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.~eActuarial VOLUME 19 NUMBER 7

In this issue 2

From a Guest President

3 Letters to the Editor


NAIC Meeting Highlights


Academy Annual Meeting Notice FASB Gets Guidance on OPB

6 Accounting Standard 7 The Global Actuary


An Encounter with Actuaries of the Third Kind Actuaries and Accountants Meet


ASB Developing Compliance Guideline for FASB's Statement on OPBs


IRS Small Plan Audits


Happy Birthday Medigap


Committee Service : An Invitation to Volunteer

Checklist of Recent 12 Academy Statements



Classic Reference Work on Medical Risks Expanded

Enclosures Incl uded In this month's issue of The Update are the following: • Government Relations Watch •In SearchOf . . .

• ASB Boxscore • Committee Service Request Card

Upda e



JULY 1990

NAIC Adopts 1990 Loss Reserve Opinion Requirement for All States by Gary D. Simms In an action of truly historic importance to the actuarial profession, the National Association of Insurance Commissioners (NAIL) adopted a requirement for an actuarial opinion for loss reserves, applicable to all states and effective with filings for the 1990 fiscal year. The action comes following almost twenty years of effort by the Academy, acting on behalf of the actuarial profession . The congressional report on property and casualty insurer insolvencies titled "Failed Promises" (see the May Update) was cited by the regulators as a major impetus for adopting the new requirements for loss reserve opinions at this time . The new methodology approved by the NAIC, at the personal urging of its president, North Dakota Commissioner Earl Pomeroy, involved a key change to the instructions to the Fire and Casu-

alty Annual Statement Blank, particularly instruction 12, which deals with the opinion requirement. Paragraph 12 now begins as follows : There is to be included or attached to Page 1 of the Annual Statement, the statement of a qualified actuary, entitled "Statement of Actuarial Opinion," setting forth his or her opinion relating to loss and loss adjustment expenses . This one simple paragraph accomplishes the two major goals of the Academy: It stipulates that an actuarial opinion is required, and that an opinion is required in all of the states . Previously, whether or not a state required an opinion by a loss reserve specialist was a discretionary matter that each state decided. (continued on page 4)

NAIC Exposes Revised Model Law Implementing Valuation Actuary Concept The valuation actuary concept, a keystone of the actuarial profession's insurance legislative and regulatory agenda . was solidified with the National Association of Insurance Commissioners ' (NAIC) decision to expose proposed amendments to the Standard Valuation Law. Walter S . Rugland, chairperson of the Joint Committee on the Valuation Actuary, called it "a great day for the profession ." More than five years of discussion and negotiation among representatives of the actuarial profession, insurance regulators, and the insurance industry laid the groundwork for this noteworthy development which will make a major change in the way actuaries opine on the financial status of life

insurers. John Montgomery, chairperson of the NAIC Life and Health Actuarial (Technical) Task Force, the prime mover of the amendments, expressed the hope that the exposure process will proceed without substantial difficulty, and that the proposed revisions will be adopted by the NAiCinDecember, 1990 .

The new section of the law would require every life company, except those exempted by regulation, to annually submit an opinion by a qualified actuary stating that the reserves and related actuarial items held in support of the policies and contracts . when considered in light of the assets held by the company, make adequate provision for (continued on page 4)


The Actuarial Update

American Academy of Actuaries President Harold J . Brownlee President-Elect Mavis A. Walters Vice Presidents Harry D . Garber Harper L . Garrett, Jr. John H. Harding Daniel J . McCarthy Secretary Virgil D . Wagner Treasurer Thomas D . Levy

Executive Vice President James J. Murphy Executive Office 17201 Street, N .W. 7th Floor Washington, D .C . 20006 (202) 223-8196 FAX (202) 872-1948 Membership Administration Woodfield Corporate Center 475 N. Martingale Road Schaumburg, Illinois 60173-2226 (708) 706-3513

Chairperson Committee on Publications Roland E . King Editor E . Toni Mulder Executive Editor Erich Parker Associate Editors Gary D . Lake Stephen A. Meskin Charles Barry H. Watson Managing Editor Jeanne Casey Contributing Editor Ken Krehbiel Production Manager Renee Cox

American Academy of Actuaries 1720 [ Street, N.W. 7th Floor Washington, D .C . 20006 Statements of fact and d 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.

Whether you are a life, health, pension, or casualty actuary, I predict that during the decade of the 90s your professional life will be changed by the collective group ofnon-actuaries-legislators and regulators in Washington, D .C .who shape our federal statutes. While my prediction is no more risky than forecasting heavy rain in Oregon sometime in the spring, you may want to ask yourself today, not later in the decade, "What am I going to do about it?" "What are we as a profession going to do about it?" If you and I do not do enough, soon enough and effectively, the result could well be what the pension industry experienced in the 80s-unbridled, unnecessary regulation .

[ believe that the key to avoiding a repeat of the pension Industry's experience, though not as simple as it sounds, is good communication. We need to communicate, to those who make the laws, the consequences of their legislative actions . We need to present reliable, understandable statistics that can be used as a basis for formulating appropriate laws and regulations . To effectively communicate, to be listened to, we first need to use understandable words. Our membership numbers are not so great that our words can carry weight without having merit . Nor can we expect that even expertly crafted scientific arguments, in and of themselves, will influence policy. Our communications have to be politically astute as well . For example, if we are communicating about auto insurance rates, we need to be cognizant that the price of premiums is a consumer issue and politically charged . Rolling back premium rates is good politics. (So is curtailing the compensation that "rich physicians" defer into their qualified plans .) What is not always recognized is that, without adequate premium revenues, casualty insurerswill not underwrite auto insurance . Similarly, the current liability full-funding limitations imposed on pension plans jeopardize the adequate funding of these plans, thereby affect-

ing millions of Americans' retirement security . As a profession, we must first decide whether or not we want to have direc0 input into the legislative process . I personallybelleve thatwe should try to. If we all agree with that, we must next decide whether to take an advocacy position or an informational one . Both approaches have potential pitfalls . For example, the motives of the advocate are sometimes considered suspect ; the advocate's position might appear totally self-serving . However, providing information without taking a position leaves interpreting the information to those who may be less qualified to do it . In any case, the line between providing objective information and advocating a position can be fuzzy . The Academy and the American Society of Pension Actuaries (ASPA) provide a meaningful contrast in their two approaches to government relations . Each organization follows the approach consistent with its bylaws and stated principles . Compared with the Academy and the other actuarial organizations, ASPA spends a disproportionate amount c lift budget on government affair 8 . However, partofASPA's stated purpose is to "preserve and protect the private pension system ." Consequently. ASPA's government affairs committee is one of its three largest and most active committees . ASPA testifies before Congress and meets with regulators . It actively lobbies on behalf of the private pension system . ASPA is unique among the actuarial organizations, in that about half of its voting members are non-actuaries (ASPA members include Certified Pension Consultants and Qualified Plan Administrators) . ASPA is committed to taking a position on many pension issues, not just actuarial pension issues . Its membership wants and expects ASPA to take an advocacy position on behalf of the private pension system.

In contrast, the Academy's government affairs program is specifically referred to as a "government information" program . As its name suggests, the program is intended to present actuarial evidence and material to gov ernment representatives . Even so, thW Academy does take advocacy positions on issues related to professional standards and the actuarial profession . In this sense, the Academy is involved (continued page 9)


July 1990

Letters to the Editor SSB's Sole Authority I am writing to inquire which actuaries are subject to the actuarial standards of practice developed by the Actuarial Standards Board (ASB) . On the contents page of the 1989 annual report for the ASB is the following statement: "The Actuarial Standards Board (ASH), established as an independent entitywithin the AmericanAcademy of Actuaries in 1988, has the sole authority to direct and manage the development of actuarial standards of practice, to expose and promulgate actuarial standards of practice, and to provide continuous review of existing standards of practice, determining whether there is need for amendment, alteration, expansion, or elimination ."

Ronald Bornhuetter, [who was then] chairperson of the ASB, made a similar statement on page 3 of the annual report : 0

"The board has sole responsibility to Initiate the development and adoption of new standards in the actuarial profession In the United States ."

In particular, what does it mean to say that the ASB has the sole authority to promulgate actuarial standards of practice? Sole authority for whom? Since the ASB Is an independent entity of the Academy, I assume that Academy members are subject to its standards . However, are members of the Society of Actuaries or of the American Society of Pension Actuaries subject to ASB standards? What about enrolled actuaries? As a member of each of these other organizations, and as an enrolled actuary, I do not recall receiving any information from any of them, or from the Joint Board of Enrolled Actuaries, to the effect that the ASB has the sole authority to promulgate actuarial standards . Other than members of the Academy, 4&hat actuaries are subject to the actuarial standards promulgated by the ASB? In addition, taking the "sole authority" statement to the extreme, does this mean that no other actuarial organization has the authority to issue

actuarial standards? I think that the ASB should clarify what the "sole authority" statement means . Benjamin E . Feller Albertson , New York

ASB Chairperson Walter N. Miller responds: At the present time, only members of the Academy are subject to the standards of practice developed by the ASB . The statement that you cited from the ASB's annual report should be understood in the compass of theASB's existence as an independent en tity functioning within the Academy . While the operations of the ASB are financed by theAcademy, theASB has -sole authority" topromulgate standards of practice. That is, theAcademy Board of Directors itself has no authority to expose and promulgate standards. The standards promulgated by the ASB provide a spec basisfordisciplinary actions by the Academy's Committee on Discipline . The standards can also be used by the discipline committees of the other actuarial organizations, f they so choose . In recent years, the Academy's founding organizations-the Casualty Actuarial Society (CAS), the Conference ofActuaries in Public Practice (CAPP), and the Society ofActuaries (SOA), have decided not to develop standards themselvesinstead they intend to rely on standards promulgated by the ASB . A joint task force for the North American actuarial organizations (including representatives from CAPP, the CAS, the SQA, theAmerican Society of Pension Actuaries, and the Canadian Institute of Actuaries) is preparing to recommend that standards promulgated by theASB be binding upon these other organizations' respective memberships, with respect to actuarial practice in the United States .

Brief Counsel The March Update contained a letter from Roy Olson, criticizing the Academy's amicus curiae brief to the Supreme Court of the State of Washington, and a response from the Academy General Counsel Gary Simms . I found Simms'response disturbing, andwould like to comment on the following points :

1 . Olson asserted that the briefviolated the Academy's Guidelines for Making Public Statements, which state, "Blanket sponsorship by the Academy Is not to be Implied ." Simms does not deny this, but refers to a "requirement that briefs be submitted by the Academy as an entity ." He does not say who requires this ; but, if this is In fact required, then clearly the Academy should either change its guidelines or refrain from submitting briefs .

2. Simms goes on to say that "certain legal 'boilerplate ' language is necessary." What is his point here? Does he mean to imply that, if the language is required, it should not be taken seriously or does not have to be true? Presumably, it is required for a reason . If its inclusion is not truthful and appropriate, then perhaps the brief should not be filed . I will not comment on the merits of the Washington regulation or the Academy's brief, since I have read neither; however, I will state that the basic Issue, whether a state should prohibit the sale of a product it deems not to be in the consumer 's best interest, is a philosophical and political question, not an actuarial one . Richard H . Diamond Augusta, Maine

General Counsel Gary Simms replies : The Academy's Guidelines for Making Public Statements do not explicitly cover the submission of amicus curiae briefs . The Academy's Executive Committee and Board of Directors are reviewing procedures for the preparation and submission of briefs, to determine how the unique requirements for briefs can be accommodated under the Academy's Guidelines. Rules of the court require that briefs be submitted by counsel who can be identified as the organization's representative. With respect to the statement in the brief, that the Academy and its counsel are "uniquely qualfied" to present the views of the profession-this is simply formal language required by the courts when briefs are submitted. My use of the term "boilerplate language" was perhaps unfortunate. However, the assertion that the Academy and its counsel are "uniquely qualified" is also (continued page 10)

The Actuarial Update


NAIC LOSS RESERVE OPINION (continued from page 1)

Practice Council" of the Academy, or apply the procedures set forth in paragraph (c) immediately above .

Definition of "Qualified Actuary" Debated

At present, the Academy's "Casualty Practice Council" is an informal grouping of Academy board members and committee chairpersons, led by President-Elect Mavis Walters; the council does not have procedures in place` for any approval process at this time . The Academy's leadership plans to address this need immediately. An additional provision is that Insurance commissioners have authority to issue, by bulletin or by regulation . additional requirements and qualifications, including independence, for specific insurers .

The definition of what constitutes a "qualified actuary" for the purpose of filing the annual statement of opinion was discussed heatedly. The Academy, with the support of the Casualty Actuarial Society, had urged that the regulatory definition for "qualified actuary" be a "member of the American Academy of Actuaries or a person who otherwise has competency in loss reserve evaluation as demonstrated to the satisfaction of the insurance regulatory official of the domiciliary state ." Following debate by the NAIC Casualty Actuarial (Technical) Task Force, and the NAIC Blanks (EX4) Task Force, a change in the recommendation was adopted . According to Subparagraph (2) of Instruction Paragraph 12, the following definition has been adopted : "Qualified actuary" is a person who is either :

Company Exemptions Several classes of insurers are exempt from the opinion filing requirement, and such an exemption must be filed in lieu of the actuarial opinion with the statement . So-called "automatic" exemptions are available for insurers with less than $1 million in total direct premiums, plus assumed premiums, written during the year . or with less than

1,000 policyholders and certificate holders at the end of the year. Insurers who are under conservatorship or supervision are also exempi from the requirement . An insurer writing only property lines may also apply for an exemption from its domiciliary state's commissioner .

Exemption from the opinion requirement is also available in so-called "hardship" cases, upon application to the domiciliary commissioner . Such 'exemptions will be available, if the anticipated cost of the certification exceeds the lesser of either 1% of the insurer's capital and surplus reflected in the, annual statement for the year in ,which the exemption is sought, or 3% of the insure ~net direct premiums, plus assumed prei iiums, written during the year for which the exemption Is sought.

Copies of the new instructions are available upon request from the Academy's Washington office . Simms is general counsel for the Academy .

(a) A member in good standing of the Casualty Actuarial Society, or (b) A member in good standing of the American Academy of Actuaries who has been approved as qualified for signing casualty loss reserve opinions by the Casualty Practice Council of the American Academy ofActuaries, or

(c) A person who has otherwise demonstrated competency in loss reserve evaluation to the satisfaction of the insurance regulatory official of the domiciliary state . In such case, at least 90 days prior to the filing of its annual statement, the insurer must request approval that the person be deemed qualified and that request must be approved or denied . The request must include [sic] NAIC Biographical form and a list of all loss reserve opinions and/or certifications issued in the last three years by this person . As a result of these changes, nonCAS members of the Academy who want to sign loss reserve opinions will have two options to receive necessary authority to serve as a "qualified actuary" for these purposes : either obtain approval in advance from the "Casualty

VALUATION ACTUARY CONCEPT (continuedfrom page 1)

the company's obligations . The actuarial opinion is to be "based on standards adopted from time to time by the Actuarial Standards Board and such additional standards as the commissioner may by regulation provide ." A "qualified actuary" is defined as a member in good standing of the American Academy of Actuaries who meets the requirements set forth in regulations issued by the Commissioner . The actuary is not liable for any damages to any person (other than the company or the commissioner) except in cases of fraud or willful misconduct .

The proposed law also calls for a memorandum submitted in support of the opinion, to be kept confidential, subject to release to the Academy if needed to pursue appropriate disciplinary action. Many sections of the proposed amendments will require comprehensive regulations to effectuate the intent of the provisions . At present, the NAIC's task force, working in close cooperation with the Standing Technical Advisory Committee and the Joint Committee for the

Valuation Actuary, are ironing out remaining details in the proposed model regulations . Task Force Chairperson Montgomery indicated that it was his expectation that an exposure draft of the regulations would be in final form for release following the December 1990 meeting of the NAIC . During discussions at the Life and Health Actuarial Task Force meeting, participants indicated some concern regarding the pace at which applicable standards are being promulgated by the Actuarial Standards Board and indicated a desire to enhance their communications with the board . Thereafter, Montgomery brought a proposal to the NAIC's Executive Committee that joint meetings with representatives of both the Life and Health, and the Casualty Actuarial task forces, together with Academy and ASS representatives, be formally scheduled on future NAIC

meeting agendas. The

proposal was adopted .

Copies of the proposed amendments to the model law are available upon request from the Academy office .


July 1990

NAIC Meeting Highlights Wyvy Gary D. Simms The June 2-7 meeting of the National Association of Insurance Commissioners (NAIL) in Baltimore, Maryland, was the most eventful one in recent memory-at least for actuaries . The NAIC adopted a requirement for actuarial loss reserve opinions in all states and decided to expose revisions to the model Standard Valuation Law that would incorporate the valuation actuary concept. These are two major goals that the actuarial profession has long sought to accomplish . (See related stories on page 1 .)

Casualty Actuarial Task Force Deliberations Ongoing work on the loss reserve opinion blank. The NAIC Casualty Actuarial (Technical) Task Force held an unprecedented working meeting with its Advisory Committee, chaired by Warren Cooper, and with represen4~tives from the Academy's Committee IWn Property and Liability Insurance Financial Reporting . chaired by David G . Hartman . The working meeting was called to lay the groundwork for major changes to the loss reserve opinion language. The changes that the working group proposed would affect the scope of the actuarial opinion, define the standards of practice to be observed, and rework the formal language of the opinion itself. These suggested changes will be considered by the NAIC Blanks Task Force in 1990, for inclusion in the 1991 Annual Statement Blank, and covering statements filed after December 31, 1991 . Schedule P tests discussed . The Casualty Actuarial Task Force also continued its discussion of Schedule P tests, without reaching a conclusion concerning the long-term future of these reserve tests . Further study of the adequacy of the tests, and the basic reasons for them, will be an ongoing agenda item of the task force . Rate making and Insurer efficiency *a topic. Robert Hunter, president of the National Insurance Consumer Organization, asked the task force to consider standards for ratemaking that would take into consideration an in-

surer's efficiency . He also asked the task force to suggest the disallowance of certain expenses (including costs for so-called "image" advertising, punitive damage awards, and lobbying expenses) from rate request calculations . The task force took no final action at this meeting .

Life and Health Actuarial Task Force Discussions The Life and Health Actuarial Task Force recommended to the Product Development (A) Task Force adoption of the proposed "Modified Annuity Regulation ." The actuarial task force also reviewed its lengthy list of other projects, but took no final action on any of them . At present, in addition to the issue of the valuation actuary, the Life and Health Actuarial Task Force will give priority to revising the Standard Nonforfeiture Law, with the goal of producing an exposure draft at the December 1990 meeting. The task force will also continue work on reinsurance issues, including the merger of projects previously entitled "Capital Management for the Life Insurance Industry" and the "Actuarial Aspect of Reinsuran ce Transactions ." (The resulting project is to be called "Reinsurance .") In addition, the task force plans to create a new "Proposed New Group Annuity Table," as well as continue the study of provision for catastrophic mortality and the use of gender-blended and smoker/nonsmoker mortality tables .

Other NAIC News "Junk bonds" still a concern . The NAIC Blanks (EX4) Task Force addressed the highly publicized issue of so-called "Junk bonds" and adopted

amendments to all annual statement blanks d ealing with the quality of bonds and the Mandatory Securities Valuation Reserve (MSVR), effective for the 1990 reporting year . The proposal, containing a five-year phase-in period, will require an evaluation of these bonds in company portfolios. Reserve opinions for HMOs and continuing- care facilities suggested . The Blanks Task Force also received a report from its working group on continuing-care facilities that indicated that a proposed blank will be placed on the agenda for the 1991 reporting year . Also on the agenda for consideration for the 1991 reporting year will be a new quarterly health maintenance organization (HMO) reporting form .

Form for long-term care loss ratio reporting considered . The Long-Term Care Insurance Task Force debated several important matters . Along-term care loss ratio reporting form will be forwarded to the Blanks Task Force for future action, and a shopper's guide for long-term care was adopted . The working group on continuing care retirement communities (CCRCs) reported that a regulatory framework had been developed, including the need for a model law, regulation, and shopper's guide . It is expected that drafting of the model law will commence shortly, with further discussion in December 1990 .

Line-by-line accounting issues . The NAIC Statistical (D) Task Force focused on the proposed "Line By Line Report on Profitability ." Some had expressed concern about the difficulty in allocating investment income on surplus, by line, on a state-by-state basis . Others noted that such reporting might violate existing state laws prohibiting crossstate rate subsidies. No final action was taken by the task force . Q

Academy Annual Meeting Notice The Academy will hold its annual meeting on Wednesday, September 26, 1990, in Washington, D .C ., at the Ramada Renaissance Tech World Hotel . The meeting will comprise a business session, briefings by key congressional and regulatory staffers, as well as a luncheon address by a member of Congress on an issue of interest to the actuarial community . In addition, the Academy's new practice councils will meet to make plans for the 1990-1991 Academy year . The meeting's focus on government affairs and communication befits the Academy's unique role as the actuarial profession's voice in the public-policy arena. This meeting marks the Academy's twenty-fifth anniversary. Further details will be forthcoming in next month's Actuarial Update.

The Actuarial Update


FASB Gets Guidance on OPB Accounting Standard by Jeanne Casey "I am pleased that FASB has taken input from the Academy and made some significant changes," said John Bertko, reflecting on the ongoing dialogue that his Academy subcommittee has had with the Financial Accounting Standards Board (FASB) concerning its proposed accounting standard for postretirement benefits other than pensions (OPBs) . "Although FASB didn't adopt exactly what we suggested, I think that we can still take credit for helping FASB-to define plan changes, especially ." The final accounting standard rules, "Employers' Accounting for Postretirement Benefits Other Than Pensions," are scheduled to be issued by the end of this year. Under the final rules, privatesector employers will be required to shift from pay-as-you-go accounting for OPBs to accrual accounting . When the rules are fully effective, OPB "promises" will be expensed as a liability on the company's financial statements . Actuaries and various company representatives commented on the FASB standard exposure draft at two public hearings held in October and November of last year . (See January Update.)

Academy representatives have been working with FASB since this project began . As the project has evolved, the Health and Welfare Benefits Committee, chaired by Jeffrey Petertil, has testified at public hearings, met frequently with FASB board members, and raised questions and concerns . Most recently, the Committee on Health and Welfare Plans' subcommittee on retiree benefits, which Bertko chairs, advised FASB on two issues that now seem to be resolved . Should a proxy be allowed for the health care trend? What kinds of plan changes may employers anticipate? In each case, FASB considered the subcommittee's recommendations in developing theproposed rules . No Proxy for Health Care Trend The Academy subcommittee had recommended that FASB require use of the full health care trend, rather than a proxy. Under the proposed standard, a "health care cost trend rate" would include "estimates of health care inflation, changes in health care utilization or delivery patterns, technological advances, and changes in the health status

of plan participants ." Some commentators on the exposure draft had argued that one or more of these factors might be a legitimate proxy for all of them. However, the subcommittee advised that a proxy for the full trend rate should not be allowed, as the use of a proxy could create problems such as consistently understating future costs, and distortions between active employees and retirees (i .e ., the relative proportion of liability attributed to either group) . FASB staffagreed with the subcommittee .

Plan Change Defined : Three Alternatives FASB Chairman Dennis Beresford asked the Academy subcommittee to outline its recommendations on the definition of-plan amendment,'and . in a February 28 letter to FASB Project Manager Diana Scott, the subcommittee passed along its proposals for a "definition of plan changes for retiree medical plans." The subcommittee found it helpful to distinquish between changes with the "existing plan" (cost-containment measures) and "plan amendment" changes (alterations to the benefit contract), and it pointed out that "an implicit part of this deliberation is an assumption that changes that are part of the existing plan will be treated differently from other changes which are designated as plan amendments ." The subcommittee outlined three alternative definitions for plan changes or amendments . Change in Contributions . Only changes in retiree contributions would be defined as "existing plan" changes . Any other change to the plan, for instance , a change in claim payment, would be a " plan amendment ." Discussing the pros and cons of such an approach, the subcommittee observed that "since cost sharing through contribution requirements is one of the most common employer actions used to contain costs, recognition of contribution changes in the "existing plan" is likely to lead to realistic projections for a great many employers . However, "a major disadvantage is that other employer actions for reducing retiree health care costs may be equally good from a health care policy perspective, yet will not be treated

equally for financial reporting pur.-Management poses Policy Approach. Un der this alternative, the "existing plan would include "any change that is consistent with specific management approved policy and guidelines ." Any other change In a group contract or plan document is a "plan amendment." The subcommittee stated that, "When combined with a rule for changing contributions, this alternative should include nearly all actions which are practical for employers to implement that are not plan amendments ." Pragmatic Approach . This third alternative would offer actuaries and auditors "a clear guide for when to calculate the effect of plan amendments," and thereby reduce the effort expended in classifying and tracking numerous plan changes . Under this alternative, a "plan change ratio" would be calculated by computing the relative value of the prior year's plan design, when compared with the relative value of the current year's plan design (including all benefit changes) . if a "plan change ratio" were less than X0/6 (amount to be determined by FASB), and the company's board had approve policy to implement future plan changes, then the changes would be considered part of the "existing plan ." If, however, the "plan change ratio" were greater than X%, then the total of the changes would be considered a "plan amendment." The calculation of the "plan change ratio" would be based on accepted actuarial methodology .

FASB Reaches Tentative Decision on Plan Changes At this time, it is uncertain just what language the FASB will adopt ; however, according to Bertko, "the FASB is likely to allow companies to recognize increases in retiree cost-sharing (e .g., deductibles, contributions, and coinsurance), provided that the company has the 'ability and intent' to make these future changes ." "No one is going to be completely happy with the final standard," said Bertko. "Even so, we are satisfied that FASB is considering our comments and moving along In the right direction ." The subcommittee will continue to offe FASB assistance, with the goal "making the standard practical for plan sponsors," said Bertko .

Casey is Update managing editor.

July 1990


The Global Actuary International Congresses and the Like The International Actuarial Association (IAA) sponsors an international congress for actuaries once every four years . These congresses have brought actuaries together from around the world for almost 100 years . The first such congress took place in 1895, in Brussels, Belgium . The next IAA congress is scheduled for May 31-June 5, 1992, In Montreal, Quebec .

In addition to sponsoring congresses , the IAA publishes the Bulletin twice a year . The Bulletin keeps IAA members informed of newly published works by actuaries from various countries , shares technical and legal information of interest, and reports on the congresses . The IAA now supports two Independent sections, each of which conducts its own annual colloquium . The first section to be established (after the IAA's governing regulations were revised In 1957) was ASTIN (Actuarial Studies in Non-Life Insurance is how the acronym translates into English) . The twenty-second ASTIN colloquium is scheduled for Montreux . Switzerland, September 9-13, 1990 . AFIR (translated as Actuarial Approach for Financial Risks) is a relatively new section of the IAA. Created to foster the study of financial risk, AFIR was approved by the IAA Council at its June 9, 1988, meeting in Helsinki, Finland . AFIR sponsored its first colloquium in Paris, France, this past April . A report on the AFIR colloquium follows .

An Encounter with Actuaries the Third Kind

Oof by W . Keith Sloan "Actuaries of the third kind," is how Professor Hans Btlhlmann describes actuaries involved with financial risk management. One of AFIR's founders, he traces the evolution of the actuarial profession as follows :

Actuaries of the first kind were the developers of life insurance and related coverages . Their methods were, and still tend to be, deterministic. The second kind of actuary has had to adopt a more probabilistic philosophy, because the lines of business involved [in property/ casualty insurance] are characterized by claim amounts that can best be described In ever-changing distributions . Actuaries of the third kind are now required to apply mathematical skills to the Investment side of insurance and to the activities of banks . Especially in recent years, it has become obvious that, in the real world, financial yields are highly stochastic-even more so than the mortality risk . The obvious need is to develop new techniques from the theory of stochastic processes .

There is an amazing amount of new, imaginative work. Papers presented at the first AFIR meeting were good evidence that there is, as Professor Bilhlmann says, "an amazing amount of new, Imaginative work" in the area of financial risk management . A total of sixty-four papers were presented at the first AFIR colloquium . These papers were divided into five groups . Each group was the subject of a single session . The sessions , in the order presented, were Financial Institution Risks , Rate Risk Management, New Financial Markets, Portfolio Management, and insurance and Finance . One paper discussed in the first session is of special interest to U .S . actuaries, because it illustrates this country's need to apply actuarial expertise to problems in areas other than insurance or pensions . The paper by Professor Andrew Thompson, University of Cincinnati, studies the causes of the U .S . savings and loan (S&L) industry's current problem . Thompson recommends that deposit insurance premiums be graded to reflect each S&L institution 's risk characteristics. Most of the other papers presented during this session dealt with evaluation and management of the risks inherent in securities markets and portfolios. Such techniques as the use of puts and calls and dynamic hedging were discussed explicitly and referred to again in later sessions .

Probably the most immediately useful papers, at least to actuaries in the United States, were those relating to pension plans . As you would expect, managing portfolios for pension plans was discussed, but also identified was a quick means for advising the client as to whether a pension increase would be preferable to a straight increase in wages . Casualtyactuaries' interestswere not ignored, either . For example, one major paper dealt with discounting loss reserves . Although the method presented would require adaptation for use in the United States, the study could readily serve as background for computing provisions for adverse deviation .

Paris is one of the world's most beautiful cities , and the social events provided by our French hosts were exceptional . Probably the most impressive was the reception, by the mayor of the city, at the town hall . One participant said that the vast sequence of elegant rooms in which it was held was even more spectacular than Versailles . Then our dinner at the Conciergerie and the concert, conducted by Sir Yehudi Mehuhin and featuring the Brahms violin concerto performed by KyungWha Chung, were also outstanding. The next AFIR colloquium will be held in Brighton. England, April 17-20 of next year . A member of the organizing committee hopes to receive a sufficient number of papers to comprise a session on "Hidden Options ." He suggested topics such as the guaranteed cash value of life insurance-a put option for which companies should charge, but don't . The next colloquium promises to be another important meeting. All who can attend should plan to do so . I have not been to Brighton : It is a famous resort in southern England . While I am sure that our British hosts next year will equal this year's French group in hospitality, they have a tough act to follow.

Sloan isaconsulting actuary withBryan, Pendleton, Swats & McAllister in Nashville. He is a member of the IAA, AFIR, and ASTIN .

If you are interested in attending the colloquium and/or submitting a paper, please so inform the AFIR Colloquium Secretariat, Institute ofActuaries, Staple Inn Hail . High Holborn , London WC 1 V7gJ, United Kingdom.

The Actuarial Update


Actuaries and Accountants Meet by Christine Nickerson Once a year, representatives of the Academy and the Actuarial Standards Board (ASB) meet with the Financial Accounting Standards Board (FASB), FASB staff, and Governmental Accounting Standards Board (GASB) staff to share information and ideas about topics that concern both actuaries and accountants . The most recent of these meetings was held on May 25 at FASB headquarters in Norwalk, Connecticut .

GASB Rep Reports on Pension Standard At the meeting, Penny Wardlow, GASB project manager, outlined the major elements of GASB ' s recently released exposure draft on accounting for pensions by state and local governmental employers . Wardlow said that the proposed standards would take effect In mid-1994 and would cover pension benefits and any other benefit provided through a pension plan, except health benefits. Comments on the exposure draft have in general been favorable, she said .

FASB Project Manager Gives Update on OPB Standard Diana Scott , FASB project manager, gave a status report on the proposed standard , Employers' Accounting for Postretirement Benefits Other Than Pensions . She outlined the board's tentative decisions with regard to the exposure draft , including retaining the health care cost trend rate, and permitting employers to anticipate costsharing changes or a pattern ofchanges in a plan. The board has also tentatively concluded that the discount rate is to measure the time value of money, not risk , and that the final standard will retain the 10% corridor, rather than use a 20% corridor to mitigate volatility. Scott said that the minimum liability provision , disclosure issues, and transition provisions remain to be considered . The FASB staff plans to present a final package to its board in July ; staff must gain the board 's approval to go forward with drafting the final statement. FASB intends to release a final statement by the fourth quarter of 1990, she said .

GICs Are a New Agenda Item for FASB Guaranteed investment contracts (GICs) are a new Item on the FASB agenda , according to Don Delaney, FASB project manager . He said that, in April , the board approved a project dealing with accounting for GICs and similar contracts , such as bank investment contracts (BICs) and savings and loan investment contracts (SLICs ) . GICs are essentially a contract between an insurance company and a pension plan, under which the insurer guarantees a certain interest rate. While GICs are viewed as a safe investment for pension plans , Delaney noted that proceeds are often invested in high- risk investments. GICs are excluded from the fair value reporting requirements of SFAS 35 . Accounting and. Reporting b y Defined Benefitit Pens ion Plans , and the status of BICs and SLICs is unclear , he said . The Department of Labor (DOL) will not accept book value accounting for anything but insurance contracts, he added . In January 1989, the issue of GICs was reviewed by FASB's Emerging Issues Task Force . The task force said that GICs were not insurance contracts .

In December 1989, DOL asked FASB to examine the Issue . Delaney said the project will likely result In an amendment to SFAS 35 . The project is currently in the information gathering stage, he said . Status Report Given on FASB's Interest Methods Project Wayne Upton, FASB project manager, provided an update on FASB's interest methods project. According to Upton, the project will address the use, in accounting measurements , of present value and related measurement techniques based on interest; when interest methods should be used, and, if used, how the methods should be employed . Questions under consideration include incorporation of future events into the measure, what to do about risk adjustment, and the selection ofinterest rates . In July 1989, a task force that Includes an Academy representative was appointed to assist with the project, Upton said . The FASB staff has held one meeting with this task force and plans to meet with it again in July .

ASB Chair ison Describes Growth of Standards Program The FASB board and staff heard a report on the activities of the Actuarial Standards Board (ASB) from its chairperson , Walter N. Miller. Miller described the growth and development of the standards program. As the ASB moves into Its second full year of operation, Miller said, its priorities are becoming clearer. He described the operating committees of the ASB, commenting that the board relies heavily on these volunteer committees to identify current practices and professional issues and to draft proposed standards . Miller said that the ASB will soon release a handbook that contains all of the actuarial standards of practice that have been issued. Academy Health and Welfare Committee Chair Speaks Jeffrey Petertil, chairperson of the Academy's Committee on Health and Welfare Plans, described his committee's recent activities . The committee is working on definition ofqualifIed health actuary and a possible Academy qualification standard for health actuaries . The impetus for this project is the language contained in the explanation of Deficit Reduction Act of 1984 (DEFRA) prepared by the Joint Committee on Taxation of the U .S. Congress. The DEFRA explanation refers to an "actuarial certification by a qualified actuary," without specifying who a "qualified actuary" is . The committee is also working on developing a health care data base ; however, according to Petertil, the committee has found that there is little data available and does not anticipate that such a data base will be available any time soon . The committee has worked closely with FASB on the OPB project and is generally happy with the changes to the exposure draft, he said. Petertil noted that the committee was still uncertain about the 10% corridor, but added that he was interested to hear about FASB's recent study on the effects of a 20% corridor, results that suggest that a 20% corridor would not significantly affect volatility of annual cost .

Academy Head Murphy Discusses Insurer Insolvency Academy Executive Vice President James Murphy led a discussion on issues relating to insurer solvency and

July 1990 described actions the Academy is taking to understand and confront this roblem . He said that the Academy has long endorsed the concept that all property/casualty insurers should be required to file an annual statement of actuarial opinion on casualty loss reserves . With this goal in mind, the Academy is currently working with the NAIC to broaden and strengthen requirements for casualty loss reserve opinions . (See story on NAIC developments, page 1 .) David Hartman, chairperson of the Academy's Property and Liability Insurance Financial Reporting Committee, reported on his committee's casualty loss reserve opinion survey relating to insolvent companies . The committee distributed a questionnaire to state insurance departments asking for Information about all property/casualty insolvencies in their states . By analyzing the responses, the committee hopes to suggest ways to improve the quality of casualty opinions .

The valuation actuary concept would help address concerns relating to life insurance solvency, Murphy said . In essence, the valuation actuary concept nvolves submitting an actuarial opinion that the reserves held in support of a company's policies, when considered in light of its assets, make adequate provision for the company's obligations . Murphy also noted that the NAIC is developing a model law that would incorporate cash flow analysis as part of a valuation actuary's opinion. (See related story on page 1 .)


ASB Developing Compliance Guideline for FASB 's Statement on OPBs The Retiree Health Care Committee of the ASB has been closely monitoring developments relating to FASB's exposure draft on employers' accounting for postretirement benefits . Most recently, the committee met with FASB's project manager, Diana Scott, for an update on changes to the exposure draft . The committee has begun drafting an actuarial compliance guideline to the FASB statement . The committee hopes to issue an exposure draft as soon as practicable following the release of FASB's final statement .

IRS Small Plan Audits Academy Executive Vice President James Murphy met with Internal Revenue Service (IRS) Assistant Commissioner for Employee Benefits Robert Brauer, on May 18, to discuss the profession's concerns regarding the IRS small plan audit program . According to Assistant Commissioner Brauer, the IRS has opened approximately 9,000 cases under the small plan program . He said that the primary criterion for selecting plans to audit is the contribution per participant . Brauer estimates that 15% or so of the cases are closed without contacting the taxpayer, which means that the contributions are deemed reasonable without further documentation from the taxpayer .

Karen Krist, Visiting Actuary at the IRS, joined Brauer and Murphy at the May 18 meeting . Krist is coordinating the compiling of data on .the small,- . plans program. She will present statistics on the disposition of cases and fact patterns on cases not requiring adjustments in contributions . She is scheduled to address the Academy pension committee at its June 13 meeting . At this meeting, the pension committee will also discuss the content of an Academy statement on the small plan audit program, the progress of the Society of Actuaries' study, and recent court developments relevant to the audit .

On June 5, the House Small Business Committee conducted hearings on the IRS small plan audit program . In their oral testimony, actuary Don Grubbs and attorney Leon Irish both generally supported the IRS's approach .

Enforcement of Standards Important to Both Professions The meeting concluded with a discussion of compliance and enforcement led by Harry Garber, the Academy vice president responsible for supervising Academy committees in the area of professionalism . Both the accounting and actuarial representatives noted that standards of practice are only effective ifenforced . Both groups hope to see a more proactive approach to enforcement by their respective professions . Academy President Joe Brownlee thanked FASB for

0 osting the meeting and for providing n opportunity to exchange views and information .

Nickerson Is director of the standards program.

FROM A GUEST PRESIDENT (continued from page 2) with a much broader range of topics than ASPA is . I believe that my personal inclination reflects that of the actuarial profession as a whole : We are less inclined to take an advocacy position than we are to provide information . Perhaps the profession has thought it should leave the passionate pleading to others .

It has been ASPA's experience, however, that the more Immersed you become in the political process, the more you find yourself acting as an advocate . For example, I now recognize that many bad ideas have been proposed, which could easily become laws unless someone speaks up. A recent example was the proposal to charge a user fee for

qualified plan sponsors ' annual filing of the 5500 series form . ASPA led a campaign to squash that idea-and was successful, at least for now. The issue is not whether or not you believe that the actuarial profession should aggressively lobby. The issue is to what extent the actuarial profession will contribute to the ever more active legislative process, and what form our contribution should take . I hope that one of the positive results of our mutual efforts to strengthen the profession is to gain an effective voice in the political process . What's at stake? Our professional lives, and the best interests of our nation .

Stonewall is president of the American Society of Pension Actuaries .

The Actuarial Update

10 LETTERS TO THE EDITOR (continued from page 3) truthful and appropriate . The Academy has been charged by its founding organizations to represent the profession to the public, with respect to matters that raise actuarial questions . Distinquishing between a political question and an actuarial question is riot always easy ; as the Guidelines themselves state, "in certain circumstances it may not be possible to divorce social or political considerations from actuarial considerations ." The taskforce that prepared the brief believed that this case merited comment, because actuarial questions concerning risk classification had direct bearing on the case.

Democratically Speaking The Academy would like to be the liaison organization between the actuarial profession and various legal entities . To this end, an Actuarial Standards Board has been setup within the framework of the Academy, and various regulatory documents require certification by a member of the Academy and, in some instances, by a person, other than an Academy member, whom the regulator deems qualified to certify . The Academy is attempting to make a member of the Academy the sole person authorized to certify opinions, statements, or other documents where actuarial expertise is required . There is opposition to the notion that the Academy is functioning as a liaison between the actuarial profession and the regulatory environment, on the grounds that, by its actions and organization , theAcademy is a nondemocratic institution dominated by the insurance industry and is therefore little more than a trade organization . Also, the Academy is dominated by the life and pension actuaries, with little participation by the casualty actuarial profession .

The Academy has been a valuable organization in many aspects . The formation of an Actuarial Standards Board is a notable achievement, which deserves much support from the profession as well as from the regulatory bodies. However, when the Academy files an amicus brief in support of an industry position, as was the case in a recent court hearing, the regulators may have just cause in perceiving that the Academy is functioning as a trade organization .

To make the Academy a viable liaison between regulators and actuaries, the Academy needs to be organized along democratic lines , with senatorial representation of the various sections of the profession (i .e ., casualty, health, life, pension, regulatory, etc .) and giving equal weight to each section . All governing members of the Academy would be elected by the appropriate membership . Not mentioned are other potential sections dividing consulting and company actuaries, and various divisions among regulatory actuaries . Vital to making the Academy democratic is the requirement that elections be conducted by mail so that all members have an opportunity to express their wills . The present process, by which governing members of the Academy are selected by whatever members happen to be present for a voice vote at the Academy meeting has the appearance of a "good old boys" club . The Academy should make this transition as soon as possible to avoid possible complications in the enactment of legislation, regulation, or other regulatory requirements that might not be complimentary to the actuarial profession .

John 0 . Montgomery Los Angeles, California

Academy President Joe Brownlee replies: John Montgomery raises two points that I would like to address : the danger of theAcademy being viewed as controlled by someother group, and the Academy election process. As the organization charged with public interfacefor the actuarial profession, the Academy must operate in various arenas and respond to many kinds of questions. Anyone making a public statement risks being maligned or simply misunderstood. It would, however, be wrong for the Academy to avoid making a statement on an actuarial matter, just because critics later might say that the Academy was simply parroting the position of some other group . We cannot claim to represent all actuaries on any issue, nor can we reasonably craft a statement that manages to differ in every aspect from all other parties' statements. Any such criticism we receive is just part of being active and visible. Montgomery's suggestion that the

Academy should be split into several segments, each of which would have senatorial representation on the board of. directors, is one that has surfac several times recently . (He used the word "section," but I am using the word "segment" to avoid confusion with the Society of Actuaries' special interest sections.)

The idea is tempting, although some believe that such a move would serve to splinter the profession, rather than to strengthen it . Up until now, the idea has made little progress for two reasons. First, our selection system, not uncommon among similar organizations, develops a Board of Directors that is quite representative of the diversity of our membership . Montgomery's statement that theAcademy is dominated by life and pension actuaries, with little participation by casualty actuaries, does not square with the facts . Both Jim MacGinnitie, who preceded me as pres ident, and Mavis Walters, who will follow me, are casualty actuaries . In addition, our board includes six Fellows of the Casualty Actuarial Society, two of whom, Mike Fusco and Chuck Bryan, are the currentpresident and presidentelect of that body . In addition, the two property/casualty (P&C) committees within the Academy are especially active because of the many issues such as auto insurance pricing and the need for actuarial certification of P&C annual statements.

Second, election by members of segments brings up difficult questions relating to the number of segments, how to define them, how to add new ones, how to move from one segment to another (including whether actuaries could belong to and vote in more than one), and whether membership in a segment should be related to the right to practice in that area . Montgomery suggests f ve segments, having added "regulatory" to our usual four; however, others to be considered are "academic," "administration," "inactive," "investments," and "none of the above ." I would like very much to see practical proposals that would give members greater participation in the selection process yet retain the representative diversity of the board . Since this is the sort of issue that affects all of us, it needs thorough discussion by the membership . Those of you who are interested, please write to me in care of the Academy.


July 1990

Happy Birthday edigap _p State regulators may receive new guidance from members of Congress who want stricter regulation of the Medicare Supplement (Medigap) insurance market . In the past few weeks, there have been several signs that would indicate this . Several key congressional subcommittee chairpersons have scheduled hearings to examine the subject . But the strongest indicator yet is in the form of two companion bills introduced May 16 . The first one, the "Medigap Fraud and Abuse Prevention Act of 1990." (H .R. 4840) . was sponsored by Representatives Wyden (D-OR) and Dingell (D-MI) . The related Senate bill (S. 2640) was introduced by Senators Daschle (D-SD), Heinz (R-PA) . Pryor (DAR), Durenberger (R-MN), Reigle (DMI), and Rockefeller (D-WV) .

This legislation is intended to safeguard the elderly from high-pressure marketing techniques by insurance agents, to restrain agents from unscrupulously selling unnecessary and du-

In introducing S .2640, Senator Daschle stated his belief that, " . . .the federal government has a special obligation to monitor the performance of this market, since the design of the Medicare program has created the need for this insurance ." Senator Daschle remarked that this legislation is an

appropriate way to commemorate the 25th anniversary of the Medigap market . Senator Pryor emphasized that, "If the measures introduced today do not go far enough, you can rest assured that we will be back here again with even stronger measures to protect older Americans ."

Committee Service : An Invitation to Volunteer If you would like to volunteer for service on an Academy committee, you are encouraged to complete the response card included with this Actuarial Update mailing . On the card, you should indicate those committees (not task forces or joint committees) on which you are interested in serving, in order of preference . The yearbook contains a complete list of Academy committees . Committee chairpersons whose committees need additional members will be recruiting volunteers from the list ofnames collected from the enclosed response cards . Committees are officially reconstituted each year at the Academy's Annual Meeting, which is in September this year . (See the notice on page 5 .) In order for Academy staff and chairpersons to have sufficient time to process these requests, please mail in your self-addressed response card by August 1, 1990 .

Please note that the Academy does not pay travel expenses and associated volunteer committee expenses, and a volunteer may not serve on more than one committee .

ltcative policies, and to clarify the exsting state regulatory guidelines contained in section 1882 of the Social Security Act, also known as the "Baucus amendments ." The significance of the proposed legislation is that it places strict reporting and promulgation deadlines on the National Association of insurance Commissioners to establish appropriate policies, or forfeit that responsibility to the Department of Health and Human Services. The legislation also addresses issues such as whether all policies must be guaranteed renewable and whether group policies must contain conversion rights . Who is eligible for Medicaid, and whether or not state commisssioners will have the right to approve policies mailed into their domicile from another jurisdiction are other issues . The legislation would establish minimum loss reserve ratios ; mandate prior approval for all rate increases ; and set limits on sales commission, to discourage "churning."

Also, S. 2640 incorporates a proposal y Senator Pryor that gives states the ability to establish health-Insurance counseling and assistance programs . A companion bill to this measure was introduced in the House (H .R. 4835) by Representative Moody (D-WI), May 16 .

"Hello, and welcome to another edition of "Alarming Statistics . " Our topic for tonight is 67% . Is it over-hyped or truly a cause for concern? Join us while we find out!"

The Actuarial Update


Checklist of Recent Academy Statements TO: Dewey Drump . Representative, Missouri State Legislature , April 10, 1990. RE : Proposed legislation regarding actuarial opinions and insurer filings . BACKGROUND : Amendment 5, offered to Senate Bill No . 477 in the Missouri State Legislature, calls for actuarial opinions related to healthservice corporations , life insurance, and casualty loss reserves. In the cases of health-service corporations and life insurance, the amendment defines qualified actuaries as members of the Society of Actuaries (SOA) . In the case of casualty loss reserve opinions, qualified actuaries are defined as members of the Casualty Actuarial Society (CAS) . This letter from James Murphy supports requiring actuarial opinions for all annual statements, but recommends that qualified actuaries be defined as members of the Academy rahter than of the CAS or SOA. TO : Governmental Accounting Standards Board ( GASB) . April 23, 1990 . RE : Exposure draft on accounting for pensions by state and local government employers . BACKGROUND : This exposure draft, No . 067 Issued January 31, 1990, was preceded by a statement of preliminary views, on which the Academy had also commented . The exposure draft adopted a standard in which funding and expensing will essentially be the same . This was a minority view in the statement of preliminary views, but one that was endorsed by the Academy's Committee on Pension Accounting . This statement by the Academy committee and the committee's accompanying oral testimony addressed issues related to amortization periods, and proposed thatreference be made to Actuarial Standards Board (ASB) standards in the final accounting standard . At least one GASB member has indicated support for referencing an ASB standard on selection of assumptions, if such a stardard were in place by the end of 1990. (See related story on page 8 .) TO : Robert Brauer , Assistant Commissioner, Employee Plans and Exempt Organizations , Internal Revenue Service , May 11, 1990. RE: Academy activities related to the small pension plans audit program of the Internal Revenue Service . BACKGROUND : This correspondence from James Murphy informed IRS and Department of Treasury personnel that the Academy is concerned about two key issues related to the small plan audit program: the actuarial analysis underlying the particular "safe harbor" assumptions selected for targeting small plans, and the zeal with which the IRS appears to be imposing the "safe harbor" assumptions on all small plans . The letter also Informed the Treasury Department that . In response to the shared concerns of the actuarial community, the Academy's Committee on Pensions is developing a statement for distribution . Also, by request, the Academy is offering assistance to the Pension Section of the Society of Actuaries (SOA) in their distribution of a white paper that is being developed to define the actuarial issues for interested public and private audiences outside the actuarial profession . In response to this letter, Assistant Commissioner Brauer requested a meeting with Murphy . (See story on page 9 .) TO : NAIC Casualty Actuarial Technical Task Force , May 18, 1990 . RE : Casualty Loss Reserve Opinions . BACKGROUND : This letter from the Academy's Committee on Property and Liability Insurance Financial Reporting is In response to a December 1989 request to report to the NAIC task force on two issues : Who should sign casualty loss reserve opinions and what should the opinions include . The letter states that opinions should be signed by a qualified actuary, defined as a member in good standing of the Academy, or a person who has otherwise demonstrated reserving competence to the satisfaction of the state regulator. The letter also suggests dropping the phrase "fairly stated" from the opinion paragraph, and substituting the term "reasonable" for "good and sufficient ." This letter was also forwarded to the American Council of Life Insurance, the American Insurance Association, the National Association oflndependent Insurers, the AllianceofAmerican Insurers, and the National Association of Mutual Insurance Companies .

Classic Reference Work on Medical Risks Expanded Medical Risks: Patterns of Morta[ity and Survival has been a valuable reference for over a dozen years for actuaries and others involved in underwriting and other areas of mortality estimation . The second edition of this work, titled Medical Risks: Trends in Mortality by Age and Time Elapsed Is scheduled for publication late this summer. This new edition will be nearly three times the size of the first edition . It presents the information that has been developed on mortality and survival among medical risks since 1976, as well as the still pertinent material from the earlier edition . Both of these editions are the result of research projects undertaken by the Society of Actuaries in cooperation with the Association of Life Insurance Medical Directors of America (ALIMDA) . This new volume will be available at a substantially reduced prepublication price until August 30, 1990 . An order blank is available from the Society of Actuaries Research Department, by calling (708) 706-3573 .

Casualty Loss Reserve Seminar The 1990 Casualty Loss Reserve Seminar (CLRS) will be held at the Hyatt Regency . Dallas-Fort Worth, Texas, September 9-11 . Cosponsored by the American Academy of Actuaries and the Casualty Actuarial Society, and the Conference of Actuaries in Public Practice, the CLRS provides a forum for the presentation and discussion of significant issues affecting loss reserving. The registration fee is $375 for members, if received on or before July 27th, or $450, on or before September 4 . For information, contact Mildred Prioleau, American Academy ofActuarles, 1720 1 Street, N .W ., 7th Floor, Washington, D .C . 20006 ; (202) 223-8196 .

July 1990 Actuarial Update  

9 IRS Small Plan Audits 11 Happy Birthday Medigap 12 Checklist of Recent Academy Statements VOLUME 19 NUMBER 7 In An Encounter with Actuarie...

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