THIS MONTH2

From the President-Elect

3Standards Outlook

3Public Relations Watch

6Academy Meets

Accounting Boards

7Capitol Views

ENCLOSURESIncluded with this month's

issue of The Actuarial Updateare the following :

In Search Of

ASB Boxscore

Actuarial Standardof Practice No . 23

Table of Contents

1994 EA Meeting ExhibitBrochure

AMERICANACADEMY OFACTUARIES

VOLUME 22NUMBER 9

SEPTEMBER 1993

Close-up on David G . Hartmant the Academy Annual Meet-ing on October 6, David G .Hartman, senior vice presi-dent and actuary of theChubb Group of Insurance

Companies, will take office asAcademypresident. He recently vis-ited the Academy 's Washingtonoffice where he discussed his goals forthe organization with the managingeditor of The Actuarial Update .

UPDATE: Do you have specificchanges on the agenda for yourterm as Academy president?

HARTMAN: No, I have no specif-ic changes in mind. The Acade-my seems to be functioning quitewell.

However, I do think we needto look to the future . I have acti-vated a planning committee,which had its first meeting in lateAugust. At that meeting, mem-bers of the task force on strenening the profession, whichhelped chart the profession'sdirection in the late 1980s, gaveus their views on what's worked,what hasn't worked, and why. Inthe next few weeks, I will appointan expanded planning committeethat will take the ideas that cameup during our August forum andflesh them out for further discus-sion .

UPDATE: Do you think it's timeto revise the Academy's statementof purpose?

Academy President-Elect David Hartman

HARTMAN: That's certainly oneof the items the planning com-mittee should consider . Thestatement of purpose was writtenback in 1981 . Is it appropriatetoday, given the intervening workof the strengthening-the-profes-sion task force, as well as thework going on with the free tradeagreements?

UPDATE: What sort of modifi-cations would you envision?

HARTMAN: I don't have anypreconceived ideas. I am lookingfor input from the committee.

Of course any change in thestatement of purpose would bevoted on by the entire member-ship . Before the vote, therewould be a communication effortto explain to the membership

why any change was important,and what the benefits of the newfocus would be . It could open upa very fruitful dialogue .

UPDATE: Do you also foreseethe need to review the relation-ship between the Academy andthe other actuarial organizations?

HARTMAN: The other organi-zations in the U .S . seem to beevolving in their view of them-selves, and that has an impact onwhat the Academy does .

The working agreementamong the organizations definesboundaries so that the organiza-tions don't step on each other'stoes, as well as areas of jointresponsibility, but I think there'sstill more that can be done . Iwould like to see more activecooperation among the membersof our organizations .

I think that there's more thatthe Academy can do to comple-ment the work done by the otherorganizations, keeping in mindthat every member of the Academyis generally also a member ofanother organization, and thateach organization has a differentfunction .

The learned societies are pri-marily educational and researchbodies. The Academy is a publicinterface, public issue body .These are complementary roles .The people who are doing the

Continued on page 4

Since the lastUpdate mailing,you should havereceived in themail a brochurefor the AcademyAnnual Meetingin Washingtonon October 6 .We hope tosee you there .

AMERICANACADEMY OFACTUARIES

PresidentJohn H . HardingPresident-Elect

David G . Hartman

Vice PresidentsHoward J . BolnickStephen P . LoweWalter N . Miller

Richard H. SnaderLarry D . ZimplemanSecretary -TreasurerJames R . Swenson

Executive VicePresident

James J . Murphy

EXECUTIVE OFFICEThe American Academy

of Actuaries1720 I Street, NW

7th FloorWashington, DC 20006

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

MEMBERSHIPADMINISTRATION

Woodfield Corporate Center475 N . Martingale Road

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

THE ACTUAIHALUPDATE

Committee an PublicationsChairman

E . Toni MulderEditor

E . Toni MulderExecutive Editor

Erich ParkerAssociate Editors

William CarrollStephen A. Meskin

Charles Barry H . WatsonManaging EditorJeffrey Speicher

Contributing EditorKen Krehbiel

Production ManagerRenee Cox

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

tars 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 .

FROMresident-electA New CollaborationBy David G . Hartman

s I prepare to assume thepresidency of the Academy,I note with satisfaction thegreat strides our organiza-tion has made in recent

years. Our professional life hasbeen greatly enhanced by thedevelopment of standards ofpractice by the Actuarial StandardsBoard (ASS) and the establish-ment of the Actuarial Board forCounseling and Discipline(ABCD). The outstanding com-munications efforts of the Acade-my have raised the public profileof the entire profession . TheAcademy practice councils (rep-resenting the casualty, health, life,and pension practice areas, andthe cause of professionalism) veryeffectively present the profes-sion's expertise to makers of pub-lic policy .

Historically, the Academy hasbeen heavily focused on publicpolicy issues at the federal level.Our Washington location and ourmission as the chief public inter-face organization for the profes-sion make this orientation logical.The Academy has been eminentlysuccessful in establishing closerelationships with key policy mak-ers in Congress and in the regula-tory agencies . As a result of ourefforts, the analytical savvy of theactuarial profession is increasinglyrecognized-and called upon . InWashington D.C., policy makersknow very well that for unbiasedanalysis of complex problems, it'sbest to "Ask an Actuary."

However, beyond the Beltway,there is another group of regula-tors who wield perhaps even moreinfluence over the professionallives of actuaries . I refer here tothe National Association of Insur-ance Commissioners (NAIC) .While persistent calls for federalregulation of insurance echo in

the halls of Congress, the reality isthat most regulatory activity hap-pens at the state level . A closerelationship with the NAIC willcontinue to be important . AsAcademy President, I will work tostrengthen that relationship.

In early August, Academy Pres-ident John Harding, ExecutiveVice President Jim Murphy, and Imet with NAIC President StevenFoster and Executive Vice Presi-dent David Simmons to discuss awide range of mutually beneficialactivities between our two organi-zations . Our agenda was a fullone. We discussed leadershipmeetings, advisory committees,the credibility of the actuarialprofession, the role of theNAIC/Academy/ASB Joint Com-mittee, the ABCD, and insurersolvency (centralized compliancereview). Other topics touched onbriefly were continuing educationprograms for regulatory actuaries,the possibility of a visiting actuaryprogram at the NAIC centraloffice, and accreditation of quali-fied actuaries for purposes ofcomplying with NAIC/state regu-latory requirements .

The NAIC leaders were veryreceptive to the Academy's offerto organize committees and taskforces to provide independenttechnical support for specificNAIC efforts . In March, theNAIC discontinued formal advi-sory committees. Their aboli-tion creates a need for technicalassistance that the Academy iseminently suited to provide. Thefirst Academy task force appoint-ed specifically to advise theNAIC, the Property & CasualtyRisk-Based Capital Task Force, isalready providing actuarial inputfor the development of a risk-based capital formula for proper-ty/casualty insurers .

Many other Academy commit-tees also are working closely withtheir NAIC counterparts. Whilethe NAIC does not accept all theadvice it receives fromAcademy, it does appreciatorganization as a source of soundprofessional advice independentof industry biases .

The collaboration between ourorganizations is not a one-waystreet. The NAIC can also provideassistance to the Academy . Forinstance, it has been proposed thatthe ABCD review the work of theactuary in all cases of insurer insol-vency. This would be a dauntingtask. At the August meeting weexplored ways the NAIC couldhelp the ABCD by prescreeninginsolvencies, weeding out thosethat clearly had nothing to do withthe quality of actuarial practice .

These new closer links are pay-ing off. At the June meeting of theNAIC/Academy/ASB Joint Com-mittee, the discussion of howthose three organizations couldmutually support one another wasmore meaningful and substantivethan ever before. Our strong tiesto the new insurance commission-ers of Maryland and Utah,Academy members, should lWgeven more fruitful collaboration .

The NAIC leadership hasexpressed keen interest in meet-ing with Academy leaders at leastonce a year to discuss commonconcerns. The chief staff officersof the NAIC and the Academy arenow working on a proposal for amore formal consultative struc-ture between our organizations,which will be discussed at the firstNAIL/Academy leadership meet-ing in early 1994 .

All in all, the breadth of ways inwhich Academy members are con-tributing in the public arena con-tinues to expand. Closer collabo-ration with the NAIC will. open upnew opportunities to provideimportant analytical informationto regulators . If any of theseNAIC-related topics interest you,please contact the chairman of theappropriate Academy committeeto get yourself plugged in . I urgeall Academy members to con eroffering their talents to thissoming partnership.

Hartman will become AcademyPresident on October 6.

2 The Actuarial Update ∎ September 1993

standardsOUTLOOK

•risline Nickerson

T he Actuarial Standards Board(ASB) adopted a standard ondata quality, discussed a glos-

sary of actuarial terms, andagreed to changes in the devia-tion paragraph for standards atits July 20-21 meeting in Arling-ton, Va .

Actuarial Standard of PracticeNo . 23, Data Quality, had beenfirst released for exposure inApril 1991 . Following significantrevisions by the multispecialtydrafting task force, the standardwas reexposed in July 1992. Thenew standard addresses theresponsibility of the actuary todetermine and disclose the rea-sonableness, accuracy, and com-pleteness of the data that underliethe actuarial work product .

publicrelations

WATCH

Forecast 2000TargetsMinnesota and Kentucky

By Ken Krehbiel

W ith national health care"reform" taking longer thanpromised, some states have

beaten Congress to the punchwith their own legislation . In anattempt to sort out what changesare in the wind and how actuariesfigure in them, Julia Philips mademedia appearances in Minneapo-lis and Louisville on July 28-29 as

4 0ofForecast 2000, the public

ions program of the actuarialprofession in North America .

Philips, who is a consultingactuary in the Minneapolis officeof Milliman & Robertson,

Academy members will receivethe standard with this issue ofThe Actuarial Update. j

The board agreed to ask theASB Editorial Advisory Commit-tee to release a draft of its actuar-ial glossary for exposure . Theglossary is intended to serve as auseful source of definitions ofterms used by actuaries in theirprofessional work . Because theglossary is not a standard of prac-tice, the board decided not torelease an ASB exposure draft .Recognizing, however, that com-ments from members wouldstrengthen the document, theboard requested that the com-mittee expose it under its ownauthority .

In other action, the boardapproved a model "Deviationfrom Standard" paragraph thatwill serve as the final paragraphof all standards. The deviationlanguage has often come up fordiscussion and modificationwhen proposed standards are

explained some of the changesthat went into effect on July 1 inMinnesota and also spoke aboutKentucky's continuing efforts tochange its health care system .She spoke as a health actuaryabout the many tradeoffs thathave to be balanced in any healthcare measure, either i n the statesor at the federal level ; she alsobriefly explained how actuarialinvolvement can contribute inthe formation of any effectivepackage .

In Minneapolis , Philips was aguest on four radio stations,including a live interview onWCCO's noon news. Earlier, shehad spoken with a MinneapolisStar Tribune reporter working ona health care story.

After a late-afternoon flightthat provided a spectacular viewof the flood- swollen MississippiRiver, Philips made appearanceson Thursday in Louisville. InKentucky, a special legislative ses-sion called to forge some kind ofagreement on health care ended

Continued on page 8

reviewed. It has been a difficultconcept to codify, probablybecause it is the only paragraph inany standard that enjoins practi-tioners with the imperative"must." The model adopted bythe board will provide standard-ized wording for the deviationparagraph .

The board also viewed a 7-minute videotape called Stan-dards in Practice. The video, pro-duced by the Academy's publicrelations department in consulta-tion with the ASB, relates actuari-al standards of practice to real-lifeprofessional situations . Copies ofthe video will be made availablefor actuarial clubs, in-housetraining sessions, and seminarsand conferences.

The next meeting of the ASB isscheduled for October 13-14 inDallas .

Nickerson is director of theAcademy's standards program.

The Updatewelcomes

letters from itsreaders,Letters forpublicationshou ld he

submitted' toLetters to the,

Editor," andmust includethe writer's

name,address,

and telephonenumber.

Letters may beedited

for style andspace

requirements .

"And lately, I've been dabbling in the lucrativemiddle ground between high-stakes corporate

finance and the chaos theories of modern physics!"

The Actuarial Update ∎ September 1993 3

HARTMAN, continued from page 1

The actuarialprofession is

positioning itselffor the globalization

of the insuranceindustry and otheractuarial -related

businesses, as wellas the expansion

of the work ofactuaries beyondtraditional areas .

I am convincedthat these

discussions willcontinue to fruition

whether or notthe North American

Free Trade Agreementis ratified .

education and guiding theresearch in the learned bodies areoften the same people who areinvolved in public issues via theAcademy.

I would like to see more mem-ber support of the Academy . it'sinteresting to look north of theborder to Canada where actuariesusually meet the educationalrequirements by becoming mem-bers of the Casualty ActuarialSociety (CAS) or the Society ofActuaries (SOA), but have devel-oped a very high level of supportof the Canadian Institute ofActuaries (CIA) .

UPDATE : Actuaries are definedin Canadian law as being mem-bers of the CIA . Would youfavor a similar federal legal recog-nition of the Academy?

HARTMAN: For federal purpos-es, definitely . In other words, Ifavor some sort of federal recog-nition of members of the Acade-my, which would be for peopleacting as actuaries in some federalcapacity. It also would be nice toachieve that same recognitionand common definition at thestate level, and the two can bedeveloped concurrently.

UPDATE: Do you foresee anexpanded role for the Academy infostering standards of profession-alism?

HARTMAN: Clearly. The Acade-my has done an excellent job sup-porting the work of the ActuarialStandards Board and the Actuari-al Board for Counseling and Dis-cipline . To the extent we can, itwould be good to identify addi-tional, similar activities that theAcademy can uniquely perform .Along those lines, there is aneffort underway to institute aprofessionalism course throughthe Academy. Right now thereare professionalism coursesrequired for candidates for mem-bership in both the SOA and the

j CAS. In most cases, this is some-thing that the Academy can dojust as well. Because of theAcademy's focus on professional-ism, standards of practice, codesof conduct and discipline, we can

devise a uniform course for can-didates of both bodies, as well asfor current members who wish totake the course . And it wouldmake sense to have it be adminis-tered by the Academy.

UPDATE : Do you see the needfor increased emphasis on con-tinuing education so that actuar-ies will be able to move into newareas?

HARTMAN: Continuing educa-tion is very very important . Inorder for us to do good jobs aspracticing professionals, we've gotto keep up to date. That's part ofour profession's qualificationstandards as well . Perhaps contin-uing education is an area in whichthe Academy could take a moreactive role, But that's a politicallysensitive area. The members ofthe two learned bodies are notready to completely cede that roleto the Academy. There are theCasualty Loss Reserve Seminarand the Enrolled Actuaries Meet-ing in which the Academy is heav-ily involved . Both are excellentmodels of cooperation betweenthe Academy and other actuarialorganizations . Maybe we canachieve more by following thoseexamples .

UPDATE: Are there any interna-tional issues on your planningagenda?

HARTMAN: Yes. The profes-sion is focusing on who is anactuary from an internationalperspective. For the most part,the Academy is looked on to rep-resent the actuarial profession ininternational matters, so the U .S .profession's definition of who isqualified to practice in othercountries will come through theAcademy. A possible solutionmight be for the Academy tointroduce two classes of member-ship. A new higher level of mem-bership within the Academycalled "fellow" could be estab-lished .

At the other membershiplevel, the Academy might wantto consider admitting as mem-bers people who have passed thefirst four examinations of theCAS or the SOA. This couldbroaden the Academy base and

possibly lead to more support ofthe Academy.

UPDATE: The Academy isalready engaged in discusswith the Canadian and Meprofessions on the issue of quali-fications, is it not?

HARTMAN: Yes. The Academyis participating with Canadianand Mexican actuaries on threetask forces. One has to do withactuarial accreditation. That getsat the question of who is an actu-ary. This accreditation task forcehopes to give its final report inearly September at the workingagreement task force meeting .Also, two new task forces arebeing formed. One will deal withdiscipline and the other withcodes of conduct . Again, the taskforces have Academy representa-tives working with Canadian andMexican actuarial representatives .The goal is to identify certainminimum criteria for codes ofconduct and disciplinary proce-dures for actuaries practicingacross national borders .

UPDATE: The American delf,tion representatives are act g

under the auspices of the Acade-my. So that is one example of theAcademy working as the interna-tional representative of the pro-fession .

HARTMAN : Yes. The other U.S .actuarial organizations haveceded to the Academy theresponsibility of representing theU.S. profession in the interna-tional discussions . The actuarialprofession is positioning itself forthe globalization of the insuranceindustry and other actuarial-related businesses , as well as theexpansion of the work of actuar-ies beyond traditional areas . I amconvinced that these discussionswill continue to fruition whetheror not the North American FreeTrade Agreement is ratified .

Also, I'm encouraged by thework of the McCrossan Group,which is holding a similar set ofinternational discussionsEnglish-speaking, exam-actuarial organizations . If thoseactuarial organizations can workto identify some commonground, I think that can be

4 The Actuarial Update * September 1993

expanded to include non-English-speaking, university-based actuarial organizations .We've got a good model in ourOperation with the Mexicans

o are university-based andhave produced some top-qualityactuaries .

UPDATE: In your Update edito-rial in April you laid heavy stresson giving back to the professionand to the community. How doyou think the Academy couldencourage its members to serveothers?

HARTMAN: That is another itemI would like our planning com-mittee to consider, and one that Ihope to be able to discuss with abroad range of our members .

I should note that the Cana-dian Institute of Actuariesrevised its statement of purposenot long ago, and specificallyincluded a public service aspect .The CIA's guiding principlenumber one states that, whenthere is a conflict, the organiza-tion has a greater obligation to

e public than it has to its mem-s. Something I'd like the

aiming committee to consideris should we spell out the publicservice aspect of our work in ourstatement of purpose?

UPDATE: And of course there'sthe example of the Mexican pro-fession.

HARTMAN : Yes, in Mexicoactuaries have to give 6 monthsof service before they can becomecertified by the government.

UPDATE: That's a pretty largepro bono commitment for peo-ple just starting out in theircareers .

HARTMAN: I think it is impor-tant for actuaries at all stages ofour careers to be consciouslythinking of ways we can serve thepublic or the profession . Wehave a high level of volunteersupport throughout the profes-

s but should we as actuariesore involved in our commu-

nities? Tutoring kids in mathmore regularly? Providing ser-vice to local city councils as theyevaluate insurance programs or

sitting on hospital boards? Thereare so many ways to serve.

UPDATE: What future do yousee for the profession as a whole?

HARTMAN: Virtually unlimit-ed. I know that right now we seean unemployment rate amongSOA members that is perhaps thehighest it's ever been . But whenyou look at the skills that theactuary is trained in and the spec-trum of applications where thoseskills can be put to bear, I thinkthe profession is going to thrive,albeit in nontraditional areas .

I've heard the question posed,would you advise your son ordaughter to go into the actuarialprofession these days? Some peo-ple are unwilling to say yesunequivocally because of some ofthese changes. But I would saythat challenges are opportunities,and the opportunities are terrific .

UPDATE: Since you mentionedsons and daughters, could youtell our readers a little bit aboutyour family?

HARTMAN: My wife Kitty is aterrific supporter and partner .She and I have two boys . One is20 and a student at Stanford Uni-versity . This summer he spent 8weeks in Swaziland in a programsponsored by the church that heattends in Menlo Park, Cali£ Ouryounger boy is 17 and is going tobe a senior in high school, We arebeginning to look at colleges withhim. He just came home from amission trip to Jackson, Miss .with his high school youth group .My wife has been moderatingpanels of consumers discussing anew telephone high-fidelityenhancement for AT&T, and shewas very interested to see that theproduct is now available andbeing advertised.

UPDATE: How did you firstbecome interested in the actuarialprofession?

I

HARTMAN : When I was asophomore in high school, anumber of actuaries came to myhigh school in Evanston, Ill . for acareer conference. One of themwas Chris Strom, SOA PresidentWalt Rugland's uncle . Literally

hundreds of careers were repre-sented that night, and I had theopportunity to listen to presenta-tions by professionals from sever-al different fields . I went to thepresentation for engineering, andthere were hundreds of people inthe room . At the presentation foractuarial careers there was just ahandful of people, and thatappealed to me. It was a relativelysmall profession that used math,was competitive , but also one inhigh demand and with highreward. I was interested immedi-ately . I received a 5-year scholar-ship from Kemper Insurance toRipon College in Ripon , Wis. andthe University of Michigan,where I received my master's inactuarial science in 1965 . I'vebeen very happy with the careerchoice .

i

UPDATE: What got you involvedin professional activities with theCAS and the Academy?

HARTMAN: Around 1970, whileI was still working at Kemper,[former Academy President] JimMacGinnitie called me up andasked if I'd be interested in help-ing organize a seminar to interesthigh school students in the actu-arial profession . We worked welltogether then and have ever since .

UPDATE: Which aspect of yourservice to the profession have youenjoyed the most? Which hasbeen the most frustrating?

HARTMAN: Clearly the biggestjoy of all of my professional servicehas been working with otheractuaries . I am favorablyimpressed with the high level ofsupport our members give toprofessional activities . It's justincredible to observe the givingspirit of the members in theirvolunteer efforts .

If I were to have to single out anegative side to my work with theprofession, I would cite the frus-trations that have arisen out ofthe lack of cooperation amongthe various organizations . In myview, too much time is spentcoordinating our activities : timeand effort that could be betterspent if the actuarial organiza-tions worked together better .

Continued on page 8

Clearly the biggestjoy of all of myprofessional servicehas been working withother actuaries . . . .It's just incredibleto observe thegiving spirit of themembers in theirvolunteer efforts .

The Actuarial Update - September 1993 5

Academy Meets Accounting BoardsCALENDAR

Actuarial Board foirCounseling andDiscipline Meeting'Octob er 1

Academy AnnualMeetingOctober 6

By Christine Nickerson

air value accounting, interestmethods, and other issues ofconcern to both actuariesand accountants were on theagenda as representatives of

the Academy and the ActuarialStandards Board (ASB) met lead-ers of the Financial AccountingStandards Board (FASB) and theGovernmental Accounting Stan-dards Board (GASB) .

FASB work group on interestmethods is moving very slowlytoward making recommenda-tions. There is not full agreementabout the objectives of the pro-ject among work group mem-bers, with some favoring the fairvalue approach and others pre-ferring present value . Academyrepresentatives have offered tomake a presentation on interesttheory to FASB .

Actuarial StandardsBoard MeetingOctober 13-14

Society of ActuariesAnnual MeetingOctober 17-20

American Societyof Pension ActuariesAnnual MeetingOctober 17-20

Conference ofConsulting ActuariesAnnual {MeetingOctober 25-27

Canadian Instituteof ActuariesGeneral MeetingNovember 11-12

Casualty ActuarialSocietyAnnual Meeting'November 14-17

National AssociationoflnsuranceCornmissionersWinter MeetingDecember 5-9

The June 25 meeting tookplace at FASB's Norwalk, Conn .headquarters. Representing theAcademy were: members of theCommittee on Relations withAccountants, including its chair-person Charles Bryan; AcademyPresident John Harding andPresident-Elect David Hartman ;Academy Executive Vice Presi-dent Jim Murphy; and ASBmembers Jack Turnquist andAdger Williams.

Fair Value Accounting

Earlier this year FASB announcedchanges in accounting for debtsecurities. The new accountingstatement standardizes for allindustries the criterion forreporting a debt security at cost,requiring an enterprise to showan intent and ability to hold thesecurity to maturity. It also spec-ifies an approach for reportinginvestments that are available forsale before maturity . Suchinvestments now must be report-ed at market (fair) value ratherthan at the lower of cost or mar-ket value, which was the previouspractice .

Members of the actuarial pro-fession contend that related lia-bilities should be valued at mar-ket as well. At the meeting, FASBmembers asked the Academy forhelp in identifying methods forsuch valuation of liabilities.

substantial impact on the work ofactuaries in such areas as pensionfunding and the discounting ofproperty/casualty loss reserves. A

The treatment of interest has a

Interest Methods

SFAS106Q&AFASB's question-and-answer(Q&A) book for Statement ofFinancial Accounting Standard(SFAS) No. 106, Employer'sAccounting for PostretirementBenefits Other Than Pensions wasdiscussed at the meeting . TheActuarial Standards Board repre-sentatives asked if FASB thoughtActuarial Compliance GuidelineNo. 3 for SFAS 106 provided use-ful guidance . The FASB repre-sentatives acknowledged theguideline's value, but stated thatQ&As are still needed to addressaccounting questions . Academyand ASB representatives earlierhad helped review the initialdrafts of the Q&As, which arescheduled to be released at theend of August.

Mutual Life InsurersFASB currently is examining howbest to measure and presentearnings emergence for mutuallife companies . Is a statutoryapproach, GAAP, or some othermethod best suited for the prob-lem, given the long durations ofinsurance contracts and theuncertainty of future cash flow?At the meeting, Academy repre-sentatives emphasized that actu-aries and accountants must worktogether on this issue . Significantproblems are anticipated inimplementing any new account-ing method, and a transitionalperiod must be provided .

A mutual life insurance taskforce of the American Institute ofCertified Public Accountants(AICPA) is developing recom-mendations of what GAAP for

mutuals should be. An Academyliaison presented illustrations atthe April and May meetings ofthe task force and will continueto work with this group. Fhas not yet discussed the worthe task force , but it stronglyfavors obtaining actuarial inputon this issue .

SFAS 113-Reinsurance

The new requirements for rein-surance are an important issuefor both life and casualty insur-ance . Defining "significantinsurance risk" in order todetermine if a particular reinsur-ance agreement should beaccounted for as reinsurance is amatter of current interest .Accountants have not clarifiedwhat will qualify as reinsuranceunder SFAS 113, Accounting andReporting for Reinsurance ofShort-Duration and Long-Dura-tion Contracts .

Academy representativesnoted that some of the defini-tions in SFAS 113 are primarilyactuarial and questioned how thestandard is to be applied in prtice . FASB is reluctant to iexamples, which they fear woubecome standards. The Academyoffered to help develop Q&As ."Expected value" and other termsdealing with financial instru-ments are among the items thatneed discussion as the two pro-fessions work out a common lan-guage on this issue.

Environmental Liabilities

Environmental pollution andasbestos liabilities typically havebeen treated as not reasonablyestimable, except for certain lia-bilities on known claims . Manycompanies face a potentially largeliability in this area. Actuariesneed to look at whether liabilitiesare estimable. An AICPA taskforce hopes to issue an audit andaccounting guide .

GASB 10In discussing GASB 10, AccrrIncurred But Not Rep(IBNR) Reserves for GovernmentalEntities, Academy representatives

Continued on page 8

6 The Actuarial Update ∎ September 1993

capitol0 Retiree Health Benefits Pro-tection Act, which was intro-duced on July 20 by Sen . HarrisWofford (D-Pa.), would prohib-it employers from cutting or ter-minating retiree health benefitswhile the obligations are beinglitigated in court. Employerswho are involved in litigationwould be required to maintainthe benefits while the case ispending. The burden thenwould be on employers to provethat their health plans clearlypermit cutbacks in retiree bene-fits .

The Anti-Redlining in Insur-ance Disclosure Act was approvedby a House Energy and Com-merce subcommittee. H.R. 1188,sponsored by Rep. CardissCollins (D-Ill.), would requireannual disclosure of "insurancepractices and activities in largerurban areas," including thenumber of agents/offices servingeach ZIP Code . The bill was0 ,igncd to eliminate redlining

ctices, especially in personallines and in large urban areas, aswell as to collect data on thesepractices. Civil penalties wouldbe imposed for failure to reportthese practices .

Legislators from the state ofWashington have introducedbills in U .S . House and Senatethat would grant the state anexemption from regulationunder the Employee RetirementIncome Security Act (ERISA) .The waiver would enable thestate to implement key provi-sions of the Washington HealthServices Act, which was signed inMay and would increase accessto affordable health care in thestate. According to Rep . MikeKreidler (D-Wash. ), the waiverwould provide a "narrow, limit-ed exemption " that would notundermine ERISA's basic pur-pose in protecting workers' hen-

s. Supporters of the bill stat-hat if the legislation does not

p ss, an attempt will be made toinclude the issue as a part of thenational health care reformpackage .

The General Assembly of NorthCarolina passed a health carereform plan that combines threemajor bills aimed at curbing costsand making health care accessibleto more people. The package(H .B . 729) is aimed at helpingsmall businesses pay for healthinsurance by allowing companieswith fifty or fewer employees toform purchasing cooperatives inorder to get more affordableplans. In addition, a study com-mission will be created to developa plan for universal health cover-age in the state .

California Gov. Pete Wilson hassigned workers' compensationreform legislation into law . Thebill (A.B . 110) is estimated to savebetween $800 million and $2 bil-lion in the $11 billion-a-year sys-tem. Contained in the bill aretough antifraud provisions forlawyers and medical clinics, limitson vocational rehabilitation andcounseling services, a modestincrease in disability benefits, andtighter stress thresholds and limitson post-termination claims .

Ohio Gov. George Voinovichhas signed a workers' compensa-tion reform bill designed to helpcontain costs, discourage fraud,and improve workplace safety .The legislation contains provi-sions to streamline the hearingprocess for injured workers,implement a cost containmentplan with managed care compo-nents, and grant employers pro-tection from wide-open liabilityunder intentional tort lawsuits .

A workers' compensation reformbill in Pennsylvania was signedby acting Gov . Mark Singel. Thelegislation will cut medicalreimbursements and eliminate"double dipping" by workers whocollect both insurance and unem-ployment benefits while recover-ing from on-the-job injuries. Thebill also caps medical payments at113% of the Medicare rate .

This month's Capitol Views wasprepared with the assistance ofDavid Lehrman, summer intern inthe Academy's government

i information department.

METZENBAUM INTRODUCES BILLWITH ADMINISTRATION SUPPORTOn July 29, after weeks of speculation, Sen . HowardMetzenbaum (D-Ohio,) introduced legislation that would .provide remedies for certain tormer pension plan partic pantsand beneficiaries . This hill resulted from the recent SupremeCourt decision in Mertens v. Hewitt Associates in which thecourt ruled that ERISA does not authorise suits for mandatordamages against nonticluciaries who perform services forpension plans . This decision cast doubt on whether ERISAprovides a cause of action against service providers whoknowingly participate in a fiduciary breach The bill , titled thePension Annuitants Protection Act of 1993 , (S . 1312) willreverse the decision handed down in the Mertens case ininstances that involve the purchase of insurance contracts forterminating plans. Sen. Nancy Landon Kassebaum (R Kans)is cosponsor of the legislation

On August 2, the Labor Subcommittee of the Senate Laborand Human Resources Committee, which Metzenhaum chairs .heard witnesses on the bill . At the hearing, Olena Berg,assistant secretary of Labor, tell the committee that theDepartment of Labor fully supported the legislation, which shecalled necessary to protect pending litigation against plansponsors who purchased annuities from the failed ExecutiveLife Company .

White House Sounds Call for ReformBy Gary Hendricks

A s its first step in moving health care up on the publicagenda, the White House circulated a document toDemocratic members of Congress called "The Need

for Health Care Reform." It was pure pablum and sure-ly an insult to many in its intended audience . OnAugust 16, President Clinton spoke on health care tothe National Governors' Association, and health will bethe administration's Labor Day theme .

The president is expected to unveil his health careproposal before a joint session of Congress on Septem-ber 21 or 22. The White House also plans to convene a3-day seminar for members of Congress to ensure thateveryone is working from the same intellectual base . Inspite of this ambitious agenda, it is far from clear thatall the broad outlines of the president's proposal will bespecified in late September .

Hendricks is Academy Director of Government Informa-tion .

The Actuarial Update ∎ September 1993 7

ACCOUNTING BOARDS,continued from page 6

Iasserted that the evaluation ofIBNR reserves for governmentalentities is an actuarial matter, justas for insurance companies . TheAcademy's Committee on Prop-erty and Liability FinancialReporting offered to provideassistance on the topic to GASB .Several actuaries are participatingon a task force developing a Q&Aon GASB 10 .

The Academy representatives

HARTMAN, continued fiom page 5

Of course I don't advocateunification of the professionalorganizations . I don't see that asbeing fruitful at this point intime .

UPDATE: But you would call fora greater level of trust and collegial-ity among the organizations?

HARTMAN: Yes, and that's cer-tainly one of the things that Ihope to make a small contribu-tion to through the planningcommittee. The committee willcomprise people who have come

noted the good cooperationbetween actuaries and accoun-tants with respect to financialstatements for sponsors and par-ticipating employees in publicemployee retirement systems .An exposure draft on accountingfor public plans is expected forrelease in the fall .

GASB representatives said theyhave been following the ASB'sproject on economic assumptionsclosely. They hope to avoid situa-tions in which GASB and the ASBare at variance .

up through each of the U.S . orga-nizations, with an even distribu-tion among the areas of actuarialpractice .

I hope that someday we'llshow the same level of coopera-tion that we see among doctors,lawyers, and accountants, andamong actuaries in other coun-tries, where there are many spe-cialties all within a single organi-zation. Actuaries have far morein common with each other thanwe have differences, and we're asmall profession . With a higherlevel of trust, we can accomplishso much more. ∎

Academy Director of Public Relations Erich Parker, APR . andElizabeth Kelley Grace of Stephen K . Cook & Co . accepted thePublic Relations Society of America's Silver Anvil Award on June 9in New York City . The Silver Anvil was presented to Forecast2000, the public relations program of the actuarial profession inNorth America, which is cosponsored by the Academy, theAmerican Society of Pension Actuaries, the Canadian Institute ofActuaries, the Casualty Actuarial Society the Conference ofConsulting Actuaries and the Society of Actuaries . Parkerdirects the day-to-day forecast 2000 activities ; Grace is thepublic relations counsel for the program .

The Silver Anvil is the highest honor that the public relations profession ran hestoa upon a programor campaign. ' It marks unparalleled achievement in its category . Forecast 2000 won as the nation 's finestinstitutional program, competing against hundreds of other national association programs with budgets .on average . four times the size of this cost-shared program . Each sponsoring organization will receive aSilver Anvil trophy to display in their offices .

Communications

The need for continued collabora-tion and communication betweenthe actuarial and accountingAfessions was a constant themthe discussions. Perhaps no otherprofession shares as many mutualconcerns with actuaries as doesthe accounting profession. AsASB Chairperson Jack Turnquisttold the group, a majority of therecent actuarial standards of prac-tice have been related to financialreporting. ∎

FORECAST 2000,continued from page 3

in an impasse in May. On theUniversity of Louisville's WUOL,Philips told Michael Toulousethat there were similaritiesbetween Kentucky and Minnesotaand that bipartisan supportwould be critical for any legisla-tion .

Philips also appeared as aguest of Lora Bradshaw's onmidday news on WLKY,television's Louisville affiliate,and she was the sole guest onWWKY/WVEZ's half-hour"Focus."

Julia Philips is a member ofthe Academy's Committee onState Health Issues . In March,she spoke about standard benefitsat a Capitol Hill congressionalbriefing and at a press conferenceat the National Press Club as partof Forecast 2000. She also hasbeen called to Washington to dis-cuss the pros and cons of includ-ing mental health benefits in anational health care package .

Steve Cook of Stephen K. Cook& Company, the public relationsfirm that assists in the implemen-tation of Forecast 2000, accompa-nied Philips on the media/issuestour. Health care reform is one ofthe issues addressed by this year'sForecast 2000, which is cospon-sored by the six major organiza-tions representing actuarieNorth America.

Krehbiel is the Academy's assistantdirector of public relations.

8 The Actuarial Update ∎ September 1993