AMERICANACADEMY OFACTUARIES

VOLUME 24NUMBER 7

JULY1995

THIS MONTH

From a Vice President

Casualty Practice CouncilNews

4Academy Answers

NAIC Questions

• Financial Statement

7Capitol Views

8Forecast 2000 Chooses

Fleishman-Hillard

ENCLOSURESIncluded with this month's

issue ofThe Actuarial Updateare the following:

In Search Of

ASB Boxscore

Bylaw Amendment Vote

• THIRTY

330YEARS

Serving the Actuarial Profession

2 ~ ASB Life Sales Illustration HearingDraws Crowd and Strong Opinions

ASB Chairperson Gary Corbett (center) addresses hearing on life sales illustrations . He isjoined by ASB member Frank Irish (1) and ASB Life Committee Chair Ed Silins (r),

by Jeffrey Speicher

uidelines for actuarial certi-fication of nonguaranteedelements of life insurancesales illustrations were thesubject of an open hearing

of the Actuarial Standards Board(ASB) at the Waldorf-Astoria inNew York City on May 24 .

The proposed guidelines arespelled out in an ASB draft stan-dard of practice , Compliance withthe NAIC Model Regulation onLife Insurance Sales Illustrations,which was developed by the ASBLife Committee at the request ofthe National Association of Insur-ance Commissioners (NAIC) . Aproposed NAIC model lawrequires an illustration actuary to

certify annually the nonguaran-teed elements in all life sales illus-trations. The final ASB guidelineswill provide guidance to the illus-tration actuary in complying withthe NAIC requirement .

Sales illustrations are used bylife insurance companies andtheir agents to show how policyvalues and premiums change overtime and to compare cost andperformance among policies .Insurance regulators traditionallyhave allowed companies a freehand in developing the scale ofillustrated nonguaranteed ele-ments, such as dividends, interestrates, and mortality charges .However, newly developed insur-ance products and sophisticatedsoftware that enables insuranceagents to develop sales illustra-tions independently have led togrowing concern about salesabuses. The new NAIC modellaw requires an actuary to certifythat the nonguaranteed elementsof illustrations are consistent withrecent historical experience .

Restrained Competition

While praising the intent of themodel law and the supportingstandard, some industry repre-sentatives and actuarial consul-tants expressed reservationsabout some aspects of the regula-tion. Consultant Donna Clairecalled on the ASB to includecash-flow testing provisions inthe standard . Thomas Philips ofPrincipal Mutual Life noted thatmeeting the standard wouldrequire engaging a full-time actu-ary, and Craig Smith of NationalLife of Vermont also pointed outthat additional administrative

Continued on page 5

1995 Annual MeetingThe Academy's ;1995 Annual Meeting isbeing held in conjunction' with the Societyof Actuaries Annual Meeting and Exhibit,'October 15-18 at the Boston MarriottCopley Place .

The Academy is sponsoring theMonday luncheon for, all attendees . ;Author,and commentator Kevin Phillips willpresent the luncheon address . A separate ;annual meeting mailing with registrationinformation will be mailed to all Academymembers in July Keviri Phillips

AMERICANACADEMY OFACTUARIES

PresidentCharles A . BryanPresident-Elect

Jack M . TurnquistVice PresidentsJohn M . BertkoHoward FluhrDavid P . Flynn

Paul F . KolkmanCharles Barry H . Watson

Secretary-TreasurerJames P . SwensonExecutive Director

Wilson W . Wyatt, Jr.

EXECUTIVE OFFICEThe American Academy

of Actuaries1100 Seventeenth Street, NW

7th FloorWashington, DC 20036

(202) 223-8196Fax: (202) 872-1948

MEMBERSHIPADMINISTRATION

Woodfield Corporate Center475 N. Martingale Road

Schaumburg, IL 60173-2226(708) 706-3513

THE ACTUARIALUPDATE

Committee on PublicationsChairperson

E . Toni MulderEditor

Adam ReeseAssociate Editors

William CarrollRonald Gebhardtsbauer

Patrick J . GrannanManaging EditorJeffrey Speicher

74764,2620@compuserve.co mContributing Editor

Ken KrehbielProduction Manager

Renee Saunders

Statements of fact and opinion in thispublication , including editorials and let-

ters to the editor, are made on theresponsibility of the authors alone anddo not necessarily imply or representthe position of the American Academy

of Actuaries, the editors, or themembers of the Academy .

Good ProfessionalsMake Good Employeesby Charles Barry H . Walson

T he title of this editorial is aparaphrase of a commonpiece of folk wisdom :"Good fences make goodneighbors ."

This is common at least inCanada, from whence I come ; itwas the title of a well-regardedbook about U .S .-Canadian rela-tions. The point is that satisfacto-ry relationships between neigh-bors require a clear demarcationbetween them and theirinterests-good fences,in other words.

Here, my pointis that to be agood (successful,happy) actuarialworker, it isimperative to bea good actuarialprofessional. AsAcademy vice presi-dent for professionalism,I have a direct interest in this,but I have another reason forwriting about it . I think thatmany actuaries, although believ-ing in the pillars of professional-ism, do not see the need to par-ticipate in it fully .

It is fair to say that most actu-aries now believe in the need topractice the tenets of professional-ism: follow the code of conduct,have the proper qualifications andbackground to carry out theassignment, pay due regard to thestandards of practice .

There are still some who seepart of the paraphernalia of pro-fessionalism as undue constraintson their freedom to practice theirprofession as they see fit, deprivingthem, so to speak, of the right tobear actuarial arms. These actuar-ial free-shooters appear to be adwindling tribe. We have come along way from the days whenWendell Milliman, one of the

FROM Avice president

giants of the profession, feltobliged to devote his speeches asSociety of Actuaries president toreminding insurance companyactuaries that professional ethicsproblems did not arise solely forconsultants. Having your boss tellyou to do something did notrelieve you of the need to focus onthe requirements of good conduct!

Today, though, a questionremains of how to weigh the often

conflicting claims, upontime and effort, of

professional activi-ties and employerrequirements. Inthese days ofdownsizing,organizationengineering,competition from

both humans andmachines, total quali-

ty management (the cus-tomer is always right), and bot-

tom-line fixation, employers andactuaries often see some of theclaims of professionalism as adrag on work performance .

Thus we find insurers and con-sulting firms unwilling to allowtheir actuaries to participate onprofessional committees and lim-iting their attendance at meetings .We also find individual actuarieswho, recognizing that their pay-check depends on their work per-formance, "boast" of how manyyears it has been since theyattended a meeting or seminar.

I view this as shortsighted inthe extreme. Professional activityenhances, even enables, satisfac-tory work performance .

Consider the following :J The rules of professional con-duct must be followed, or theactuary is exposed to disciplinaryand legal penalties. A disciplined

actuary is worth less as anemployee, and the penalties willaffect the bottom line . For therules to be followed, they muskunderstood, and this requprofessional participation .J Failure to adhere to standardsof practice carries similar dan-gers . Understanding the stan-dards requires much more in theway of study, education, and con-tact with actuarial peers .J To be qualified to carry out anassignment, knowledge of the fieldmust be current . Call it continu-ing education, research, or whatyou will, this must be obtainedthrough reading, meeting atten-dance, or peer discussion . Manyfind meetings and conversationsmore congenial (and worthwhile)than solitary swatting .D Meetings are a forum for pre-serving and improving one's pro-fessional stature, particularly forthe actuary who practices withouta body of peers at hand.O Similarly, committee workfacilitates peer contact, updatingof knowledge, and development ofactuarial skills .LJ All these activities enhayour professional stature,your worth to yourself and toyour employer. Actuarial firmsthat employ actuaries of statureare seen as firms of stature, with-in and without the profession .O Actuaries of stature help thebottom line. They avoid errors-professionalism heightens your"sense of smell," allowing you toovercome the "garbage in, garbageout" computer syndrome.O In successful companies, mid-dle managers are more likely todefine themselves through pro-fessional pursuits . They under-stand the business, perceive theaims of the competition, and seetheir employer in context . Theybring challenge and creativity totheir tasks .

To sum up, an actuary mustpay attention to professionalismto have a successful career .Employers need to recognize this .Perhaps showing this editorial toyour employers would help topersuade them that good prsionals do make good emplo

Watson is Academy vice presidentof the Council on Professionalism .

2 The Actuarial Update ∎ July 1995

p~ectice council0 NEWS

David Flynn

Casualty Actuaries Increase Their VisibilityT he Casualty Practice Council's major thrust in 1995 has been

increasing the participation and visibility of casualty actuariesin the public policy arena . Refocusing the Committee on

Property and Liability Issues was a first step. The committee nowis composed of a small diverse group of experts each of whom hasassembled a work group to focus on a key issue . I am happy toreport that under the able leadership of Paul O'Connell and ahard-working group of co-chairs the new approach is meetingwith considerable success .

Congressional staff are seeking the expertise of the Environ-mental Liabilities Work Group as they continue to struggle withSuperfund reform . Staff from both the House Transportationand Infrastructure Committee and the House Commerce Com-mittee (the House committees with major Superfund jurisdic-tion) are seeking the group's input. The group is hopeful that theSenate will do the same .

The Work Group on Medical Malpractice Reform has metwith equal success. This group's exemplary paper on the effect ofalternative reforms on medical malpractice claims was widely dis-

tributed during the 1994 health care reform debate. During thisyear's debate on tort reform, leading members of the Senatesought the group's counsel. Members of the group participated ina conference call with congressional staff and provided writtenresponses to questions of critical concern on the impact of caps onnoneconomic damages .

Other work groups are positioning themselves for upcomingdebates. Anticipating both congressional and National Associationof Insurance Commissioners (NAIC) action, the Work Group onCatastrophe Reserving/Natural Disaster Insurance is developing aprimer on natural disaster insurance to assist policy makers withlimited knowledge of the insurance industry. The group is alsoreviewing Congresswoman Patsy Mink's bill (H .R. 1731, The Earth-quake, Volcanic Eruption and Hurricane Hazards Insurance Act of1995) and plans to analyze the Natural Disaster Coalition's proposal,which is expected to be introduced in Congress this summer.

In redlining activities, the action has moved from the federal tothe local arena where states and the NAIC continue to strugglewith problems of insurance availability and affordability in select-ed urban and rural areas. The Redlining Work Group is drafting apaper to clarify the actuarial issues and provide a more realisticframework for considering this issue. The paper is intended forstate legislators and the regulators who advise them .

Financial Reporting

Activity remains high in the financial reporting area . Under thecapable leadership of Pat Grannan, the Committee on Property

Continued on page 8

Casualty Practice CouncilDave Flynn, vice president(202-223-8196, ext . 250)

Key Issue Academy Objective

Casualty Loss Reserve Opinions Assist property/casualty actuaries in keeping abreastof state loss reserve valuation laws and regulations

Study sources of potentialdeficiencies in industry reserves

Assist NAIL Casualty Actuarial Technical Task Forcedraft instructions for residual market pools

Provide technical support to NAI(Task Forceon other loss reserve issues

Redlining Provide technical support to state and federal policy makers

Workers ' Compensation Write monograph on alternative treatmentsof WC in health care reform

Develop written materials on other W( issues for state policy makers

Medical Malpractice Reform Provide support to stateand federal policy makers

Catastrophe Reserves and Provide technical support to staterat Disinter Insurance Reform and federal polity makers

~flfranmental Liabilities Provide technical support to state[including Superfund) and federal policy makers

Reinsurance Regulation Provide technical support to state andand federal policy makers

Academy ActionWork group will periodically updateProperty/( asualty Loss Reserve Manual and P/C Practice Note

(OPLFR (Committee on Property and Debility Financial Reporting) will reporton company adverse reserve development survey

COPLFR subcommittee has submitted draft recommendations

(OPLFR subcommittee formed to discuss broadening ofStatement of Actuarial Opinion

Work group is developing white paper

Draft monograph under review

Work group reviewing status of WC in the states

Work group choir briefed Republican Senate staff an alternativecops on noneconomic damages

White paper is under development

Work group preparing materials for congressional staff

Work group being formed

The Actuarial Update ∎ July 1995 3

Academy Answers NAIC Technical Questions,Takes on New Projects at June NAIC MeetingBy Jean Rosales

he Academy and theNational Association ofInsurance Commissioners(NAIC) continued theircooperation on technical

issues at the NAIC's June meetingin St . Louis. Once again, Acade-my committees and task forcesreported their findings inresponse to earlier NAIC requestsand received additional requestsfor assistance from NAIC work-ing groups and task forces.

Actuarial Task Force0 Life Nonforfeiture Law. TheAcademy Committee on LifeInsurance's (COLI) report to theLife Working Group of the Lifeand Health Actuarial Task Forceoutlined regulatory provisions forthe law and expanded on theoreti-cal concepts previously discussedby the NAIC group. COLI wasasked to continue its work on thisproject and to coordinate itsefforts with a Society of Actuariestask force that is currently evaluat-ing approaches to developing non-forfeiture values . Recognizing thatthe new law is likely to require ref-erences to one or more new actu-arial standards of practices, theLife Working Group also askedthe Actuarial Standards Board totake part in discussions of the law .

D Annuity Nonforfeiture Law.The NAIC Annuity Working

Practice Note RevisionsAcademy committees have begun revising Practice Notes inthe life, health, and casualty practice areas for distribution thisfall . The Practice Notes have become a popular tool withactuaries providing practical guidance on the interpretation ofNAIC and state requirements for actuarial opinions . PracticeNotes committees welcome comments and suggestions fromall interested' actuaries . Send comments to the Academy to theattention of : Patrick Grannan (casualty), William Bluhm(health) or Donna Claire (life) .'

Group recently added a require-ment for actuarial certification ofnonguaranteed elements to itsproposed Annuity NonforfeitureLaw. That change , coupled withthe change in direction taken bythe Life Working Group on theprinciples of nonforfeiture in lifeinsurance , has led the L&HATF todecide to reexamine the AnnuityNonforfeiture Law for possibleredrafting to make it more consis-tent with the life law. L&HATF

The NAICLife Working Group

asked theActuarial StandardsBoard to take part

in discussionsof the law .

Chair Frank Dino will be request-ing assistance from the Academy'sCommittee on Life Insurance inreviewing the annuity law .

0 Annuity Valuation Law. TheAcademy's Annuity ValuationTask Force reported on the statusof its work on recommendationsfor new annuity valuation stan-dards, which is expected to becompleted by year-end .

0 Codification of SAP/GAAP.The Academy Committee on LifeInsurance Financial Reporting(COLIFR) made a presentation onactuarial issues that should beaddressed by the NAIC project oncodification. COLIFR was askedto prepare a response to questionspreviously posed by the L&HATFfor the September NAIC meeting .

D Accident & Health WorkingGroup. The Academy's StateHealth Committee presented itsreport on individual marketreform and the segmentation of

the individual market to the Acci-dent & Health Working Groupand members of the RegulatoryFramework Task Force meetingin a joint session. The NAICgroup received the report andmade further requests for analysisby the Academy committee .

Risk-Based CapitalLife Risk-Based Capital WorkingGroup. The Academy Task Forceon Life Risk-Based Capital (RBC)presented its reports on mortgagefactors and the combination ofrisks in the RBC formula. TheAcademy group was asked toreview the use of the discountedcash flow approach with respect tomortgages in good standing ; toexamine the stability of beta fac-tors; to review Schedule DBinstructions on derivatives ; toreview the possibility of updatithe C-3 risk component; anprovide a report on the determi-nation of the life RBC bond sizefactor. In addition, the AcademyLife RBC Task Force was asked tosummarize the effects on RBC of arecent NAIC decision to adoptuniform accounting methodologyfor separate account surplus . In achange to the December Life RBCformula, the NAIC working groupvoted to require the mortgageexperience adjustment factor to becalculated on a quarterly basis.

Property /Casualty Risk-Based Capital Working Group.The Academy Task Force onProperty/Casualty Risk-BasedCapital reported on its work oncredit for claims-made business,applicability of a trend test, uni-form discount factors, andunderwriting risk factors forfidelity and surety lines of busi-ness . The NAIC asked theAcademy to expedite its analysisof developing a single RBC fr---mula for primary insurersprofessional reinsurers.

Health Organizations Risk-Based Capital Working Group .The NAIC working group contin-

4 The Actuarial Update ∎ July 1995

ues to work on finalizing theHealth Organizations RBC formu-la and has asked the Academy's

force to continue providingduring its deliberations.

Other ActivitiesGenetic Testing: The GeneticTesting Working Group of theNAIC Life Committee continuedits work on drafting a white paperdiscussing issues involved ingenetic testing and insurance .NAIC regulators who had partici-pated in the Academy's Confer-ence on Genetic Testing praisedthe conference as having provid-ed them with a substantialamount of valuable informationon the issues. In response to arequest from the NAIC workgroup, the Academy's Risk Classi-fication Committee will providetranscripts from the conference 'ito all work group members .

NAIC/AAA/ASB/ABCD JointCommittee on Standards : Thejoint committee heard reportsfrom the Academy Council onIftessionalism, the Actuarial

Bards Board, and the Actuar-ial Board for Counseling and Dis-cipline, and received a writtenreport of current projects inwhich the Academy is assistingNAIC groups. The Academy'sCommittee on Actuarial PublicService made a brief presentationon the importance of assuringthat actuaries employed in thepublic sector meet appropriatequalification and continuing edu-cation standards. NAIC repre-sentatives agreed that it is impor-tant for all actuaries to be appro-priately qualified but mentionedthat budgetary constraints makeit difficult for state insurancedepartments to assist employeeswith travel funds to meet contin-uing education requirements. Itwas generally agreed that theNAIC would consider sponsoringan annual training session forpublic sector actuaries to be heldin Kansas City .

Rosales is assistant director ofpublic policy for the Academy andits chief liaison with the NAIC.

Academy Sponsors Conferenceon Genetic TestingT he Academy's Committee on Risk Classification sponsored a

conference on genetic testing and insurance in Washington onMay 18. The conference was developed for the benefit of state

regulators interested in receiving more detailed information onissues related to the use of genetic testing by insurance companies .

The group used the working paper outline developed by theNational Association of InsuranceCommissioners (NAIC)Genetic Testing WorkingGroup as the focus for itsdiscussion . Topics cov-ered during the full-daymeeting included a discus-sion of different ways ofdefining genetic testingand the implications ofdifferent definitions for insurers and other parties ; the currentstate of genetic testing and its use by the medical profession; thecurrent and possible future use of genetic test results by insurersin underwriting and pricing health and life policies ; and thepotential problem of antiselection by insurance consumers .

Participants included medical directors from insurance com-panies (Dr. Donald Chambers and Dr. Steve Zimmermann),experts in insurance underwriting (John Krinik and Jess Mast),medical professionals specializing in genetics (Dr . Jeffrey Botkin,Dr. Neil Holtzman, and Dr . Harry Ostrer), a legal expert (Dr .Leah Wortham), and a consumer advocate (Mary Jo Kahn) .Members of the Risk Classification Committee who attendedwere James Keller, Donald Kiefer, and Committee ChairpersonDavid Christianson. State regulators who participated includedDixon Larkin of Utah, Kathleen Connor of Washington, andBirny Birnbaum of Texas .

l(AlttlW, continuedfrom page 1

expenses would be involved . Onthe other hand, James Atkins ofFirst Colony Corporation saidthe standard would "restraininsane competition and notedthe expense of compliance mightdiscourage overeager banks fromrushing unprepared into the lifeinsurance business.

Utah Insurance Commission-er Robert Wilcox, chair of theNAIC Life Disclosure WorkingGroup, praised the work of theASB and urged the body not toextend the July 31 commentdeadline as several industry rep-resentatives had suggested .Speaking for the Academy Com-mittee on Life Insurance, Chair-

person Andy Ware called on theASB to consider real companyexperience before drafting thefinal standard . (In a June 19 let-ter to life actuaries, Ware urgedAcademy members and theircompanies to provide relevantexamples and data to the ASB .)

Presiding over the hearing wasASB Chairperson Gary Corbett ;ASB members Frank Irish andRichard Robertson and ASB LifeCommittee Chairperson Ed Silinsalso participated. More than fiftyactuaries and interested partiesattended, as well as reporters forNew York Newsday, Forbes, Best-Week, and trade publicationsincluding the National Underwrit-er, which reported on the ASB ina May 29 page-one story. 30

NumberOne AgainCongratulations!Actuary is the bestjob in America,according to thejust released thirdedition of the"Jobs RatedAlmanac."The rankings arebased on factorsranging fromstress leveland incometo travelrequirementsand jobavailability .

The Actuarial Update ∎ July 1995 5

AMERICAN ACADEMY OF ACTUARIESStatement of Revenue and Expenses

Year Ended December 31, 1084

From the Treasurer AAA 1994 Statement of Revenue and ExpensesYear Ended December 31, 1994For the first time this decade the Academ was Func tional AllocationY

required to reduce its financial reserves . Thosereserves serve as a rainy- day fund to meet contingen-cies . The year 1994 could be characterized as a rainyyear for three unusual, significant categories ofexpenses incurred.

First, the Academy and its Health committees pro-duced a very successful series of health monographsto provide valuable information to federal and statepublic policymakers . In addition, the Cost EstimatesWork Group prepared a range of cost estimates forthe Health Security Act . Those two initiativesrequired approximately $200,000 in additional costs .

Second, the Academy moved into new officesand incurred an additional $80,000 of one-timeexpenses.

Third, the executive search to replace Jim Mur-phy cost well in excess of $100,000.

These unusual, one-time expenses more thanaccount for the 1994 reduction in reserves. Fortu-nately, 1995 financial results have been favorable andwe currently forecast the Academy will replenish thelost reserves by the end of this year.

James R. SwensonSecretary/Treasurer

Dues income $3,224,673Dues rate $310Membership base 10,402

Item Per Member=

Government information $115Public relations 42Member communications 28Organizational services 5Interorganizational liaison 11Executive/administrative 68Actuarial Standards Board 30Contingencies 30Actuarial Boardfor Counseling & Discipline 13Change in reserves (32)Dues rate $310

*Net of nor-dues income .

Statement of ExpensesYear Ended December 31, 1954

AcademyOperations

Actuarialstandards

Beard

Actuarial Boardlop counsellingand Disciplite Total

Staff salaries $1,434,521 $ 124,104 $ 65,019 $1,623,644Employee insurance 81,026 7,006 3,668 91,700Payroll taxes 96,492 8,343 4,368 109,203Retirement plan 105,171 9,094 4,761 119,026Temporaries/executive search 160,691 - 160,691Rent/moving expense 263,441 22,779 11,925 298,145Telephone 23,514 2,033 1,065 26,612Postage and freight 147,737 27,239 6,108 181,084Travel and related expenses 132,402 48,007 34,882 215,291Committee meetings 112,220 23,613 5,015 140,848President & president-elect travel 36,132 - - 36,132General office supplies & rentals 147,256 12,733 6,666 166,655Printing 202,089 84,589 20,338 307,016Service agreement (SOA) 59,730 - - 59,730Auditing & accounting 23,690 2,048 1,072 26,810Insurance 18,792 1,625 851 21,268Depreciation & amortization 62,033 5,363 2,809 70,205Subscriptions & periodicals 33,235 2,874 1,505 37,614Public relations 78,728 5,663 1,834 86,225Academy Alert 15,919 15,919Contingencies 299,719 299,719Professional services 4,090 4,090Income taxes 60,005 60,005Standards notebooks - 7,938 7,938Manuals 14,942 - 14,942Health Practice Council Projects 73,006 - 73,006Other 68,082 875 3,020 71,977

$3,754,663 $395,926 $174,906 $4,325,495

6 The Actuarial Update ∎ July 1995

Revenue :Membership dues $3,224,673Membership application fees 35,350Interest 139,770Administrative services* 120,065Academy Alert subscriptions 26,264EA meeting distribution 129,157CLRS distribution 55,100Advertising income 241,449Service fees (ABCD & ASB) 120,103Magazine subscriptions 1,616Manual sales 11,900Other 24,729

$4,130,176

Expenses 4,325,495Excess (deficiency) of

revenue over expenses $(195,319)

*Staff and overhead costs relating to the EnrolledActuaries Meeting and Casualty Loss Reserve Seminar.

Balance Sheet December 31, 1994

AssetsCurrent assets :

Cash $ 108,024Certificates of deposit 491,998Money market funds 2,125,286Accounts receivable 182,921Accrued interest receivable 9,566Prepaid expenses 47,944

Total current assets $2,965,739Certificates of deposit

-long-term 688,000Furniture, equipment

& leaseholdimprovement, net 276,255

$3,929,994

Liabilities and Fund BalancesCurrent liabilities :

Accounts payable $ 271,720Deferred membership

dues revenue 1,747,754Deferred revenue-other 61,152Accrued expenses 52,004Deferred rent credit 167,145

Total current liabilities $2,299,775

Fund balance (undesignated) 1,557,5Fund balance (ABCD

litigation fund) 72,626

$3,929,994

Amendment Would Restrict 0CC~ithority with Banks and InsuranceA permanent moratorium

would be placed on theauthority of the Comptroller

of the Currency to expand bankinsurance powers, under legisla-tive language tentatively agreed toby House Republican leaders .The agreement is designed toaddress lawmakers'and insurance indus-try concerns over therecent efforts of thecomptroller to grant

gall Act, which separates com-mercial and investment bankingactivities . The bill, formerlyapproved by the House BankingCommittee, is silent on the con-troversial issue of expandingbanks' powers to compete withinsurance sellers,

The CommerceCommittee hadbeen working onan amendment tothe Glass-Steagall

capitolVIEWS

additional insurance powers tobanks . The agreement followsseveral weeks of contentious talksbetween the Commerce Commit-tee and representatives of thebanking and insurance industriesover the issue of affiliationsbetween banks and insurancefirms,

The Commerce Committeehas been considering legislation

would overhaul the Depres-sion-eraGlass-Stea-

bill that would preempt stateantiaffiliation laws, while at thesame time curbing or reversingthe authority of the Office of theComptroller of the Currency(OCC) to grant additional insur-ance powers to banks . After talksbetween the industries brokedown, the House leadershipdecided to focus on curbing theOCC's power, rather than broad-ening the bill to include insur-ance. The GOP strategy calls forattaching anti-OCC language to a

IRS Speeds Pension CasesT he inter-

nal Rev-e n u e

Service (IRS) has announced itwill expedite resolution of morethan 2,000 pending small pensionplan cases involving actuarialassumptions. The IRS will con-cede issues it has lost at the appel-late level and try to resolve quicklyany other remaining issues,according to an IRS statement .

The announcement follows theIRS's decision not to seek to bringthe Citrus Valley Estates v. Com-missioner case to the SupremeCourt, which it lost in March inthe U.S. Court of Appeals for the

th Circuit. The appeals courtd that a pension plan actu-

ary's use of conservative interestass4lmptions satisfied the taxcod~~s requirement that suchassumiptions be reasonable,

The case, like others precedingit, arose from IRS audits of smalldefined benefit plans with largedeductions for plan contribu-tions, The IRS believed that theconservative actuarial assump-tions that led to these deductionswere abusive. The IRS citedexamples from the mid-1980s inwhich actuaries assumed planearnings of 5% annually, a figurethat seemed "unreasonably low"to the IRS . However, in everycase courts have upheld the con-servative actuarial assumptions,ruling that it has been the intentof Congress to defer to the pro-fessional judgments of plan actu-aries . The IRS expects to contacttaxpayer representatives shortlyabout the disposition of theircases, the announcement said.

Continued on page 8

regulatory relief bill for financialinstitutions that is pending beforethe House Banking Committee .That bill would then be mergedin the House Rules Committeewith an unamended Glass-Stea-gall bill.

On May 30, the Academy senta letter to key House membersstating its concern that "appro-priate legislative safeguards mustbe developed to manage theinsolvency risks associated withbanks' development and sale ofinsurance products." The letteralso expressed concern that thecomptroller "may not have fullytaken into account the insolvencyrisk associated with insuranceproducts" when undertakingrecent initiatives .

Academy Assists My Makers, PBGC

Guaranteed'Issue/Universe AccessThe Health Practice Council's Guaranteed lssueiUniversalAccess Work Group provided technical advice to majority andminority staff of the Senate; Labor and Human ResourcesCommittee on June 14 . The group's written statementincluded background information and an analysis of reformoptions developed by the committee . Work group membersTom Sto€ber ,( chair ), David Bahn , Lesley`Cummings, DickN€emiec , and Donna Novak also participated in a follow-up'conference call .

Medical Savings Accounts Work GroupThe Med€cal Savings Accounts Work Group continues to fieldpolicy maker questions following the May 2 release of its firstreport, "Medical Savings Accounts: Cost Implications and PlanDesign ." The group is currently responding to a<request fromthe Missouri Insurance Department regarding the feasibility ofspecific regulations that are under' development .

in addition, Work Group Chairperson Edwin Hustead reported,work group findings with Washington policy insiders during aGeorge Washington University National Health Policy Forum onMay 23 . The group's report was the foundation for the paneldiscussion .

Actuaries Participate in PBGC Focus GroupOn June 19, actuaries were given the opportunity to supply thePension Benefit Guaranty Corporation (PBGC) with an evaluationof its service and offer'' suggestions as to how it could improve .The Academy-organized focus group was part of a series ofmeetings the PBGC has held to determine how its customers arebeing, served . The focus groups are part of the NationalPerformance Review being conducted by Vice President Al Coreto make the federal government customer-driven . '

The Actuarial Update ∎ July 1995 7

Forecast 2000 ChoosesFleishman-HillardThe Washington office of Fleishman -Hillard InternationalCommunications has been selected as outside counsel forForecast 2000, the cost-shared public relations program of theactuarial profession in North America . The Council of Presi-dents, at its June 9 meeting , agreed to the Forecast 2000 Advi-sory Group's recommendation to engage Fleishman-Hillard .

Forecast 2000 was created in 1989 to celebrate the centen-nial of the actuarial profession in North America and toraise public awareness of actuaries and their unique exper-tise. The program, which is managed through the Academy,is cosponsored by the Academy, the American Society ofPension Actuaries , the Canadian Institute of Actuaries, theCasualty Actuarial Society, the Conference of ConsultingActuaries, and the Society of Actuaries. ∎

Lower Medicare Premiums RevisitedIn his June Actuarial Update article, "Surprise! Medicare Part BPremiums in 1996 Lower Than 1995 Rate," Robert J . Myerswrote, `The standard premium rate is that applicable to personswho enroll at the earliest possible time (e .g ., upon attainment ofage 65) . Late enrollment usually results in a higher premiumrate . Such standard rates, however, can be readily derived,using the published data, as shown in the accompanying table(assuming that no changes in the law occur) . Traditionally, theSecretary of Health and Human Services promulgates theserates every year; however, the 1991-95 rates were establishedby law in 1990 .'

The table below is printed at the request of the Update'sreaders .

Estimated Standard Monthly Premium Ratesfor Supplementary Medical Insurance, 1996-2004

CalendarYear

AverageNumber of aEnrollees'(millions)

EnrolleePremiums'(billions)

AverageMonthlyPremium'

EstimatedStandardMonthlyPremium'

1993 34 .4 $15 .3 $37 .10 (1,014) $36.601994 35 .0 17 .4 41 .40 (1 .007) 41 .101995 35 .5 19 .7 46 .20 (1 .002) 46.101996 36 .1 19 .0 43 .90 43 .701997 36 .6 21 .1 48 .00 47.801998 37 .0 23 .5 52 .90 52 .601999 37 .5 24 .5 54 .40 54 .102000 37 .9 25 .6 56 .30 56 .002001 38 .3 26 .8 58.30 58 .002002 38 .7 28 .1 60 .50 60 .202003 39 .2 29 .5 62.70 62 .402004 39 .6 31 .1 65 .40 65 .10

'Intermediate-cost estimate, 1995 Trustees Report .'Intermediate-cost estimate, 1995 Trustees Report ; the calendar-year figures herewere determined from the figures in the report, which are on the basis of theaverage enrollment for the year ended June 30 .'Column (2) divided by 12 times Column (1). The figures in parentheses are theratios to the Standard premium rate actually in effect .`Actual rates for 1993-95 . Subsequent rates are Column (3) divided by 1 .005 (seeNote below for reason for using this approximate adjustment factor, based onfactors for 1993-95) .

NOTE : The average monthly premium rate is slightly higher than the standardpremium rate, because a small proportion of the enrollees pay an extra premiumrate due to late enrollment .

CAPITOL VEW$,continued from page 7

President Clinton has pro-posed major changes designed tosimplify pension laws . "Pensionlaws are now so utterly complicat-ed you need a SWAT team oflawyers and accountants to helpyou fill out the forms and complywith the rules," Clinton said . Thepresident will propose legislationto allow businesses with 100 orfewer employees to set up stream-lined individual retirementaccount (IRA) plans . The planswould be exempt from nondis-crimination rules if employers

CASUALTY,continued from page 3

and Liability Financial Reportingcontinues its outstanding tradi-tion of working closely with theNAIC Casualty Actuarial TaskForce on issues ranging frommodification to the statements ofactuarial opinion and AnnualStatement Instructions to inter-pretations and clarifications ofexisting regulations . Mostrecently, the committee draftedrecommended instructions forreserve opinions on voluntaryand involuntary pools. As isalmost always the case, the rec-ommendations were well receivedby the NAIC. The committee isalso active in revising the casualtypractice note on loss reserveopinions and updating the Prop-erty/Casualty Loss Reserve LawManual. The manual, which hasbeen highly praised by the NAICCasualty Actuarial Task Forceand by state regulators, is a valu-able tool for casualty actuaries .

The council's Task Force onProperty/Casualty Risk-BasedCapital continues to be active inproviding its NAIC counterpartwith recommendations on prop-erty/casualty formula technicalissues. At its June meeting theNAIC asked the task force tofocus on the issue of using a sin-gle formula for professional rein-surance and primary companies .

Another exciting initiative has

make "significant" contributionsto their workers' pension plans .

The proposal would also repealthe family aggregation rule dthe combined limits on cont6.tions and benefits for those withmultiple plans, streamline Form5500 reporting for all pensionplans, simplify and expedite theprohibited transaction exemptionprocess, and expand the PBGC'smissing participant program .Pension simplification is expectedto be included in this year's fiscal1996 budget reconciliation pack-age . The Academy's PensionCommittee is reviewing the presi-dent's proposal for comment . 30

been increasing the participationof regulators in the Casualty Prac-tice Council ' s work. Two promi-nent regulators now sit on theCommittee on Property and Lia-bility Financial Reporting . EliseLiebers, who with other commit-tee members was a prime moverbehind the development oloss reserve opinion manual,

e

completed two years of service .She is with the New York depart-ment, Earlier this year Bob Goss-row of the Illinois departmentjoined the committee . At thepractice council level, we wereprivileged to have Dick Roth ofthe California Department join usthis year as a member. Theseactuaries contribute not onlythrough their actuarial expertisebut through their firsthand knowl-edge of regulatory concerns .

Nearly 75 casualty actuaries arenow actively involved in CasualtyPractice Council activities, and thenumber continues to grow . I can'tthank these volunteers enough fortheir efforts on the profession'sand the public's behalf. Ultimate-ly, the profession will be recog-nized in the public policy arenaonly through its contributions .We all owe a debt to the hardwork and efforts of the volunteerswho help ensure better-infod jpublic policy decisions .

Flynn is Academy vice presideclnt ofthe Casualty Practice Counc 1 .

8 The Actuarial Update ∎ July 1995