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Actuaf ia l Upda e t


In this issue 2

From the President-Elect


Letters to the Editor


ASPA : We Have Come Far


Social Security Trustees Reports


Checklist of Academy Statements-April 1988




Academy Members Speak Out on Continuing Education Recognition

Insurance Catastrophes Conference : August 25-27


Is Legislation Shaping the Future of Benefits?


Valuation Actuary Report Available Still


Missing Actuarial Clubs!


Non-Routine Actions of the Board of Directors



Included in this month's issue of The Update are the following : • Government Relations Watch • In Search Of . . .

• IASB Boxscore • 1988 CLRS Brochure and Reply Card


Cost of Medicare Prescription Drug Coverage Understated , Academy Warns by Christine Nickerson House and Senate conferees on legislation (H .R . 2470) to provide catastrophic health insurance coverage under Medicare continue to debate areas of concernprimarily the overall cost of catastrophic care coverage and the size of the supplemental premium-in an attempt to reconcile the differing versions of the legislation. The Academy's Committee on Health recently sent a letter to all the conferees outlining its concerns regarding the financing of the prescription drug coverage provisions . Under the House bill, a nonprescription increment to the Part B premium would be added . This increment will be $1 per month in 1991, indexed thereafter. Also, beginning in 1988, about 40% of participants would have to pay a mandatory "supplemental premium" that would rise with income to a maximum of about $580 per year for 1988 . The House bill would also impose an additional indexed premium for the drug benefit, beginning at $2 .30 monthly In 1989 . The Senate version would also increase the Part B non-prescription-drug monthly premium, by an indexed amount, beginning at $4 in 1988 . Participants with federal income tax liability would have to pay an annual supplemental premium that would rise with tax liability to a maximum of $800 per year for 1988 . The Senate bill's additional prescription drug premium would be an indexed amount beginning at $ .90 per month in 1990, rising in stages to $4 .05 in 1993. The committee stated their concerns about the uncertainty of the cost of the drug benefit, as evidenced by the considerable variations in estimates that have been made . (The Congressional Budget Office (CBO) has estimated the 1990 cost of the House drug benefit at $1 .6 billion ; the Department of Health and Human Services put the figure at $6 billion.) "The real cost due to induced utilization and cost inflation will ultimately result

in substantially higher premiums, or taxes, as the case may be . than have been projected," the committee's statement reads. The committee commented on the escalation of utilization because of availability that occured in massive degree when Medicare first went into effect, adding that the same thing must be expected to occur again if the pending legislation is enacted, "Existing utilization and cost statistics almost surely understate, by a large degree, the level of costs that will be experienced under the revised Medicare program," the committee said.

(continued on page 4)

Get Ready for Contingencies by Harold J . Brownlee Non-routine actions of the Academy's Board of Directors are routinely reported in The Actuarial Update . One such action taken at the April meeting of the board is "non-routine" in the extreme : the beginning of a major effort to change the way the actuarial profession is viewed by the outside world . A bimonthly magazine, named Contingencies, is slated to be published by the Academy starting in mid-1989 . The idea of a magazine was first proposed by former Academy President Preston C . Bassett in 1986, when he was on the Council of Presidents . A joint task force subsequently concluded that this was a good idea and recommended that it become an official Academy project . An Academy task force, which I have had the privilege of chairing, was formed and

(continued on page 7)

The Actuarial Update


of Actuaries President John A. Fibiger President-Elect W. James MacGinnitie Vice Presidents Phillip N . Ben-Zvi Committees on Public Issues-Insurance Burton D . Jay Committees on Accreditation, Qualification and Communication Joseph J . Stahl, II Committees on Public Issues-Employee Benefits and Social Insurance Mavis A . Walters Committees on Accounting and Financial Reporting

Secretary Virgil D . Wagner Treasurer Daniel J. McCarthy Executive Director Stephen G . Kellison Executive Office 1720 1 Street, N .W. 7th Floor Washington, D .C . 20006 (202) 223-8196 FAX (202) 872-1948 Membership Administration 500 Park Boulevard Itasca, Illinois 60143 (312) 773-4204

Chairperson Committee on Publications Carl R . Ohman Editor Charles Barry H . Watson Associate Editor Warren P. Cooper Managing Editor Erich Parker Contributing Editor George Soules Production Manager Renee M . Cox

American Academy of Actuaries 1720 I Street . N .W. 7th Floor Washington, D .C . 20006 Statements of fact and opinion in this publication. tncludtng 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 ofActuaries, the editors. or the members of the Academy.

W. James MacGinnitie

The National Health Care Debate and the Actuarial Profession The opening salvo in congressional action to improve national health care coverage has been fired . Conferees are now meeting to reconcile differences between the House and Senate versions of the Medicare catastrophic legislation (H.R . 2470) designed to limit out-of-pocket expenses to Medicare recipients to approximately $1,800 per year . The legislation also includes a prescription drug benefit . Most Washington observers predict that the bill will become law in the very near future .

Although this legislation is a major step, it is now widely recognized that the overriding health insurance issue facing the elderly is not acute care coverage, but long-term care . The public is rapidly becoming aware of the huge costs associated with long-term care and the inability of most Americans to cope with these expenditures . In turn, they are putting pressure on the Congress to solve the problem . Our profession's role is to measure costs of future contingent events . As actuaries, we are well aware of the effect of inflation on health care costs and how availability of coverage can influence utilization . As a public serving profession, our responsibility is to assist in the formulation of public policy by ensuring that future financial implications are clearly understood . To that end, the Academy has appointed a Task Force on National Health Care Issues, chaired by formerAcademy President BartleyL . Munson . The task force comprises individuals on the Academy's Health Committee . the Committee on Health and Welfare Plans, members of various committees of other actuarial organizations, academia, and the public sector .

The task force's charge is to further the actuarial profession's involvement as

a responsible voice in providing information on the costs and financing of the nation 's health care, from both a shortand long-term perspective . While we recognize that the profession is not the sole repository of information or knowledge in this complex field, as actuaries we have special expertise in plan design, in costing alternative approaches, and in bringing to bear principles of insurance and utilization on national health care issues. Some believe that the profession should be cautious about offering commentary on an issue as potentially explosive as national healthcare . Others suggest that we recommend only specific solutions, such as the need to rely on the private sector for effective remedies . In my view, neither stance is appropriate for a professional body such as the Academy . What we should do is develop a role commensurate with our skills and abilities, using actuarial analysis as the basis for this effort . In so doing, we establish credibility and legitimize our right to participate in this national debate . Restricting ourselves to "purely actuarial " applications in this health policy debate is potentially self-limiting ; but more important we have an obligation to speak to the broader issues . Even though others working in this arena may share or have overlapping expertise with the actuarial profession, we should not be mute . We must exercise caution in developing positions and statements, of course, to ensure that our credibility is maintained . however, undue restraint raises the risk that our voices will not be heard at all. In the coming months and years, our nation will be faced with significant new demands for expanded health care coverages . Long-term care for the elderly, for the needy, the cost of AIDS, and rising costs in technologies and in the percentage of Gross National Product devoted to health care, are looming issues that must be addressed . We, as actuaries, need to consider carefully our involvement in the debate . And we, as actuaries , must not fear to make our voices heard in that debate . A

Note : Last month's "From a Guest President " editorial was authored by David G . Hartman , who is president of the Casualty Actuarial Society.





June 1988

Letters to the Editor Policyholder Tax Proposal for Individual Life Insurance Contract As I read about the multitude of proposals under consideration for revising the taxation of life insurance (again), I get a terrible knot in my stomach . However, my discomfort is not primarily due to concern over the adverse tax consequences the industry will experience if the severe tax proposals being presented in Congress are enacted. Although I'm concerned over these issues, I believe that there are plenty of people more qualified than I to fight the industry battle on this front . My concern is the seemingly incessant need for all the parties involved (Congress, the American Council of Life Insurance, other industry groups) for "fixing" the tax laws by making them more and more complex .

I'm sure that my distress has no cure, because the root of my problem probably lies in the fact that III never be capable of appreciating that the development of tax laws is a political process that makes no

use of simple straightforward logical approaches to problems . Instead, I get the impression that the industry makes complex proposals that are smokescreens intended to deceive Congress into thinking that we're addressing their concerns . I don't think Congress really minds this deception, because that just gives them the opportunity to make more political points the next time when they see that their tax laws are still being abused . Be that as it may, it's still good therapy for me to propose what I think would be fair and simple solutions to the problems being addressed. Definition of Life Insurance : The current Section 7702 should be scrapped. It's already so complex that I can't imagine how the Internal Revenue Service (IRS) will ever be able adequately to audit compliance . The IRS resources spent along with the resources spent by the industry in abusing andlor complying with the rules would probably provide enough revenue to keep Congress happy if we just gave them the money . My proposal is simply this : to define a single,

"I started out in creative writing, began dabbling a bit in creative accounting, and before I knew it, wound up here!"

simple table of maximum cash values per $1,000 of current death benefit, which varies only by attained age of the insured . Although actuaries can come up with all sorts of theoretical reasons why these values should vary by risk class, ratings, benefit riders, or contractual guarantees, from a practical standpointthese variations cause more problems than they solve. A simple table will put every contract on a "level tax playing field" and would be difficult to abuse . Violations of the Definition : If a company increases the cash value beyond the maximum or accepts premiums that increase the cash value beyond the maximum, then the excess must be distributed to the policyholder or the death benefit must be increased to stay In compliance . Note that if the required death benefit Increase is severe enough, most companies would have to refund premiums as the automatic option in their contracts, since evidence of Insurability would be needed to increase benefits. Taxation of Living Distributions : We're kidding ourselves if we think we can convince anyone that there is any real significant difference between a cash policy loan and a cash withdrawal or surrender in today's life insurance contracts . It's fair to tax these transactions identically. On the other hand, it makes no sense for Congress to so severely penalize distributions that they wrongly discourage people from funding their life insurance and retirement savings in the first place . To me, the obvious fair and simple comparison (which I've not seen proposed anywhere) is to tax any distribution on a pro-rata basis based on the total cash in the contract . If a loan or withdrawal is later paid back, then allow a credit or deduction to offset the earlier tax. In other words, we keep our inside buildup so long as we keep it inside where it belongs . I think that these simple rules would curb the abuses, be simple to administer, and not be unfair to the industry. About the only group that should have a problem with this would be the actuarial and data processing consultants who derive a lot of business from complex tax laws . I'm sure that they love all the other compromise proposals being devleoped .

Charles E . Ritzke Schaumburg. filinois (continued on page 6)


The Actuarial Update

ASPA: We Have Come Far by Eric L . Kranke Academy President John A . Fibiger recently asked the president of the American Society of PensionActuaries (ASPA), Eric L . Kranke, to write afeaturefor The Actuarial Update on the development andfuture direction of ASPA. Whatfollows is that article . Back in 1966, our founder, Harry T. Eidson, conceived of a new forum for actuaries and consultants who service the small-to-medium size pension plan . In those days, the most effective marketIng of pension plans to small-to-medium size employers was accomplished via the insurance industry ; so when E idson gave these actuaries and consultants the opportunity to join together, most of them were associated with the sales, actuarial, and administrative departments of Insurance companies .

That was twenty-two years ago . ASPA has come a long way since then . Currently, the only actuarial examinations ASPA administers are in connection with our Fellowship designation . Fellowship in ASPA begins with successful completion of the enrollment exams co-sponsored by ASIA and the Society of Actuaries . Upon attaining enrollment by the Joint Board for the Enrollment of Actuaries and meeting the practice and professional standards set by ASPA, an individual can obtain the designation : Member of ASPA (MSPA) . For Fellowship (FSPA), three additional examinations are required . These exams deal with advanced pension law, as well as advanced actuarial topics. Thus, an individual with an FSPA and MSPA has demonstrated a knowledge of both pension consulting and pension actuarial matters. In 1977, we introduced the designation : Certified Pension Consultant(CPC) . To become a CPC requires passage of four consulting oriented examinations that cover a vast array of subjects that a qualified consultant must know in this very technical business . In fact, we find many actuaries take these exams because of the additional range of subject matter covered by the exams relating directly to their day-to-day work. Most of ASPA's recent growth has come from this segment of our membership . In 1989, we will offer a series of examinations for certification of plan administrators .

Eric Kranke

Our services to our membership also include our annual conference in October, two business techniques seminars in the summer, and a business owners meeting held in the spring . In 1987, we sponsored a nationwide telecast on pensions, and we will sponsor another telecast in early 1989 . One of our current projects is a video tape for actuaries, accountants, and administrators on PAS 87, set for release in September 1988 . Through its activities in government affairs, ASPA has become a highly visible presence in the regulatory process and has repeatedly interacted with Congress and congressional staff. Our Government Affairs Committee has represented the interests of our members on a timely and meaningful basis. ASPA members are kept informed through our monthly publication, The Pension Actuary , which includes articles of special interest to our members . Ourconsultant , John Erlenbom, former congressman from Illinois and a member of the Pension Advisory Council , keeps us current on pension matters and appropriate techniques for communication .

Our brief on the Blessitt Case has helped lead to a re-opening of the issue of what benefits must be paid to plan participants upon plan termination . Yet as far as we have come , we have much further to go . The pension world is changing , and ASPA is committed to change with it in order to uphold our

statement of purpose, which is "to preserve and enhance the private pension system as part of the development of a cohesive and coherent national retirement income policy." One such change is currently under study by our Board of Directors ; it hinges on the work of the Task Force on Strengthening the Actuarial Profession . It appears clear that a united profession will be more effective on Capitol Hill and will eventually lead to better serving the public. This we consider of primary importance. Lastly, we have met with officials of the Conference of Actuaries in Public Practice to explore ways in which our combined efforts may be more effective . We look forward to a mutually successful result in these endeavors . As John Fibiger has acknowledged in requesting this editorial, many Academy members are not well acquainted with what ASPA does. What they do know is, in many instances, ancient history. Since more than half of ASPA actuaries also belong to the Academy, my hope is that the reader will see us as an ally in the pursuit of an "enhanced private pension system ." " A

DRUG COVERAGE UNDERSTATED (continuedfrom page 1)



The committee described H .R . 2470's proposed 1989 extra premium charge of $2 .30 per person per month to cover 75% of the projected 1989 claim and administrative costs for the House bill's prescription drugbenefit as "inadequate." The committee projects a 1989 per person claim cost (exclusive of administrative expenses) "to approach, and possibly exceed $9 .00 for Medicare-aged beneficiaries and disabled beneficiaries ." This projection is based primarily on extensive private sector claim cost and utilization experience of policies providing out-patient prescription drug coverage to Medicare-eligibles . Also reviewed was rate manual information and rating factors derived from this experience, and supplemental surveys and studies on the cost and utilization of out-patient prescription drugs by the U .S . Medicareeligible population . Nickerson is the Academy's assistant director of government relations . Copies of the committee's comments are available from the Academy's Washington office . Please request the April 26, 1988 statement.


June 1988


Social Security Trustees Reports The 1988 Social Security Trustees Reports were released to the public on May 6 . 1988, along with summaries of the two Medicare reports and the OASDI report. Copies of these three reports and the summaries are available from the Social Security Administration . Order information appears at the end of this article. Brief summaries of the OASDI, HI and SMI reports follow.

QASDI Report The assets of the Old-Age and Survivors Insurance Trust Fund increased by$23 .1 billion in 1987, to $62 .1 billion at yearend . The Disability Insurance Trust Fund declined by $1 .1 billion, to $6 .7 billion at year's end . The combined OASDI Trust Funds had a year-end balance of $68 .8 billion, which was $1 .8 billion higher than estimated in the intermediate estimate in the 1987 Trustees Report . The OASDI Trust Funds, according to the intermediate (alternative II-B) estimate, will accumulate to a maximum fund ratio of 531% of annual outgo in 2015 . Thereafter, such ratio will decline until the funds are exhausted in 2048 .

Over the seventy-five year valuation period, OASDI has an actuarial deficit of 0.58% of taxable payroll, according to the intermediate estimate, and is considered to be in "close actuarial balance ." The actuarial balance is determined on a slightly revised basis in this year's report as compared with last year's report . Now, the interest earnings of the trust funds and their initial balances are taken into account so that the computations are on a so-called "level-financing" basis . The lack of balance when computed under the previous "average-cost" basis would be 0.87% of taxable payroll .

HI Report


At the beginning of calendar year 1988, the balance in the Hospital Insurance (HI) Trust Fund was 101 % of anticipated outlays for 1988 . This is above the minimum level of 50% recommended by the Board of Trustees . However, program costs are projected to exceed taxes scheduled in most future years, and the program will not be able to continue with the current tax schedule unless the rate of growth in benefits is reduced . Under the alternative II-B assumptions, the trust fund will be exhausted In 2005 . However, any significant adverse deviation from the projections could result in the inability of the fund to meet its obligations much sooner than projected .

The average of future tax rates is substantially less than the average of projected future costs . The seventy-five year actuarial balance of the HI program . as determined by the trustees, is -2 .35%, which means that, on average, program costs will exceed scheduled tax rates by 2 .35% of payroll over the next seventyfive years . In order to bring the HI program into actuarial balance for the first twenty-five year projection period alone, either outlays will have to be reduced by 14% or income increased by 16% . Thus, the Board of Trustees recommends that Congress take early remedial measures in order to bring future HI program costs and financing into balance . It is worth noting that the Chief Actuary of the Health Care Financing Administration did not certify that the assumptions underlying the trustees' projections were reasonable . The trustees, themselves , expressed reservations regarding several of the economic and demographic assumptions used in the report, including the real wage increase, the mortality associated with AIDS, the assumption regarding illegal immigration . and the fertility assumption . The Chief Actuary also took issue with the trustees' lastminute decision to redefine the term "actuarial balance" to exclude the cost of maintaining a reserve in the trust fund.

SMI Report The Trustees concluded that the Supplementary Medical Insurance (SMI) program is financially sound on the basis of the promulgated premium rates and actuarial rates that will be in effect through the end of calendar year 1988 . Even though the SMI program is financially sound, the trustees expressed concern regarding the rapid growth in the cost of the program. Outlays have doubled in the last five years and have grown 40% faster than the economy as a whole . The trustees recommend that Congress continue to work to curtail the rapid growth in the cost of the program. The foregoing material was prepared by the Committee on Social Insurance . The complete reports and summaries are available without charge from the Office of the Actuary, Social Security Administration, Suite 700, Altmeyer Building, Baltimore, Maryland 21235, or by calling (301) 965-3015 .

Checklist of Academy Statements April 1988 Copies available from the Washington office . Please request statements by date of release . TO : Joint Board for the Enrollment of Actuaries, April 1, 1988 . RE : Mandatory continuing education for enrolled actuaries . BACKGROUND : Comments on proposed continuing education regulations (53 FR 147 -152) .

TO: NAIL, April 15, 1988. RE : Minimum health reserve standards. BACKGROUND : Revised draft of proposed minimum reserve standards for health insurance . TO: Department of Labor, April 18, 1988 . RE : Reporting requirements . BACKGROUND : Comments on cost and utility ofvarious ERISA reporting and disclosure requirements . TO : Department of Treasury April 25, 1988. RE : Non-discrimination rules for health and welfare plans . BACKGROUND : Proposed'methodology of valuation of accident and health plans under Section 89 of the Internal Revenue Code .

TO : House and Senate Conferees, April 26, 1988 . RE : Medicare catastrophic coverage . BACKGROUND : Comments concerning program financing and prescription drug coverage . TO : AICPA, April 27, 1988 . RE : Actuarial designations and credentials. BACKGROUND : Response to request for information from AICPA Task Force on Self-Regulation and Licensure. 41

Correction In last month's Update, Robert J . Myers' article, "If Social Security Is Not Viable, Should It Not Be Abolished?," contains two typographical errors . In the seventh paragraph of the story, the fourth sentence beginning: "One should realize that 46% of the cap . . ."-the word cap should have read gap. In the ninth paragraph, the second sentence, which refers to a " . . . rate of 1 .5% . . ."the percent sign should not have been appended. Our sincere apologies to the author and to Update readers .

The Actuarial Update


Academy Members Speak Out on Continuing Education Recognition by Daphne Bartlett "I strongly agree with your overall rationale and direction!" " 1 believe it should be mandatory ." " 1 hope the actuarial profession will show its brethren in the other'comparable'groups -law. medicine. etc .-that it , unlike them . is serious in establishing meaningful standards , not just superficial programs to deceive the public and boost attendance at meetings ."

These are a few of the comments from among 815 responses to a questionnaire mailed out in October 1987 with the discussion draft prepared by the Task Force on Continuing Education Recognition .

As one might expect, opinions varied considerably. Of the total, 76% of respondents generally supported a program of continuing education recognition for the Academy. Of this group, many offered specific suggestions for changing the design of the program . The following suggestions were offered by a large number of respondents : • 123 respondents believe that a requirement of twenty-four hours of continuIng education per year is excessive . Several suggested that the requirement be fulfilled through attendance at one actuarial meeting. • Forty-eight respondents indicated that the proposed limitation on carryforward of credits to one year is too restrictive . • Fifty-three people remarked that credit should be awarded for attendance at non-actuarial meetings, such as tax seminars or meetings of the National Association of Insurance Commissioners .

The design suggested in the discussion draft defined three general types of activities which would be eligible for different types of credit : • Category 1 : Activities sponsored by national actuarial bodies .

• Category 2 : Organized activities sponsored by non-actuarial bodies . No more than twelve ho urs of credit could be obtained for any one activity . • Category 3 : Other activities, such as listening to cassettes or independent study. No more than six hours of credit could be obtained for any one of these activities, and no more than eighteen

hours of total credit could be earned from activities in this category . In this regard, objections were expressed regarding the definitions for Category 2 and Category 3 activities : • Ninety respondents believe that the internal limit on Category 2 activities should be higher, or eliminated . Many respondents pointed out that these programs are often more valuable than Category 1 activities . • Sixty-eight objected to the limits on Category 3 activities for the same reasons. But several other respondents believe that no activities in this category should be permitted since they would not be monitored.

• Fifty-six respondents gave suggestions for changes to the limits and types of activities suggested in Category 3, such as eliminating the internal limits for writing a paper, or studying for exams . Several of the respondents who supported the concept of the program volunteered more general ideas : *Seventeen respondents commented that the program should be mandatory. • Nineteen respondents said the program should automatically recognize qualification under the program of the Conference ofActuaries in Public Practice or any future program of the Joint Board for the Enrollment of Actuaries . • Fifteen respondents emphasized the importance of specialty recognition . A fairly high percentage of respondents (24%) indicated their opposition to the program, with a slightly higher proportion of these responses from members who are not currently exposed to con-

tinuing education recognition programs . Virtually all of these members (183 of 193) offered comments in support of their position .

*sixty-four respondents said that an Academy program would be redundant, or that the program more properly should be administered by other actuarial organizations . • Fifty-five respondents expressed concern that the proposed program emphasized form over substance, pointing out that attendance at meetings or seminars does not guarantee that actual education has occurred. • Eighty respondents believe that the proposed program is unnecessary, indicating that actuaries only need to keep up-to-date to perform their work properly and that continuing education should occur as a result of individual professionalism - not a formal program . • Twenty-four respondents were concerned about the pressure that might be placed on members to participate in the program or the discrimination that might result for those members who did not . This brief summary does not do su.fficientjustice to the manylengthy, thoughtful, and creative responses the task force received . We are extremely grateful to everyone who completed a questionnaire . This input is being considered in a revised proposal that will be exposed to all members later this year.

Daphne Bartlett chairs the Task Force on Continuing Education Recognition.

LETTERS TO THE EDITOR (continued from page 3)

Survey of Loss Reserve Opinions for 1987 Thank you for your "Survey of Loss Reserve Opinions for 1987," which appears in the March 1988 issue of The Actuarial Update - an issue I received on April 12 . However, since the opinion letter needs to be sent by April 1 In most states, it would be more helpful if you could publish your survey earlier in the year. Jerome E . Mettle Morristown, New Jersey

Editor's note : Point well taken . We published this information as soon as we

received tt from the National Association oflnsuraace Commissioners , a problem exacerbated by the fact that we mail out The Update by way of slow boat to China . Next time, perhaps we can get it out earlier, even f it's Incomplete.

The Update welcomes letters from readers . Letters for publication must include the writer's name, address, and telephone number, and should be clearly marked as Letters to the Editor submissions . Letters maybe edited for style and space requirements .



June 1988

GET READY FOR CONTINGENCIES (continuedfrom page 1) charged with conducting interviews with actuaries and potential advertisers, preparing budgets and developing editorial policy. Our final report, presented to the Executive Committee in March 1988 and to the Board of Directors in April 1988, recommended a bimonthly publication, which will not replace any existing Academy publications . Contingencies will be a critical part of the Academy's government relations and public relations efforts on behalf of the profession . The magazine will bring into one publication the presentation and discussion of all issues in which the actuarial profession has an interest, covering areas that involve the present cost of future contingent events, including casualty insurance, health coverages, life insurance, pensions, and social insurance . The target audience for Contingencies will be centers of influence such as members of Congress, key staff aides, regulators, journalists, CEOs and CFOs of major corporations, and present and prospective users of actuarial services . Selected accountants, attorneys, and investment professionals will also be on the mailing list . The magazine will, of course, be widely distributed to actuaries . The articles in Contingencies will be aimed at the general reader, not the technical specialist . Regular readers should come away with an enhanced understanding of the interrelationship of the various areas covered and of the impor-

tance of proper analysis in the development of costs . It is also expected that Contingencies readers will learn more about how the skill and knowledge of actuaries can be brought to bear in solving a variety of business and financial problems . It is our hope that Contingencies can showcase the diverse talents of the actuarial profession, improve communication and understanding within the profession itself, and provide a major reference source for articles on the many public issues that have actuarial aspects . Efforts are now under way to hire a full-time editor for the magazine . An editorial advisory board will provide technical guidance and serve as a resource to the editor. Initially, this board will report to Vice President Burton Jay and will consist of the members of the task force,

Insurance Catastrophes Conference : August 25-27 Practicing actuaries and academics will discuss the latest developments in the theory of insurance catastrophes at the 23rd Actuarial Research Conference August 25-27, 1988 to be held at the University of Connecticut, Storrs . The AIDS epidemic will be a particular emphasis of the conference . A number of actuaries active in this area will join statisticians and medical researchers in exploring the current state of knowledge about this public health epidemic . In addition, papers on other topics of interest dealing with insurance catastrophes and ongoing actuarial research will be presented . If you are interested in presenting a paper, submit your abstract by July 1 . Talks on papers are scheduled for thirty minutes each .

The conference is sponsored by the Casualty Actuarial Society, the Society of Actuaries, the Hartford Actuaries Club, and the University of Connecticut's Department of Mathematics and Actuarial Science ProgramThe registration fee is $75 . For registration forms and additional information, contact: Dr. Charles Vinsonhaler, Conference Coordinator, University of Connecticut, Storrs, (203) 486-394413923 ; or Mark G . Doherty, Director of Research, the Society of Actuaries, (312) 773-3010 .

plus Carl Ohman, who chairs the Committee on Publications, and Bruce Vane, who chairs the Public Relations Committee. The individuals who served on the task force, Daphne Bartlett, Tom Bayley, Fred Kilbourne, Guy King, Dale Nelson, Craig Olney, and Dick Robertson, each deserves an especial vote of thanks for hard work and perseverance in reaching consensus on the many difficult issues inherent in the launching of a magazine . The speed and confidence with which the Academy's Executive Committee and Board of Directors moved to implement the recommendations of the task force is a tribute to their effort . Erich Parker, the Academy's director of public information, provided staff assistance to the task force, helping both to define the issues involved in publishing a magazine and to get the data necessary to make recommendations . Without his efforts we could not have been successful .

All of us who served on the task force look forward not only to the first issue in 1989, but also to that day, two or three or four years from now, when Contingencies has become a first-class, wellrespected publication that gives its readers a glimpse of the delightful world of analysis and logic that actuaries use to help solve critical social problems. A


The Actuarial Update


Is Legislation Shaping the Future of Benefits? by George Soules

What should be a sensible process of legislating employee benefits is one "fraught with peril" according to G . Lawrence Atkins, Minority Staff Director, Senate Special Committee on Aging . Speaking at a recent Risk and Insurance Management Society, Inc. conference in Washington, D .C . . Atkins stated that the Congress views employee benefits as a "politically demilitarized zone," meaning that legislators feel free to steer their own course in this area for lack of interest and direction from an employer constituency. "Companies are divided internally on this issue ," said Atkins . "For a CEO, pension legislation is rarely on the top of his list of priorities. He is more concerned with Section 89 rules ." Atkins gave an insider's perspective on a number of insurance and employee benefits Issues currently faced by Congress. Among his observations : • MedicaliCatastrophic. The challenge for legislators is to design a program acceptable to the elderly that includes a tax component and possible "means testing." With premium and physicians' costs both up by 26%, Atkins called this issue a "political lightning rod," " one that could eventually push the elderly to "scream bloody murder." • Retiree Health . Placing an estimate of $150--500 billion on the unfunded liability for retiree health, Atkins referred to "two generations" of retirees . Those closest to age sixty-five have good access to health coverage, whereas the pre-sixty-five category is "a big problem ." Even in states with risk pools, only one-quarter of this group is covered . From the Congress' viewpoint . said Atkins, " if there is any pre-funding in this area, it has to be vested." Still to be determined : whether the emerging Finan ical Accounting Standards Board rules will force employers to fund these benefits . • Long-Term Care. Expressing surprise at the rapidity with which long-term care has "sprung full-blown" on the congressional slate, Atkins said the "big struggle" is figuring out how to pay for universal coverage and determining the "true cost" of providing

such benefits . The job of Congress, he added, is to "create a situation" where private insurance is included as part of the solution . *Mandated Health Coverage . Citing "bigger and bigger groups of bad risks" resulting in a "general inaccessibility" of health insurance for millions of Americans, Atkins said the problem could lead to a return to "community rating." The Congress is interested in

Valuation Actuary Report Available Still The Joint Committee on the Valuation Actuary issued a report in the autumn of 1987 updating its 1985 report . That most recent report was not distributed to all Academy members, but instead summarized in a brief article in last January's issue of The Actuarial Update . The article announced the full report's availability from the Academy's Washington office . To remind : that report is still available from Washington staff.

Missing Actuarial Clubs! The Academy yearbook annually includes in its contents a list of the actuarial clubs in the United States. We suspect that there are some clubs not on our list, simply because we don't know of their existence ; and, we want to publish as complete a list as possible in the 1989 Yearbook. So, if you are aware of newly established clubs or any others somehow omitted from our yearbook roster, please send that information (including the club name, and the names and addresses of its president and secretary) to the Publications Manager, American Academy of Actuaries, 1720 1 Street, N .W. Washington, D .C . 20006. We thank you .

creating more risk pools and in "leveling the playing field between big and small employers." With no consensus solutions coming from the insurance industry, Atkins predicted that Senator Kennedy's (D-MA) employer mandated health bill would not see passage for at least two-to-three years . A

Non-Routine Actions of the Board

of Directors At its meeting held on April 5, 1988, the Academy Board of Directors took the following non-routine actions: • The board is now empowered to approve resignations, while the Executive Committee will process admissions , reinstatements, and dues waivers . *Various corrective revisions to past Academy policy statements were approved.

• The board approved a modificaton of the vesting schedules in the Academy's employee pension plan from the current graded schedule to provide for three-year 100% vesting . • Commencing in 1989, and subject to concurrence by the Conference of Actuaries in Public Practice, the board approved the Society of Actuaries as a joint sponsor for the Enrolled Actuaries Meeting. • The board accepted the final report of the Standards Organizing Committee and unanimously recommended membership adoption of the proposed bylaw changes to create an Actuarial Standards Board ; accordingly, the Standards Organizing Committee was discharged. • The final standard on Measuring Pension Obligations, as submitted from the Interim Actuarial Standards Board (IASB), and the final standard on Incurred Health Claim Liabilities, as submitted by the IASB, were both approved for final promulgation .

• The board approved a recommendation of the Task Force on the Actuarial Magazine to begin the process of launching a new actuarial magazine a entitled Contingencies .

June 1988 Actuarial Update