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Transcript of AAA, Actuarial Update, 199507 1995 Actuarial... p~ectice council 0 NEWS David Flynn Casualty...

  • AMERICAN ACADEMY OF ACTUARIES

    VOLUME 24 NUMBER 7

    JULY1995

    THIS MONTH

    From a Vice President

    Casualty Practice Council News

    4 Academy Answers

    NAIC Questions

    • Financial Statement

    7 Capitol Views

    8 Forecast 2000 Chooses

    Fleishman-Hillard

    ENCLOSURES Included with this month's

    issue ofThe Actuarial Update are the following:

    In Search Of

    ASB Boxscore

    Bylaw Amendment Vote

    • THIRTY

    330 YEARS

    Serving the Actuarial Profession

    2 ~ ASB Life Sales Illustration Hearing Draws Crowd and Strong Opinions

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

    by Jeffrey Speicher

    uidelines for actuarial certi- fication of nonguaranteed elements of life insurance sales illustrations were the subject of an open hearing

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

    The proposed guidelines are spelled out in an ASB draft stan- dard of practice , Compliance with the NAIC Model Regulation on Life Insurance Sales Illustrations, which was developed by the ASB Life Committee at the request of the National Association of Insur- ance Commissioners (NAIC) . A proposed NAIC model law requires an illustration actuary to

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

    Sales illustrations are used by life insurance companies and their agents to show how policy values and premiums change over time and to compare cost and performance among policies . Insurance regulators traditionally have allowed companies a free hand in developing the scale of illustrated nonguaranteed ele- ments, such as dividends, interest rates, and mortality charges . However, newly developed insur- ance products and sophisticated software that enables insurance agents to develop sales illustra- tions independently have led to growing concern about sales abuses. The new NAIC model law requires an actuary to certify that the nonguaranteed elements of illustrations are consistent with recent historical experience .

    Restrained Competition

    While praising the intent of the model law and the supporting standard, some industry repre- sentatives and actuarial consul- tants expressed reservations about some aspects of the regula- tion. Consultant Donna Claire called on the ASB to include cash-flow testing provisions in the standard . Thomas Philips of Principal Mutual Life noted that meeting the standard would require engaging a full-time actu- ary, and Craig Smith of National Life of Vermont also pointed out that additional administrative

    Continued on page 5

    1995 Annual Meeting The Academy's ;1995 Annual Meeting is being held in conjunction' with the Society of Actuaries Annual Meeting and Exhibit,' October 15-18 at the Boston Marriott Copley Place .

    The Academy is sponsoring the Monday luncheon for, all attendees . ;Author, and commentator Kevin Phillips will present the luncheon address . A separate ; annual meeting mailing with registration information will be mailed to all Academy members in July Keviri Phillips

  • AMERICAN ACADEMY OF ACTUARIES

    President Charles A . Bryan President-Elect

    Jack M . Turnquist Vice Presidents John M . Bertko Howard Fluhr David P . Flynn

    Paul F . Kolkman Charles Barry H . Watson

    Secretary-Treasurer James P . Swenson Executive Director

    Wilson W . Wyatt, Jr.

    EXECUTIVE OFFICE The American Academy

    of Actuaries 1100 Seventeenth Street, NW

    7th Floor Washington, DC 20036

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

    MEMBERSHIP ADMINISTRATION

    Woodfield Corporate Center 475 N. Martingale Road

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

    THE ACTUARIAL UPDATE

    Committee on Publications Chairperson

    E . Toni Mulder Editor

    Adam Reese Associate Editors

    William Carroll Ronald Gebhardtsbauer

    Patrick J . Grannan Managing Editor Jeffrey Speicher

    74764,[email protected] m Contributing Editor

    Ken Krehbiel Production Manager

    Renee Saunders

    Statements of fact and opinion in this publication , including editorials and let-

    ters to the editor, are made on the responsibility of the authors alone and do not necessarily imply or represent the position of the American Academy

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

    Good Professionals Make Good Employees by Charles Barry H . Walson

    T he title of this editorial is a paraphrase of a common piece of folk wisdom : "Good fences make good neighbors ."

    This is common at least in Canada, from whence I come ; it was the title of a well-regarded book about U .S .-Canadian rela- tions. The point is that satisfacto- ry relationships between neigh- bors require a clear demarcation between them and their interests-good fences, in other words.

    Here, my point is that to be a good (successful, happy) actuarial worker, it is imperative to be a good actuarial professional. As Academy vice presi- dent for professionalism, I have a direct interest in this, but I have another reason for writing about it . I think that many 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 to practice the tenets of professional- ism: follow the code of conduct, have the proper qualifications and background to carry out the assignment, pay due regard to the standards of practice .

    There are still some who see part of the paraphernalia of pro- fessionalism as undue constraints on their freedom to practice their profession as they see fit, depriving them, so to speak, of the right to bear actuarial arms. These actuar- ial free-shooters appear to be a dwindling tribe. We have come a long way from the days when Wendell Milliman, one of the

    FROM Avice president

    giants of the profession, felt obliged to devote his speeches as Society of Actuaries president to reminding insurance company actuaries that professional ethics problems did not arise solely for consultants. Having your boss tell you to do something did not relieve you of the need to focus on the requirements of good conduct!

    Today, though, a question remains of how to weigh the often

    conflicting claims, upon time and effort, of

    professional activi- ties and employer requirements. In these days of downsizing, organization engineering, competition from

    both humans and machines, total quali-

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

    tom-line fixation, employers and actuaries often see some of the claims of professionalism as a drag on work performance .

    Thus we find insurers and con- sulting firms unwilling to allow their actuaries to participate on professional committees and lim- iting their attendance at meetings . We also find individual actuaries who, recognizing that their pay- check depends on their work per- formance, "boast" of how many years it has been since they attended a meeting or seminar.

    I view this as shortsighted in the extreme. Professional activity enhances, even enables, satisfac- tory work performance .

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

    actuary is worth less as an employee, and the penalties will affect the bottom line . For the rules to be followed, they musk understood, and this requ professional participation . J Failure to adhere to standards of practice carries similar dan- gers . Understanding the stan- dards requires much more in the way of study, education, and con- tact with actuarial peers . J To be qualified to carry out an assignment, knowledge of the field must be current . Call it continu- ing education, research, or what you will, this must be obtained through reading, meeting atten- dance, or peer discussion . Many find meetings and conversations more congenial (and worthwhile) than solitary swatting . D Meetings are a forum for pre- serving and improving one's pro- fessional stature, particularly for the actuary who practices without a body of peers at hand. O Similarly, committee work facilitates peer contact, updating of knowledge, and development of actuarial skills . LJ All these activities enha your professional stature, your worth to yourself and to your employer. Actuarial firms that employ actuaries of stature are seen as firms of stature, with- in and without the profession . O Actuaries of stature help the bottom line. They avoid errors- professionalism heightens your "sense of smell," allowing you to overcome the "garbage in, garbage out" computer syndrome. O In successful companies, mid- dle managers are more likely to define themselves through pro- fessional pursuits . They under- stand the business, perceive the aims of the competition, and see their employer in context . They bring challenge and creativity to their tasks .

    To sum up, an actuary must pay attention to professionalism to have a successful career . Employers need to recognize this . Perhaps showing this editorial to your employers would help to persuade them that good pr sionals do make good emplo

    Watson is Academy vice president of the Council on Professionalism .

    2 The Actuarial Update ∎ July 1995

  • p~ectice council 0 NEWS

    David Flynn

    C