® Mary D. Miller, Academy vice president for casualty issues ® Donald Segal, incoming Academy vice president for penison issues

12:30–2:00 PM Academy Luncheon ®

Luncheon speaker: Terri Vaughan, Drake University professor of insurance, risk management, and actuarial science and former NAIC president and Iowa insurance commissioner

2:15–3:45 PM General Session:

Litigation Risk and the Practicing Actuary Moderators: ® Geoff Sandler, Academy vice president for professionalism issues ® Lauren Bloom, Academy general counsel

4:00–5:00 PM Concurrent Sessions E1–E4:

Responding to the Challenge of Litigation Risk Attendees will break into practice-area groups to discuss malpractice litigation. ® Moderators: Academy vice presidents and professionalism council members

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JOINT STUDY ON LIFE RESERVING IN RESPONSE TO A REQUEST from the NAIC’s Life and Health Actuarial Task Force, the Academy, assisted by the Society of Actuaries (SOA), is developing a new valuation table (reference) to reflect the preferred underwriting that has developed since the 1990s. The joint effort will support the new standards needed to reflect various levels of preferred mortality for product valuation. The American Council of Life Insurers, National Association of Life Companies, and the Fraternal Insurers are also participating in the project, which is intended to better reflect preferred mortality in insurers’ liabilities while continuing to assure adequate protection to policyholders and investors. Larry Gorski, a member of the Life Practice Council, will head up the oversight committee that is monitoring the project. For more information about the study, contact Jack Luff, the SOA’s experience studies actuary (Jluff@soa. org; 847-706-3571).


William Carroll Patrick Collins Andrew Erman Rade Musulin Geoffrey Sandler Donald Segal EDITOR



Joseph Vallina

American Academy of Actuaries PRESIDENT




Michael Abroe Donna Claire Burt Jay Ken Kent Mary D. Miller Geoffrey Sandler 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. ©2005 The American Academy of Actuaries. All rights reserved.


IAA Membership Opportunity


you are already supporting the activities of the International Actuarial Association (IAA). The Academy and the four other U.S. actuarial organizations pay dues and participate as member organizations in the IAA, joining some 50 full-member, 24 associate-member, and three institutional-member organizations from around the world. But as actuarial practice continues to globalize, please consider further strengthening that relationship by becoming an individual member of one of the IAA’s six sections devoted to specific areas of actuarial practice: ® Actuarial Studies in Non-Life Insurance (ASTIN), promoting actuarial research, particularly in non-life insurance and in the area of genetics research; ® Actuarial Approach for Financial Risks (AFIR), promoting actuarial research in financial risks and problems; ® International Association of Consulting Actuaries (ACA), facilitating the international exchange of views between consulting actuaries; ® International Actuarial Association Health (IAAHS), S A MEMBER OF THE ACADEMY,

Risk Pooling,

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munity rating and allow geographic differences. Neither result, said Bender, would create the “magic balance” that would avoid anti-selection. “Allowing insurers to license in one state and sell in all states under the licensing rules of that state,” added Uccello, “would tend to create an unlevel playing field.” In an unsolicited comment, one congressional staff-

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providing an international perspective on health actuarial practice, public and private health insurance, and health policy matters; ® Pensions, Employee Benefits, and Social Security (PBSS), providing an international perspective on public and private pensions, social security, employee benefits, and related public issues; ® Actuaries Without Frontiers (AWF), linking situations in need of actuarial skills with financial resources and actuarial volunteers to meet those needs. Annual cost for joining each section is $35, but joining the AWF section costs only $17.50. A small portion of the annual cost goes toward the Academy’s administrative costs. All Academy members were mailed information last month about joining IAA sections. The information was sent electronically to Academy members with working e-mail addresses; all others were sent the information by regular mail. Missed yours? You can download the information from the Academy’s website. Questions? Contact Mark Paster, the Academy’s assistant director for technology (

er expressed how helpful she found the briefing: “My boss sent me to learn the terminology of this debate so he can better understand the pending legislation, and that’s just what this briefing delivered,” she said. She also appreciated that the Academy doesn’t take sides and provides objective, educational information. —STEVE SULLIVAN


T HE N EWSMONTHLY OF THE A MERICAN A CADEMY OF A CTUARIES CRUSAP Advisers CRUSAP names 15 individuals to its advisory panel . . . . . . . ....


T HE N EWSMONTHLY OF THE A MERICAN A CADEMY OF A CTUARIES CRUSAP Advisers CRUSAP names 15 individuals to its advisory panel . . . . . . . ....