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Special Subject Supplement to The Actuarial Update

eACtllQf1Q1 Updak MARCH 1990


Each spring, TheActuarlal Updatefeatures a special subject supplement to provide members with ( 1) the written record of the past year's Annual Meeting business session , (2) the Academy's financial statements , (3) a list of the previous year's "nonroutine " actions by the board, and (4) a summary of public statements made by the Academy over the past year. We suggest that you save this supplement to use as a ready Index to the Academy' s 1989 public statements , all of which are available in their entirety by calling the Academy office.

Annual Meeting Business Session Hot Springs, Virginia October 16-18, 1989 President W. James MacGinnitie : Welcome to the Annual Meeting of the American Academy of Actuaries . We are pleased to be here in conjunction Vthe th Conference of Actuaries in bile Practice (CAPP) . We have enoyed the hospitality. Our thanks to Margaret Tiller, who has organized the program - and to Dave Hewett, president, and Wynn Kent, president-elect of the Conference . It has been an interesting year for the Academy. One of considerable progress . I believe. The progress has been in an environment where the advice, the input, and the counsel of the actuarial profession has not always been welcome. For example, when we deliver the news that the cost is greater than sponsors would like, the news is not usually welcomed . So, there is a particular burden on us to be effective in our communications efforts and our public interface efforts . I am pleased with the progress the Academy has made this past year . I am sure that we will continue to see progress as a result of several initiatives we have undertaken . The first order of business today is to announce the officers who were elected t the last Academy board meeting . To that announcement, and also to JWdiver the report of the Nominating Committee, I'm going to call on Pres Bassett, the penultimate past president of the Academy.

Nominating Committee Chairperson Preston Bassett : Thank you, Jim . Good morning. I can't help but reminisce a bit and say, "Gee, this is probably my last official duty for the actuarial profession ." Well, it has just been great. I have had a wonderful time . For the record, I want to thank you all for your great support. At its last meeting, the Academy board elected officers for the forthcoming year. I'm very pleased to announce that, for president-elect, we have Ms . Mavis Walters . She's right over there . Would you stand up, Mavis? For vice presidents, we have Harry Garber (whom I have not seen this morning), and Dan McCarthy, who Is right over there . Dan. For treasurer, we have Tom Levy. I have not seen Tom this morning, so I presume he is not here . Those are the new officers for the 198990 Academy year. At this meeting, we have to elect new board members. Six board members are elected each year. The Nominating Committee is recommending the following six people : Howard J . Bolnick, Steven P . Lowe, Robert A . Miller III, Thomas G . Nelson, R . Stephen Radcliffe, Larry D. Zimpleman. Tom Levy, who had been on the board, was just named treasurer, so we have nominated Howard Fluhr to fill out Tom Levy's unexpired term . Thank you . Mr . MacGinnitie : Thank you, Pres . I can't help commenting on the personal

milestone that Pres observed as he came to the last board meeting of the Academy last month . He said that It was the first time in over thirty years that he had gotten on an airplane and did not have an upcoming airplane trip scheduled. So you know you 've arrived when you can get to that destination . We have the report of the Nominating Committee . Are there any nominations from the floor? Participant: I move that the nominations be closed. Participant : I second the motion. Mr . MacGinnitie : We have a motion, seconded, to close the nominations . All those in favor? (Response) Opposed? (No response) May we have a motion that the secretary be instructed to cast the unanimous ballot for the slate of nominees . Participant : I make the motion . Mr . MacGinnitie: A second? Participant: I second the motion . Mr . MacGinnitie : All those in favor? (Response) Okay . Congratulations to the new board members . Our next Item of business is the report of the treasurer, Dan McCarthy . (continued on overleaf)


Dan has served us well for three years as treasurer, and I think he has a present for us as his final report . Dan,

Treasurer Daniel J . McCarthy : Presents like that, you never wanted when you were a kid . I was initially thinking that I would say that I bring good news and bad news. But, In fact, I bring good news and news . The good news is that the Academy is solvent and at the end of 1989 we will be approximately at our minimum contingency reserve objective, which is 25% of one year's expenses . The other news, which I won't characterize as bad news, Is that keeping the Academy solvent, while doing all of the things that the Academy in particular and the profession in general has resolved need to be done in order to strengthen the actuarial profession, cost money. That means that dues will increase In 1989 by more than just an inflation adjustment . That is to say, for 1989, by action of the board last month, the Academy dues will go from the current $200 to $265 . I would point out to you that that is less than half of the dues of the other national body, the Canadian Institute of Actuaries . Of course, they do everything in two languages, so it is understandable that is costs them twice as much . In 1988, the Academy did not have a dues increase . That Is to say, it went from 1987 to 1988 keeping at the same dues level, which we had anticipated when we raised dues in 1987. 1988 may be the last time for a while that we achieve that milestone .

Special Subject Supplement to The Actuarial Update

We have audited financials for 1988, which confirm that, as we had expected when we embarked on that two-year course in 1987, that we spent considerably more money in 1988 than we took in . The reverse had been true in 1987 .

Clearly, we don't yet have audited financials, or any kind of financials other than pro forma, for 1989 . But the expectation Is in reduced measure, the same will be true . In particular, the same will be true because of the costs of getting our magazine, Contingencies, under way . That is a significant cost . We think a well-spent one, but a significant cost . It will be so because of the continuing costs of both getting the Actuarial Standards Board up and running and providing for its ongoing care and feeding, rations and quarters, and that sort of thing. And it will be so, to a very minor degree, a far lesser one than I had thought, in paying off and recognizing our costs ofwhat turned out to be avery small loss on the Centennial Celebration. In that connection, by the way . I had hedged this one . I had bet the wrong side of thatwithJohn Fibiger, and duly paid him a dollar at the last Academy board meeting because the loss on the Centennial was considerably smaller than the hedge number that I had established. For 1990, costs will increase beyond the level of inflation, pritnartly for activities fn relation to our government relations/government information program . As you know, we have a new

government information director who came on in mid-1989 . You will hear more about that . That whole program will cost us more money in 1990, as will the Academy's participation in genera public relations efforts for actuaries generally. We have had some very successful programs there . You will hear more about them, and I believe we will be spending some more money on them in 1990 . On the other side, thanks in part to the mandatory continuing education program for enrolled actuaries, the Academy. like the Conference, shares in something of a bonanza from meeting fees- that enables us, at least, to keep sources of revenues, other than dues, at about the same percentage of total income for the Academy that it has been in the past . So dues don't have to pick up more as a percentage of the total . The other thing we are trying to do very hard, and made efforts on in 1989 thus far, is broadening the member base . For people who are eligible to be members of the Academy, somewhat slightly over 8011/o are actually members . Anything we can do to raise that percentage obviously spreads costs over a broader base, because the marginal cost of new members joining the Acadi emy is not equal to the dues that we charge. We have done things such as, for example, analyzed nonmembers according to major employers. I have had conversations with representatives of those employers seeking to understand ' hys and wherefores," what can be done and so forth . There will be more initiatives this year and next in that regard . So, as I said at the beginning, I bring good news and news. We are solvent . We will spend more money to remain solvent . I believe that it is money well spent . Since, as Pres announced, I will be responsible for some of those programs in my capacity next year, I guess I'll have to switch hats - from worrying about where it comes from to making sure it gets spent well . Thank you very much . Mr. MacGinnitic : Your choice of adjectives, Dan, to characterize "news" reminds me of a little skit that we do III a program we put on for the doctors who find themselves to be directors of insurance companies specializing in medical malpractice insurance . There is a little line in there where someone


March 1990 comes in and he says," I've broughtyou some good news and some actuarial news." I am going to turn now to staff rerts . Since last the Academy met, Jim urphy has assumed the role of the executive director, and we have retitled it "executive vice president,* because of the visibility that we want the position to have in our public interface efforts . Jim has had a very interesting Introductory year to this new job . He's going to tell you a little bit about it and also introduce the other members of the staff for their reports . Jim.

Executive Vice President James J . Murphy: Thank you, Jim, and thank you all for being here . It has been a very Interesting year, or almost year, for me as I came into this job as it was announced at this meeting last year that I was taking it. It has been fun. It has been interesting. It has been challengIng, and I am looking forward to continuing the challenge and continuing to work with the leadership and the membership to meet our objectives. I have been giving a little talk here and there at actuarial clubs and one that I gave was titled "What Do I Get From My $200 Dues?" The title was

tten before ourboard meeting, which Dan just reported on . So I had to start my talk, which was given after, with a good news/bad news story too, which I won't repeat here . I did want to put things in perspective for the audience, and I thought I would say a little bit about what you can get for your $265 . You can get maybe an hour from a fair actuarial consultant, maybe an hour from a second -rate attorney. You can get one night in New York City, maybe-deflnitely without a meal . And you might get to Chicago, one way, at least from the East Coast, as well as other places . So, just try to put in perspective what It is that you get from the Academy for that $265 . 1 summarize it into five things - maybe four : professionalism, input to public policy, public awareness , publications, and last but not least, you get me and my staff . I'm not the important part of that at all . The important part of that is the staff. We have twenty very dedicated ople in Washington and one in Chiago who do a very fine job for the ademy. I have four of them to represent all twenty, here today. They will give you a little bit of a story about their area and

James J. Murphy that will give you a picture of what has been going on at the Academy during the year. I will first introduce them as a group, one at a time , and then they will come up and give their reports in turn . First to speak will be Gary Hendricks, who has been mentioned earlier perhaps. Gary is our new director of government information and chief economist. We stole Gary from the Labor Department, where he was the chiefeconomist of the Pension and Welfare Section of the Labor Department. He had been there for a number of years : He has a lot of experience working with government. He will explain our government relations program and plans, and perhaps explain why his title has the word information in it.

Next will be Erich Parker . Erich Is our director of public relations . Erich has been with the Academy for nearly eight years . He is an expert in communications and public relations, as I have certainly learned over this last year, as well as having a good knowledge of our profession based on those number of years of experience . He brings a lot to us in helping us to meet our public interface needs . He will talk to you about Contingencies and Forecast 2000, which I will let him describe. Gary Simms is our general counsel and director of operations . Gary also has a number of years with the Academy as general counsel. Since I have come on, with my responsibilities being heavily devoted to public interface, he has provided support to me in directing the operations of the office, for which I am most grateful.

His long experience with the Academy is extremely valuable . as is his legal expertise . But, I don't want to tell his story. He will talk to you and tell you about some of the legal briefs that he's preparing. Finally, Christine Nickerson Is our director of standards administration . Christine has been with the Academy a number of years also, although she became responsible for standards administration fairly recently . Previously, she worked for us in the area of government information, where she really helped to establish our Initial program . She had been assistant director of government relations before taking on the standards job this year . She is doing a great job of helping the Actuarial Standards Board, and in particular she is helping to communicate to the members and others the efforts of the standards board . She will tell you a little bit about what the board has been doing . So, with that . I think I have done what I am supposed to do, which is to introduce our staff directors . Theywili tell you what has been going on at the Academy. Director of Government Information Gary Hendricks : After ten weeks on the job, I don't have a long list of accomplishments to report . Jim mentioned that the program I direct is called the "government information program," rather than the "government relations program ." That is perhaps a fine distinction, but I think that it Is the Academy's intent to characterize, as best it can, what is wanted out of this program. I was hired to be a facilitator - to get information from people who have it to people who need it. That is really my primary function . Mostly, I have spent the past ten weeks on the job learning . One of the things that I have learned is how much the Academy committees do . I also have learned how many issues there are for actuaries to deal with. In the past, I have dealt primarily with pensions and with health, and a little bit with Social Security. Now, some days I wake up and think, "Is there anything these folks don't do?" This profession deals with a vast number of issues . What I would like to talk about I n my brief time this morning, is what I think we need to have in order to make a government information program work . What we really need comes from you. As I said, I am only a facili-

4 tator . I find the people who need the information , and I deliver it to them ; although even that Is often done byyou . With respect to the government information program, there are three things that we need to focus on in the next year. The first one is setting priorities . The committees do a tremendous amount of work And they work independently. In fact, committee chairs, even when they are in overlapping practice areas , don't seem to talk to each other very much . I have been reviewing the last three years of public statements of the Academy . And I don't think I will be able to do my jobverywell unless we set priorities to determine what issues we will focus on . That doesn't mean that we won't work on other issues as well, but we need to establish clear priorities . If we don't, we will just be "putting out fires ." It seems we do spend a lot of time trying to respond quickly as needs arise . Maybe there is no alternative, but I think we at least should try to do some long-term planning . The second thing that I think is very important for the Academy, and that would distinguish the Academy greatly from other groups trying to influence people in Washington, is to have frameworks within each of the major practice areas , guidingwhere the financial systems should go . During budget reconciliation on the Hill, I have been spending a lot of time with the various employee-benefit lobbying groups in Washington . One reason for my going to their meetings was to consider how closely the Academy should align itself with these various lobbying groups . One of the things that impresses me most about these groups is that they just say "no" to everything. They don't seem to have clear priorities . They don't think in terms of a framework, or where the system should be going . They just try to stop everything. I think that, given the quality of the people and the quality of information that this profession has, if we are really going to contribute , we must design frameworks in each practice area to keep ourselves focused on what's really important to us . The third thing that we should doand this is as much my job as yoursis communicate thosepriorities, once we have decided what they are . We have to communicate these priorities to the membership and to each other .

I believe that those are the three things that we will have to work on the

Special Subject Supplement to The Actuarial Update hardest in the coming year. Actually, the board has already taken steps in each of these three directions. The board has talked about establishing practice area councils on an experimental basis. The board has established a public statements task force to review our public statements and to considerthe qualityofthemandwhether we are covering all the right areas . I look forward to working with the Academy. I had a great job at the Department of Labor . I took this job because I think it will be an even greater job . I hope we have a good next year. Director of Public Relations Erich Parker : It is my experience that meeting attendees expect any PR report to be accompanied by moving pictures and laser beams. I have five lousy slides . (Slides begin .) Whether or not you frequently visit Washington, D .C . on business, you are probably familiar with the phrase "inside the Beltway ." It refers to events or information that people who lie in and around the nation's capital get all hot and bothered about, but which nobody else pays much attention to . We in Washington, in the Academy office, have coined a new phrase that I am sure will become part of your lexicon In a very few seconds-"inside the abacus ." By this phrase we mean events or information that actuaries care passionately about but which seem to escape the notice of others .

For a longtime, in my view, actuarial issues have traveled by night . But that Is changing dramatically. Fewer and fewer actuarial issues are "inside the abacus" concerns . And that is where I come In . I judge the news value of actuarial issues and get the word out to the actuaries' many publics . I strive to accomplish that in a myriad of ways . and given my allotted forty-five seconds here this morning - I've selected two to highlight . The first is Contingencies . You have heard about it a couple of times already this morning . It premiered in June of 1989 . It is a fourcolor, bimonthly magazine that accepts advertising. I am pleased to report that our advertising revenues continue to climb with each issue . We have already won a major design award in the magazine field, of which we can be very proud . But Contingencies, as I have stressed, is not just a pretty face . We are garnering respect In the public policy arena as well . To date, two state legislatures have contacted

our office requesting that Contingencies articles be part of the official record of their hearings . That makes me very excited about the content of the maga-+ zine as well as its attractive, slick envi~ ronment . 1 Next Is Forecast 2000. Again, something you have heard about already. Forecast 2000 is a program that has been funded by the actuarial profession In North America. Yes, our neighbor to the north, the Canadian Institute of Actuaries , is on this bandwagon as well. We have held three news forums across the country , to date . The fourth and final forum for 1989 is in a couple of weeks, in Los Angeles, on the topic of pensions and employee benefits .

Each news forum has covered a different actuarial specialty area , and all these forums have resulted in an unparalleled number of news clips, radio and television stories, requests for interviews- all mentioning the actuarial profession. I have had actual testimonials, ifyou will, from reporters telling me that for the first time they are excited about what actuaries do. I've given you the tip of the iceberg . On staff we produce a yearbook, two newsletters , assorted annual reports, brochures, syndicated news stories, radio news scripts . The list really goes on and on . This flurry of activity is generated by a very young and energetic staff of mine, and them I owe a debt of gratitude for their long hours and dedicated service . Thank you. General Counsel Gary Sinuns : I would like to take this opportunity to review for you the increasing role of the Academy in amicus curiae litigation . Amicus curiae is Latin for "friend of the court ." It is also a very apt description of the Academy's role In providing comments to courts of law facing issues that require an actuarial judgment . We try to assist the court to make an informed judgment . From that perspective , our activity in the courtroom is a logical extension of our actions on Capitol Hill, with regulatory agencies , or at National Association of Insurance Commissioners (NAIC) deliberations . We try to bring that actuarial perspective to bear on the issues before the court .

As you all know, courts interpret thel law-or, in one sense, make the law . I 1 so doing, they make determination that impact not only upon the publics we all serve , but also on how actuaries practice .

March 1990 Let me take a quick review of the cases we have filed in just this past year, and l think you will get a flavor for the extent of our activities. I probably U spent the most time on a pension case entitled Mead Corporation vs. T illey. The case involved the question of whether an Individual can be entitled to early retirement benefits, when the plan terminates before the individual has satisfied all of the plan's stated requirements for early retirement benefits .

We filed a brief with the Supreme Court saying please hear the case . The Supreme Court agreed , perhaps in part because of the arguments we raised, and then I had to file a second brief on the issue to explain the substance of the position that the actuarial profession expressed . The Supreme Court ruled that , in accord with our understanding of accepted practice, you had to satisfy the requirements prior to the time of the plan's termination . Unfortunately, on one of those famous technicalities the Supreme Court is so well known for, it remanded the case back to an appellate court for further proceedings . So, for the past few weeks, I have been preparing yet a third brief on this case. A second brief, with which we had much more quick success, involved a case entitled the Life Insurance Association of Massachusetts vs . The Commissioner, a case in which the authority of the Insurance Commissioner to bar testing for the AIDS virus in applicants for insurance was tested . Our brief focused on the history of underwriting, risk classification, and the application of risk classification principles to the issue . The Supreme Court in Massachusetts agreed that the Commissioner could not unilaterally bar testing In the underwriting process . Another brief was filed with the United States Supreme Court, a pension case again, a case entitled Meagher vs . the International Association of Machinists, a pension case testing the definition of the statute of limitations . Because of the ambiguities of the lower court decision, we thought that the profession would want to see some certainty attached to the statute of limitation Issue. Unfortunately, however, the Supreme Court decided to let a rather confusing decision stand, metimes you win and sometimes you ose . We did file a brief in connection with the Proposition 103 litigation in California. In that brief, we argued that risk

5 classification principles and rate-making principles were being violated, or could well be violated, by the proposition. We raised a long series of questions regarding implementation of the proposition , should the court uphold It . I guess you are all aware of where that issue came out. But, nevertheless, we felt that It was an important part of the process to raise the significance of the actuarial principles in that case .

Most recently, we filed a brief with the Florida Supreme Court regarding nonlawyer preparation ofpension plans. In this case we are taking a very activist role on behalf of the whole profession . particularly enrolled actuaries , opposing what amounts to a power grab on the part of the Florida Bar. I will be speaking in some detail on that case in the morning session on late-breaking developments . In sum, six major briefs were submitted during the past year , In addition to two which I didn't discuss , because we never got around to submitting them for one reason or another . These issues that we did comment upon in the courts covered risk classification , pension matters, life and health insurance, property and casualty insurance. A busyyear Indeed, but one in which our program of amicus curiae litigation really got off the ground . Several briefs are now in preparation for the coming year . I look forward to reporting on them to you next September, at our annual meeting in Washington . Thank you very much. Director of Standards Administration Christine Nickerson: The Actuarial Standards Board (ASB) has also had a busy year. 1989 marked the first full year of operation for the ASB . On July 1, 1988, the board was established as an independent entity affiliated with the Academy. At that time it took on the task of promulgating




standards of practice for the actuarial profession . The board has sole responsibility to Initiate the development of and to adopt new standards ofpractice . During 1989, the ASB met quarterly . in January, April, July and October. The ASB approved and published six actuarial standards of practice during 1989-two for life insurance, one for property and casualty insurance, one for health insurance , one for risk classification , and a pension-related compliance guideline . Current exposure drafts include such topics as when to do cash -flow testing for life Insurance companies , the cost of HIV-related claims, trending in rate making for property/ casualty insurance, discountingofproperty/casualty loss and loss adjustment reserves, and a standard ofpractice relating to HMOs. The ASB consists of nine members . At the end of 1989, Chairman Ron Bornhuetter and board member Barbara Lautzenheiser will rotate off the board. These two members will be replaced by Fred Kilbourne and Gary Corbett. Walter Miller will assume the duties of chair, with Jack Tumquist and George Swick acting as vice chairs . In addition to the seven operating committees of the ASB . the board established two task forces in 1989 ; a task force on appraisals of insurance companies and a task force on longterm care . The ASB has approved a preface to actuarial standards of practice, which provides the structural framework for the standards program , and also has begun work on a glossary of actuarial terms . Both these documents will be included in the compilation of all standards of practice that is expected to be released next year. As a staff person , I have been very impressed with the level of dedication that everyone involved with the ASB has brought to the job , and I look forward to an even busier 1990. Thank you . Mr. MacGinnitie : In addition to Pres Bassett, who served as president of the Academy two years ago, I would like to recognize at this time Bob Myers, who served as president of the Academy in 1971-72 . in addition, I would like to express my personal thanks to the members of the Academy staff. You have heard from four of them, plus Jim, this morning. There are several others who are not here who have been very hard-

6 working and diligent during the past year and made my job a lot easier . I should also mention the Academy's Chicago representative, Sue Schneider, who has been busily working at the registration desk. I don't believe she's in the room, but I hope you will take a moment to thank her for all of her work on behalf of the Academy as well . I should thank my fellow officers . There are two who are retiring as vice presidents at the end of this meeting : Joe Stahl and Phil Ben-Zvi . In addition to Joe and Phil, there are three other members of the executive committee who have worked with me this past year and whom I would like to recognize . Virgil Wagner, as secretary, and Harper Garrett and John Harding, as vice presidents . Gentlemen, thank you . We have six retiring board members . AllanAffleck. Darrel Croot, Chuck Farr . Dave Flynn, Harry Garber (who moves on to a vice-presidential slot), and Carl Honebein. It has been a pleasure working with you . Thank you . There are, as Christine noted, two retiring members of the Actuarial Standards Board and seven continuing . The two vice presidents, [ know are here . Both are former presidents of the Academy too : George Swick and Jack Turnquist. Of course, Ron Bornhuetter is retiring as chair of the ASB . He has done a fine job of leading that organization through its formative months . Barbara Lautzenheiser, too, did a fine j ob before that, when the ASS was an interim board . The ASB people have done yeoman work during this past year, and we all owe them a round of applause and a debt of gratitude .

Much of the work of the Academy is accomplished byits committees, as Gary Hendricks mentioned . All of the chairs of the committees and the members, manyofwhom are present in this room, I would also like to thank, because your dedication Is what really makes the Academy work . We could not accomplish the things that we do without you . I have been privileged to serve as your president during the centennial year . It has been a real pleasure for me, and I want to thank you for the opportunity. At this time, I will turn the gavel over to your president for the coming year, a gentleman with whom it has been a real pleasure to work over the pastyear, one who has really shouldered an immense part of the load already . I would like you to welcome Joe Brownlee .

Special Subject Supplement to The Actuarial Update President Harold J . Brownlee : Gee, there really is a gavel . Except I think it is not ours . It's someone else's . I would like to thank Jim a great deal for everything he has done. There is an awful lot going on in the Academy, as you have learned from listening to the people up here. Trying to catch up with everything, so that It is possible to contribute to the running of this important and complex organization , has been a challenge . Jim MacGinnitie has very thoughtfully kept me involved and informed

that together we can certainly coordinate things between CAPP and the Academy and that there will certainly be no problems there that we can't work out . I am looking forward to having a ve interesting year . I am lucky that it Is only and eleven-month year, because our meeting next year is In September . I look forward to working with the officers of the board and the staff. This meeting Is adjourned . 0

Summary of 1989 Academy Statements This summary ofpublic statements lists the statements released by the Academy last year, by practice area . Statements are assigned an index code number, by calendar year and order of release; for example 1989-1 is the first statement released during 1989 . With the new grouping, the index numbers are out of chronological order. It is still important to reference the statement's number when requesting a copy from the Academy office. however. (Te guidelines by which these statements are developed appear in the Academ Yearbook .) Harold J. Brownlee about everything that has gone on throughout the year, so that as I take over I at least have some knowledge of the issues and can do my best. In the same vein, I look forward to doing the same thing with Mavis . I will dump everything that I can on her, in order to - well, the excuse will be to keep her informed so that when she becomes president a year from now she will be able to be effective and efficient. The president's job . I have found out. involves a lot of coordinating work . It's not onlyworking with the staff here . I am very fortunate that over the years I have had enough assignments and committees on the board that I know most of them quite well . I think that I will look forward to serving with them - I will certainly need their help - but, in addition, in working with the other actuarial organizations . I am lucky that I will be working with Wynn Kent during the coming year, because Wynn and I have known each other for many, many years . I know

ON ISSUES RELATED TO HEALTH TO: NAIC (EX5) Life and Health Actuarial Task Force DATE: May 16, 1989 RE: Recommended exposure draft of `Guidelines for Filing of Premium Rates for Individual and Certain Group Health Insurance Contracts" BACSGROUND :This recommended exposure draft was prepared at the request of the NAIC task force In response to concerns related to the lack of uniformity and consistency in present accident and health (A&H) premium rate regulation , the growing burden on regulators of regulation in this area, and a movement away from prefunding and long-term premium planning. The most important new element in the recommended exposure draft is optional preiiling of rate revisions, on the condition that the insurer will certify voluntary compliance with specified{ monitoring procedures and agree tol certain other conditions. The NAIC released an exposure draft with significant modifications from that rec-


March 1990 ommended by the committee. DRAFTERS: Subcommittee on Liaison

with NAIC Accident and Health (B)


Committee DEX CODE: 1989-9 GTH: 19 pages

TO : American Institute of Certified Public Accountants (AICPA) DATE: May 31, 1989 RE : AICPA Statement of Position BACKGROUND:This memo comments on guidelines for auditing continuing care retirement communities being developed by the AICPA . DRAFTERS: Committee on Continuing Care Retirement Communities INDEX CODE : 1989-11 LENGTH : 10 pages TO : Senate Labor Committee DATE: July 6, 1989 RE: Senator Kennedy's mandated employer-provided health benefits proposal (S .768) BACKGROUND:This testimony was offered for the hearing record . DRAFTERS: Committee on Health INDEX CODE : 1989-17 LENGTH : 10 pages TO : Senate Finance Subcommittee on Health DATE: July 10, 1989 RE: Proposals to expand health coverage to the uninsured BACKGROUND : This testimonywas offered for the hearing record . DRAFTERS : Committee on Health INDEX CODE : 1989-18 LENGTH: 16 pages TO: Colorado Commissioner of insurance DATE: July 10, 1989 RE: Qualifications for actuaries to sign loss reserve and health care institution financial statements BACKGROUND : This testimonywas offered for the record of a public hearing on Colorado loss reserve certification requirements. DRAFTERS : General Counsel Gary D . Simms INDEX CODE : 1989-19 LENGTH: 8 pages TO: Financial Accounting Standards Board (FASB)

DATE: August 4, 1989 RE: Employers' accounting for postretirement benefits other than pensions . BACKGROUND : These comments were

submitted for testimony to be presented at a FASB hearing on November 2-3. DRAFTERS : Committee on Health and Welfare Plans INDEX CODE : 1989-21 LENGTH; 36 pages TO: NAIC (EX5) Life and Health Actuarial Task Force

DATE : October 5, 1989 RE: Comment letters on exposure draft of "Guidelines for Filing of Premium Rates for Individual and Certain Group Health Insurance Contracts" BACKGROUND : The NAIC task force received 32 comment letters on the rate filing guideline exposure draft. This memorandum, requested by NAIC task force, summarizes and evaluates criticisms and suggestions contained in the comment letters . The comments fell Into major subject categories and covered nearly all aspects of the guidelines . DRAFTERS: Subcommittee on Liaison with NAIC Accident and Health (B) Committee INDEX CODE : 1989-26 LENGTH : 6 pages TO : Financial Accounting Standards Board (FASB) DATE: November 2, 1989 RE : Employers' accounting for postretirement benefits other than pensions BACKGROUND :This public testimony comments on FASB's February 14th proposed statement of financial accounting standards for postretirement benefits other than pensions . DRAFTERS : Committee on Health and Welfare Plans INDEX CODE : 1989-28 LENGTH : 5 pages TO, NAIC (EX5) Life and Health Actuarial Task Force DATE : December 3, 1989 RE: High cost of conversions of group health insurance BACKGROUND :This discussion paper, titled "Group Conversion Issue," defines the problem (the risk class develops substandard experience), lists associated issues, presents factual background, lists open questions (e .g., with the advent of Consolidated Omnibus Budget Reconciliation Act of 1985, I .e ., COBRA, how frequently is the conversion privilege exercised, and, hence, what is the relative size of the problem?), and outlines the basic alternative

approaches. Attached to the paper is the current (July 1989) "Group Health Insurance Mandatory Conversion Privilege Model Act DRAFTERS: Subcommittee on Liaison with NAIC Accident and Health (B) Committee INDEX CODE: 1989-31 LENGTH : 22 pages ON ISSUES RELATED TO LIFE INSURANCE TO: National Association of Insurance Commissioners (NAIC)

DATE: May 30, 1989 RE: Proposed Actuarial Guideline XXX BACKGROUND :This letter recommends that the proposed guideline not be adopted . DRAFTERS: Committee on Life Insurance

INDEX CODE: 1989-10 LENGTH: 2 pages TO: NAIL Life and Health Actuarial Task Force DATE : September 26, 1989 RE: Nonforfelture values an life insurance BACKGROUND : This report was prepared in response to a request from the NAIC Life and Health Actuarial Task Force. DRAFTERS : Task Force on Nonforfetture Values INDEX CODE : 1989-24 LENGTH : 24 pages TO: American Institute of Certified Public Accountants (AICPA) Task Force on Reporting Debt Securities Held as Assets

DATE : December 23, 1989 RE: AICPA"StatementofPosition : Reporting Debt Securities Held as Assets"

BACKGROUND : The AICPA task force was established because the complex nature of many new financial Instruments can result in distortions of balance sheet and financial results . The Academy statement takes the position that the proposed AICPA statement does not solve the problem because the statement considers the valuation of individual categories of assets and liabilities independently from each other . The Academy committee's statement emphasizes that both asset and liability valuation techniques must be considered together for proper and fair financial reporting . The Academy


Special Subject Supplement to The Actuarial Update committee's statement also offers to assist the AICPA In this project.

DRAFTERS: Committee on Life Insurance Financial Reporting INDEX CODE: 1989-32 LENGTH : 4 pages ON ISSUES RELATED TO PENSIONS TO: Internal Revenue Service (IRS) DATE: January 16, 1989 RE: Pension plan regulation BACKGROUND : These comments were submitted to the IRS on proposed regulations to Section 401(1) of the Internal Revenue Code that would make changes to integrated pension plans . DRAFTERS: Pension Committee INDEX CODE : 1989-1 LENGTH : 12 pages

TO: Governmental Accounting Standards Board (GASB) DATE : February 14, 1989 RE : Accounting for pensions BACKGROUND :These comments were submitted to GASB on Preliminary Views on Governmental Employers' Accounting for Pensions . DRAFTERS: Committee on Pension Accounting INDEX CODE : 1989-3 LENGTH : 6 pages

TO: American Institute of Certified Public Accountants (AICPA) DATE : February 15, 1989 RE : Audits of public employee retirement systems BACKGROUND : This letter discusses the standard actuary confirmation letters to be used by accountants in conjunction with audits of public employee retirement systems . DRAFTERS: Committee on Pension Accounting

INDEX CODE: 1989-4 LENGTH : I page TO: Internal Revenue Service (IRS) DATE: April 17, 1989

RE: Minimum participation standards for pension plans . BACKGROUND : This statement was submitted to the IRS to comment on proposed regulations for Section 401(a)(26) of the Internal Revenue Code . DRAFTERS : Pension Committee INDEX CODE : 1989-6 LENGTH : 16 pages

TO : Various members of Congress and agency officials DATE : May 3, 1989 RE : Reversion of excess pension assets to employers BACKGROUND: This statement was submitted to offer comments on S.685, the Employee Pension Protection Act of 1989, which would require excess assets at plan termination to be used in whole or In part to Improve the participants' pension benefits . DRAFTERS; Pension Committee INDEX CODE : 1989-7 LENGTH : 26 pages TO : Internal Revenue Service (IRS) DATE : June 29, 1989 RE : Pension plan integration rules BACKGROUND : This testimony was offered at an IRS public hearing to comment on proposed regulations relating to Social Security integration under qualified pension plans .

DRAFTERS; Pension Committee INDEX CODE : 1989-15 LENGTH : 4 pages TO : Internal Revenue Service (IRS) DATE : October 30, 1989 RE : Proposed amendments to the income tax regulation under Section 401(a)(26) of the internal Revenue Code of 1986

BACKGROUND : This testimony comments on IRS's proposed minimum participation regulations for pension plans . DRAFTERS; Pension Committee INDEX CODE : 1989-27 LENGTH: 4 pages

TO : U .S . Court of Appeals for the Fourth Circuit DATE : November 29, 1989 RE : The matter of the Mead Corporation us . 711ley, et. al. BACKGROUND: At issue in this case

is whether, prior to enactment of the Retirement EquityAetof 1984 (REA), early retirement benefits for which the age and service requirements have not been satisfied must nonetheless be paid to participants upon termination ofa defined benefit plan . This Academy's amteus brief asserts that, prior to REA, there was no basis in either law or actuarial practice for paying subsidized early retirement benefits for which the age and service requirements had not been met at the time of plan termination . The brief points out, among

other things, that such benefits had not been paid as a matter of common practice and, further, that there was no basis in the relevant pension la for determining how such benefit would be valued if the age and s ice requirements had not been met . It would only be possible to determine unambiguously the value of such benefits if the pension plan specifically stated that such benefit were payable upon plan termination and, in addition, included a method by which to determine the value of these benefits . Without the latter, the benefits would be of indeterminate value since there was no accepted basis in actuarial practice forvaluing such benefits . DRAFTERS : General Counsel Gary D . Simms

INDEX CODE: 1989-29 LENGTH : 19 pages ON PROPERTY AND LIABILITY ISSUES TO : Deputy Comptroller General of the Georgia Insurance Department DATE: January 24, 1989 RE: Casualty loss reserve opinions BACKGROUND ; This letter comments on Georgia House Bill 182 to require property and casualty Insurers to have a report prepared by a loss reserve specialist under certain circumstances.

DRAFTERS: Academy President W. James MacGinnitle INDEX CODE ; 1989-2 LENGTH: 4 pages TO : Senate Judiciary Committee DATE: May 8, 1989 RE: McCarran -Ferguson Act BACKGROUND :This statement comments on antitrust exemptions afforded insurers under the McCarran-Ferguson Act .

DRAFTERS : Committee on Property and Liability Issues INDEX CODE: 1989-8 LENGTH : 8 pages

TO: House Subcommittee on Oversight and Investigations DATE : June 15, 1989 RE: Property and liability Insurance BACKGROUND: This letter commented on the need to strengthen loss reserve certification requirements . DRAFTERS : Committee on Property and Liability Issues

March 1990 INDEX CODE: 1989-12 LENGTH : 3 pages Roxani Gillespie, California State Commissioner of insurance ATE: June 15, 1989 RE: Proposition 103 BACKGROUND : This letter offered assistance in analyzing issues relating to Proposition 103.

DRAFTERS : Committee on Property and Liability Issues INDEX CODE : 1989-13 LENGTH : 1 page TO : Counsel to Subcommittee on Oversight and Investigation of the House Committee on Energyand Commerce DATE : June 15, 1989 RE: Loss reserve certifications BACKGROUND : This letter offers assistance to the subcommittee in its deliberations regarding insurance company insolvencies and possible federal legislation to require annual loss reserve certifications .

DRAFTERS : Committee on Property and liability issues INDEX CODE: 1989-14 LENGTH : 1 page : James W . Schacht. Chief Deputy IrDirector, State of Illinois Department of Insurance (in his NAIC ca-

pacity) DATE : June 29, 1989 RE: Insurance company insolvencies BACKGROUND : This letter offers to prepare statements and perform analysis, as appropriate, to the NAIC task forces and committees that deal with issues related to insurance company insolvencies . Mr. Schacht replied that he would have the NAIC manual (designed to assist state regulators in dealing with troubled companies) forwarded to the Academy committee as soon as It was published . He said that he would welcome, for NAIC consideration, the committee's suggestions for inserts and improvements to the loose-leaf manual . DRAFTERS: Committee on Property and Liability Issues INDEX CODE ; 1989-16 LENGTH : 1 page TO : Various state insurance legislators DATE: August 4, 1989

Offer of assistance on questions

9 Committee on Property and Liability Issues to prepare statements and perform analysis on actuarial issues related to the insurance industry. Although several letters of acknowledgement were received, no requests for assistance had been received as of October 1989 . DRAFTERS : Committee on Property and Liability Issues

INDEX CODE: 19S9-20 LENGTH : 1 page TO : Chief insurance examiners and state insurance commissioners DATE: August 10, 1989 RE : The effectiveness of current casualty loss reserve opinions BACKGROUND: This letter solicits information for an evaluation of the effectiveness of current opinions with the goal of suggesting improvements . Included with the letter was a questionnaire to be filled out for each insurance company in the state that had been declared insolvent between 1969 and 1987 . There were 153 such companies . The questionnaire queried state regulators regarding the primary reasons for the insolvency, the presence of loss reserve opinions, and whether the opinions were qualified . The objectives of this project are to recommend improvements for the NAIC blanks and loss reserve opinions and help to improve regulatory enforcement by Increasing the weight that regulators place on actuarial opinions . DRAFTERS: Committee on Property and Liability Insurance Financial Reporting INDEX CODE : 1989-22 LENGTH: 14 pages ON THE SOCIAL SECURITY OASDI PROGRAMS TO : Various members of Congress and trustees of the Social Security and Medicare trust funds

DATE : March 28, 1989 RE : 1988 Annual Reports of the Board of Trustees of the federal Old-Age, Survivors, and Disability Insurance Trust Funds

BACKGROUND: This statement comments on and makes recommendations regarding the 1988 annual report . DRAFTERS: Committee on Social Insurance

related to insurance ,CKGROUND: This letter, which was

INDEX CODE: 1989-5 LENGTH: 3 pages

sent to approximately 150 state legislators involved in Insurance issues, offers the services of the Academy

TO: Social Security Trustees, members of the Social Security Quadren-

nial Advisory Council, and various members of Congress DATE: August 21, 1989 RE: Tests of the actuarial status of the Social Security and Medicare trust funds BACKGROUND : This joint statement of the Academy and the Society of Actuaries comments on measures of the short-range and long-range financial soundness of Social Security and Medicare . DRAFTERS : Committee on Social Insurance INDEX CODE: 1989-23 LENGTH : 3 pages

ON OTHER ISSUES TO : Supreme Court of the State of Florida DATE: September 29, 1989 RE: Whether or not it is the unlicensed practice of law for a nonlawyer to render advice on the design of a pension plan and/or draft or amend a pension plan for another

BACKGROUND : The Standing Committee on the Unlicensed Practice of Law of the Florida Bar issued an advisory opinion on the above question and requested that the Florida Supreme Court adopt their opinion . The Academy intervened and submitted this brief arguing that actuaries who offer advice on plan design and amend plans are not engaging In the unlicensed practice of law . DRAFTERS: General Counsel Gary D . Simms INDEX CODE : 1989-25 LENGTH: 28 pages TO: State insurance commissioners and other non-actuarial audiences involved in insurance regulation DATE: December 1, 1989 RE: The principles of risk classification BACKGROUND: This half-hour slide show and script were prepared to Illustrate the basic principles of risk classification and to point out typical difficulties that arise when these basic principles are not adhered to in providing insurance . The presentation was first presented at the December NAIC meeting for a group of state Insurance commissioners and other state insurance regulators . DRAFTERS : Committee on Risk Classification INDEX CODE: 1989-30 LENGTH : 15 pages

(continued on pagel0)


Special Subject Supplement to The Actuari al Update

Non-Routine Actions

of the Academy Board During 1988-89 The Board of Directors ' following actions, of interest to the membership at large, are excerpted from the minutes of each of the four board meetings held last year. Complete minutes of these meetings are available from the Academy upon request .

December 14, 1988 •James J . Murphy was elected executive vice president of the Academy. •The board adopted the 1989 budget. •Iowa Commissioner of Insurance William D . Hager addressed the board on the subject of insurance regulation .

March 21, 1989 •The board elected Ruth Frew to complete the unexpired term of Karen Krist as a member of the board . •A letter agreement governing budgeting and the utilization of Academy personnel by the Actuarial Standards Board (ASB) was adopted . •7he board approved an expenditure of $16,000 in support of profession-wide publicity relating to the centennial of the actuarial profession in North America .

June 22, 1989 *Following a review of the report of the audit subcommittee, the board agreed that the ratio of fund balance to operating expenses should be targeted at25%, and that current income should meet current-year expenses . *The board adopted the final report of the Committee on Qualifications, which included a change in format to existing Qualification Standards and the adoption of a new General Standard for Public Statements ofActuarial Opinion . •The board also adopted the final report of the Task Force on Continuing Education, linking continuing education requirements to the Academy's qualification standards . *Howard Welzmann, executive director of the Association of Private Pension and Welfare Plans (APPWP) addressed the board on recent benefits legislation in Congress .

September 19, 1989 *The board elected the following individuals as officers for 1989-1990 :

President -elect : Mavis A . Walters Vice President: Harry D . Garber Vice President : Daniel J . McCarthy Treasurer: Thomas D . Levy Secretary: Virgil D . Wagner *The board adopted a proposal to increase dues to $ 265 for 1990. *The board approved the creation of the Committee on Professional Responsibility to deal with issues regarding education in standards of practice and conduct . •The board reviewed the steps being taken by the Academy to implement the recommendations of the Joint Task Force on Strengthening the Actuarial Profession. including: 1 .The inclusion of the presidentselect of other actuarial organizations on the Academy board, to the extent that this can be accommodated with board turnover and representation by employer , practice area . and geographical area ; 2 .The creation of informal practice areas, headed by an Academy officer, on an interim basis to determine whether more permanent practice councils might be adopted in the future: 3 .The creation of a task force to considerAcademy membership requirements; and, 4 .The consideration of potential bylaw amendments to create a central disciplinary authority within the Academy to serve the entire profession, and to engage In appropriate investigation and counseling of actuaries . 'Frank Nutter , president of the Alliance of American Insurers, addressed the board on the political atmosphere affecting the property / casualty insurance industry. 'It was reported that the Actuarial Standards Board 's Selection Committee had designated Walter Miller as the new chairman of the ASB, and that Fred Kilbourne and Gary Corbett had been named as new members of the ASH to assume the seats of the departing chairman, Ronald Bornhuetter and member Barbara Lautzenheiser . e The board adopted the following resolutions relating to the valuation actuary :

-the board will communicate a summary of the recommendations of the Report of the NAIC Special Advisory Committee on the Standard Valuatio Law(SAC /VL), chaired byJohnTvveedi to the Academy membership ; -the board will make the whole report available on request to the Academy membership (excluding the MSVR Appendix) ; --the board authorized Academy staff to support the thrust of the report as the need or opportunity arises ; and -the board assures that appropriate and adequate qualification standards, standards of practice , and discipline processes will be maintained and enforced. 4

ACADEMY STATEMENTS (continued from page 9) TO : L. William Seidman , chairman, Federal Deposit Insurance Corporation (FDIC) DATE: December 29, 1989 RE : Pass-through insurance and its implications for the safety ofdeposi insurance funds BACKGROUND: The FDIC was in' structed by Congress to prepare a report on pass-through insurance in response to congressional concerns regarding the additional liability that the FDIC assumes in offering up to $100,000 of deposit insurance to each individual who jointly holds assets through an institutional arrangement such as a pension plan . In part, this concern arose in response to banks marketing BICs. financial instruments similar to the guaranteed investment contracts (GICs) that are are marketed by the insurance industry. This letter, in response to an FDIC general public request for views on pass-through insurance , offered the FDIC expert assistance in analyzing the economic risks posed by specific types of deposits for which pass-through insurance is provided . Attached to the letter was a recent article from the Society of Actuaries ' Transactions (Volume 36), which discusses the risks associated with GICs. DRAFTERS: Executive Vice President James Murphy INDEX CODE : 1989-33 LENGTH: 1 page

March 1990


AMERICAN ACADEMY OF ACTUARIES Statement of Revenue and Expenses Year ended December 31, 1988

General Fund Revenue : Membership dues Membership application fees Interest Administrative services Academy Alert subscriptions EA meeting distribution CLRS distribution Other

$ 1,304,935 10,700 113,695 129 .649 23,760

25,880 16,386 16,266 $1,641 .271 1,805,823

Expenses Excess (deficiency) of revenue over expenses

$ (164, 552)

Statement of Expenses Year ended December 31, 1988 Academy Operations Staff salaries Employee insurance Payroll taxes Retirement plan Temporaries and personnel fees Rent Telephone Postage and freight Travel and related expenses Committee meetings President & president-elect travel General office supplies & rentals Printing Service agreement (SOA) Audit & accounting Insurance Depreciation & amortization Subscriptions & periodicals Public relations Academy Alert Magazine research & expenses Professional services Search and relocation expenses Other

Actuarial Standards Board


$ 545,323 40,467 38,144 77,131 18,460 119,951 11,460 88,394 58,009 38,896 35,254 47,431 179,007 53,134 14,236 13,919 20,034 7,726 28,022 12,611 11,538 6,735 52,886

$ 93,652 7,141 7,446 11,029







21,168 2,022 17,338 17,448 9,026 8,370 61,160 2,512 2,456 3,535 1,364 7,005 -

$ 638,975 47,608 45,590 88,160 18,460 141,119 13,482 105,732 75,457 47,922 35,254 55,801 240 .167 53,134 16,748 16,375 23,569 9,090 35,027 12,611 11,538 6,735 52,886

Special Subject Supplement to The Actuarial Update


Summary Report from the Treasurer Highlights of the Academy's audited financial statements for 1988 are included in this supplement to the March 1990 Actuarial Update . Note that the auditor's opinion does not include any qualifying reservations . During 1988, expenses exceeded revenues by $164,552, thus lowering the fund balance to $745,704 . The 1989 audit will be presented to the Board of Directors and the Audit Subcommittee In June 1990; it will be published in The Update shortly thereafter. The Board of Directors recently adopted the 1990 budget . A functional allocation of that budget is shown below. Note that the major items, government information, public relations (including the new magazine , Contingencies) and professional standards, recently have been the focus of greatly increased activity.

Balance Sheet December 31, 1988 Assets

General Fund

Current assets : Cash Certificates of deposit Money market funds Accounts receivable Accrued interest receivable Prepaid expenses Deferred sublease expense

$ 82,500 383,417 765,119 113,522 17,339 48,940 963

Total current assets

$1,411,800 299,000 1,315

Certificates of deposit-long-term Deferred sublease expenses-long-term Furniture, equipment & leasehold improvements, net

111,186 $1,823 .301

Liabilities and Fund Balances Current liabilities : Accounts payable Deferred membership dues revenue Deferred revenue-other Accrued expenses Deferred rent credit

$ 202 .576 845,075 9,190 6,276 2,145

Total current liabilities

$1 .065,262

Deferred rent credit-long-term Fund balance

Thomas D. Levy Treasurer

12,335 745.704


AAA 1990 Budget Functional Allocation Dues Income Dues` rate Membership base

$2`,295,800> $265 $8,663 `

ITEM Government Information


Public Relations Member Communications ' Organizational Services Interorganizational Liaison Executive/Administrative Actuarial Standards Board Contingencies Change In reserves

Dues rate Net of non-dues income ,

) $265


March 1990 Actuarial Update  

Mr. MacGinnitie: All those in favor? (Response) Okay. Congratulations to the new board members. Our next Item of business is the report of t...

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