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cveAchiarial UpdateVOLUME 19 NUMBER 2 AMERICAN ACADEMY OF ACTUARIES FEBRUARY 1990

In

2

this issue

From a Guest President

3 Letters to the Editor

4 Practice Councils : GearingUp for 1991

4 Academy Files Brief

5 1989--90 AcademyCommittee Roster

7 Forecast 2000-Part I

8 Standards Outlook

9 Long-Term Care Task Force

9Checklist ofAcademy StatementsDecember/January

10 NAIC Winter Meeting Report

12 New Editor 's Initiatives

Enclosures

Included in this month's issue ofThe Update are the following :

• Government Relations Watch• In Search Of . . .

• ASB Boxscore

• Loss Reserve Opinion Survey

Willing Suspension of Disbeliefand Social Insurance Policyby Roland E. King

"Willing suspension of disbelief' (WSDfor short) is a literary phrase applyingto a reader or viewer who, desiring to beentertained by a work of art such as anovel, movie, or play, voluntarily ac-cepts certain things known to be un-true. In other words, the reader orviewer voluntarily suspends his or herdisbelief and willingly accepts the im-possible .

In order to enjoy a Superman movie,for example, viewers have to suspendtheir disbelief in man being able to fly .In the same vein , in order to enjoy a StarWars movie, the viewers would have tosuspend their disbelief in, among otherthings, Wookies, woks, Jedi Warriors,and intergalactic space travel .

What connection does a literaryexpression such as this have with so-cial insurance ? Well, it seems that thewilling suspension of disbelief is an

increasingly prominent instrument ofsocial insurance policy. Consider theMedicare Catastrophic Coverage Act of1988, particularly the prescription drugbenefit that was part of that legislation .

When Congress held hearings on theprescription drug benefit, the Ameri-can Association of Retired Persons(AARP) testified that the cost of pre-scription drug coverage was a signifi-cant financial burden for their mem-bers. AARP pointed out that their 1986survey of the elderly population re-vealed that the elderly spent over $9billion on prescription drugs in 1986(over $300 per capita), and that theelderly population consumed more than30% ofall the prescription drugs sold inthe United States .

Independent estimates of aggregateprescription drug spending in the United

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Qualification Standards and ContinuingEducation : The New Requirementsby Gary D. Simms

January 1, 1990 started a new decade .but to members of the Academy, thedate was also important for anotherreason: the new qualification stan-dards and continuing education re-quirements have gone into effect .

Perhaps most important to know iswhat has not changed with the newstandards. The qualification standardsfor signing the various NAIC State-mentsof Opinion remain the same underthe new format. Individuals who previ-ously have been qualified to sign life,property/casualty, or HMO blanks arestiff qualified to do so in 1990. Althoughthe format has been changed, the re-quirements of each standard haveremained the same .

What is new, however, for signers ofthese blanks is the mandatory continu-ing education requirement that hasgone into effect for 1990. This meansthat an average of twelve hours peryearof continuing education, related to thespecific examination topics listed in thequalification standards, has to becompleted during 1990 and 1991 if theindividual is to remain qualified to signsuch statements in 1992 .

Something else that is new, and thatmay eventually become more impor-tant to the majority of Academy mem-bers, is the introduction of the GeneralQualification Standard for Public State-ments of Actuarial Opinion. Publicstatements of actuarial opinion areopinions called for by law or regulation,

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American Academy

PresidentHarold J. Brownlee

President-ElectMavis A. Walters

Vice PresidentsHarry D. GarberHarper L. Garrett, Jr.John H. HardingDaniel J. McCarthy

SecretaryVirgil D, Wagner

TreasurerThomas D. Levy

Executive Vice PresidentJames J. Murphy

Executive Office1720 I Street, N.W. 7th FloorWashington . D.C. 20006(202) 223-8196FAX (202) 872-1948

Membership AdministrationWoodfield Corporate Center475 N. Martingale RoadSchaumburg, Illinois 60173-2226(708) 706-3513

ChairpersonCommittee on PublicationsRoland E. KingEditorE. Toni MulderExecutive EditorErich ParkerAssociate EditorsGary D. LakeStephen A. MeskinCharles Barry H . WatsonManaging EditorJeanne CaseyContributing EditorKen KrehbielProduction ManagerRenee Cox

American Academy of Actuaries1720 I Street, N .W 7th FloorWashington, D .C. 20006Statements of fact and opinion in this publication,including editorials and letters to the editor, are madeon the responsibility of the authors alone and do notnecessarily imply or represent the position of theAmerican Academy of Actuaries. the editors. or themembers of the Academy.

Joint Efforts :How Are We Faring?

Virtually all of the actuarial organiza-tions in North America are working to-gether on the major issues affecting theprofession . This commonality of interestand spirit of cooperation is vital .

Mike Walters, then president of theCasualty Actuarial Society made thistwofold observation nearly three yearsago, in these very pages . "On JointEfforts" was the title of his April 1987guest editorial.

His words were perhaps prophetic ofthe Joint Task Force on Strengtheningthe Actuarial Profession, created by theCouncil of Presidents later that year . Amajor theme of the joint task force wasthe need to strengthen our public inter-face capabilities in the United States .In its final report, the joint task forcehad noted that 'while the roles of eachof the organizations appear to be clearwhen considered from the perspectiveof members of the profession, they arenot as clear when viewed from outsidethe profession ."

Both Walters' editorial and the jointtask force report came to mind againrecently when I was speaking at a localactuarial club . A pension actuary inthe audience asked "Why does ourprofession have so many organiza-tions?"

I reflected that, although the num-ber of organizations has remained thesame-and that might appear to be aproblem-there has been real progressin the way the profession as a whole isaddressing today's Issues .

It is even more likely today that anymajor issue facing the profession as awhole is considered by a joint task forcethat includes representatives from eachof the actuarial organizations. This notonly cuts down on the duplication ofeffort, but brings everyone into theprocess. Currently, a joint task force Isstudying whe ther the profession should

The Actuarial Update

develop a statement on national retire-ment income policy, for example .

Today, joint efforts go well beyondthe cooperative environment of a fewyears ago, when the actuarial organiza-tions were working together on Internalprofessional issues such as principles,standards of practice, and flexibleeducation. In today's environment, theactuarial organizations are working onthe "bread and butter" issues that areimportant to our profession's publics .

The Society of Actuaries (SOA) has aparticular role within this profession-wide effort. We can make the publicinterface of the profession more effec-tive by focusing our research and edu-cation efforts on those public issuesthat the profession is being asked toaddress.

We are trying to do this on severalfronts. For example, the profession hasidentified health issues as a major publicconcern-and as an area where theactuarial profession should contributemore. At present, we are trying toexpose health actuaries to currentpublic policy issues through our vari-ous programs. At our April meeting inDallas, for example, a professional inthe area of public health policy will bt0the keynote speaker. We also havebeen revisiting our educational ma-terial .

In the case of continuing care retire-ment communities (CCRCs), where theAcademy took the lead by developingstandards later promulgated by theActuarial Standards Board, the SOA Iscommitting funds to support researchthat could benefit actuaries workingwith CCRCs .

The SOA is funding another researchproject on C-1 risk, a concern of the lifeinsurance industry and the valuationactuary. In the pension field, the SOAis ready to support a newAcademy taskforce that has been asked by the Pen-sion Benefit Guaranty Corporation toprovide information about the numberof terminating defined benefit plans .

I hope that three years from now,should the subject of Joint efforts" bevisited again by another guest presi-dent, it will be clear that their result hasbeen a more effective profession, able tomake a more visible contribution tonational public policy.

0Affleck is president of the Society ofActuaries . He represented theAcademyon the Joint Task Force for Strengthen-ing the ActuarialProfession and servedas its, first chair.

February 1990

Letters to the Editor

5Criticism of NonforfeitureValues Report

I could not let the article on the Nonfor-feiture Values Report (November Up-date) pass unchallenged.

1 . The report 's premise that "Nonfor-feiture Values Will Be Mandated." Thisis an example of a self-fulfilling proph-ecy if ever there were one . It alsocontains an element of truth : "It isimportant to have the same generalmethodology apply to all types of lifeInsurance contracts "-a point that iscompletely misapplied In the remain-der of the report summary . The onemethod that could reasonably be ap-plied to life, health (return of premiumbenefits), and annuity cash values isillegitimately dismissed in Section 5 ofthe report summary.

2. "Paid-Up Insurance is a Benefitthat Satisfies Nonforfelture Equity." Nojustification is given in the summary.Why not extended term insurance? Ican imagine two reasons for this find-ing. It could be a way to avoid basingfederal income tax on cash values. Thatwould not prevent Congress or the IRSfrom finding some way to accomplishthat goal, If such were their aim . Itcould be a way to avoid negative cashflow. But what about loans? Are theyto be abandoned? If not, a policyholdercould just take out a maximum loanand make no further payments.3. `The Asset Share Is an Appropri-

ate Value on which to Base MinimumNonforfeiture Benefits ." This may befairly reasonable, but it contradictsmany of the other sections of this re-port, namely Sections 4.5,6, and 7 . Itis interesting that the asset share isretrospective, and a reasonable basefor cash values , but minimum cashvalues should not be retrospective ; thatwould be circuitous logic. One alsonotes that negative early-asset sharesforce early terminations to be subsi-dized by persisting policyholders, as dopermissible cash values higher thanthe minimum , if such minimums areactually based on the asset shares .4. "The Methodology of the Cur-

rent Standard Nonforfelture Law StillWorks . . ." This is clearly false. It is toocomplex-it wins awards for incompre-hensibility. Various regulators makeexceptions to it for different situations .In particular, no satisfactory or consis-

tent application of it has been made touniversal-type policies . Rather thanattempt to arbitrarily extend it to a situ-ation where it clearly does not apply-universal life-it should be abandonedentirely as not meeting the needs oftoday's products .5. "ARetrospectiveMethodologyWas

Explored, But Is Not Endorsed ." Nomention of the benefits of this methodwas made. Here are some of them :

a. It can be adapted to all forms ofinsurance. It Is currently used forannuities and universal life. Applica-tion to traditional life would be simple .Only the parameters In a generalformula would need to be changedfor different forms .b. It is conceptually and mathe-

matically simple . (I fear this is viewedas a disadvantage by some.)

c. It Is easy to adapt to changingconditions .d. It is closest to the task force's

revered asset share of Section 2 .e. It is the only reasonable method

for non-par, non-guaranteed prod-ucts .

f. It would simplify communica-tions with regulators , consumers, andother publics.g. Hindsight is much more accu-

rate than foresight .

The one reason that the report givesagainst the retrospective methodologyseems the height of sophistry. (SeeExecutive Summary, Section 5,November Update.) Most people acceptexplicit rate regulation with health(minimum loss ratios) and annuitiesand universal life (retrospective cashvalue minimums) . States already havevague powers to regulate traditional liferates. Why are vague standards goodfor traditional life, but explicit stan-dards good for other forms? Imagine awhole-life policy with gross premiumequal to 100 times the net. Is that okay?How about 1 .2 times? I would rathersee something explicit than guess atwhat is acceptable . If one finds rateregulation the only argument againstretrospective nonforfelture values. al-low unlimited renewal loads in the retro-spective cash value calculation. If youdo not like that idea , you are in favor ofrate regulation , so the argument againstretrospective cash value minimums iseliminated.

6. Cash values should be linked toreduced paid up . [Section 6 title reads :"Cash Values, If Provided , Should HaveMinimum Standards Linked to Paid Up

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Values."] This is an arbitrary approachtaken to avoid problems created byother portions of the report. With retro-spective cash values, this added com-plexity could be avoided .

If you like this report as little as I do,write to the appropriate committee andsend a copy of your letter tome . [thinkthat this is too important an issue to beresolved as poorly as the NonforfeitureValues Report has envisioned . Perhapswe can form an anti-committee to pre-vent the report from becoming a recom-mendation .

Douglas HawleyCorte Madera, California

Chair of Nonforfeiture ValuesTask Force RespondsAs Douglas Hawley noted, his letterwas triggered by his reading the execu-tive summary of our report that ap-peared in the November Update. It isdisappointing that he appears not tohave read the full report before com-menting on it. (Mr. Hawley asked mefor a copy of the full report In a letterwith the same date as his letter to theeditor.)

Paid-Up Insurance . Hawley hasconfused paid-up insurance with re-duced paid-up insurance . Extendedterm is a paid-up nonforfeiture benefit .

(continued on page 11)

Reprinted by permission of NEA, Inc .

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Practice Councils:Gearing Up for 1991Providing actuarial expertise on a broadrange of public policy issues has longbeen a goal of the Academy. With theproposed establishment of "practicecouncils" to oversee the managementand setting of priorities for the Acad-emy's public interface committees,success in this critical domain is ex-pected to be optimized .

The Call for Restructuring

Late lastyear, the Council of Presidentsapproved the report from its Task Forceon Strengthening the Actuarial Profes-sion, which recommended the creationof practice councils within the Acad-emy. The councils were to guide thepublic interface activities of the profes-sion's four main practice areas: life,health, casualty, and pensions .

The concept of managing the Acad-emy's public interface by practice areaswas felt to be very important, said JamesJ . Murphy. Academy executive vicepresident and a member of the taskforce. The practice councils will 'orktogether and coordinate interface com-mittees' activities,- he explained. Al-though individual public interfacecommittees will still be responsible formaking public statements, the overallprocess will be given direction by thepractice councils .

In an earlier draft report, the taskforce had suggested that the Academycreate practice area divisions-one foreach of the four practice areas-whichwould have established specialty-ori-ented divisions within the Academy .

This idea has been reworked from thetask force's final report, according toMurphy, because "it was decided thatcreating an additional structure wouldbe administratively complex and moredivisive than unifying at a time whenwe already are dealing with so manyactuarial organizations ."

As presently envisioned, each prac-tice council will be composed of the vicepresident with responsibility for thatarea of practice and two other boardmembers from the same practice area.Additionally, each council is expectedto include chairs of committees as-signed to Its practice area, and otherpersons, such as consultants or repre-sentatives of the Actuarial StandardsBoard .

Practice Councils ' DutiesDetailed

Officially, the responstbdityofeach vicepresident and practice council will be todevelop comprehensive public inter-face plans-and to coordinate the exe-cution of these plans through Academycommittees and the related committeesor sections of the other actuarial or-ganizations. Moreover, the practicecouncils are charged with respondingto unexpected public interface develop-ments on behalf of the Academy, whicharise In their particular area of prac-tice .

"The practice councils will help pro-vide a better vehicle for planning andfor identifying issues quickly so that wecan be in a proactive mode," saidMurphy. "They will also help give thevice presidents a focus to aid them Inoverseeing the work of the commit-tees."

Academy Files Amicus Brief in Washington StateReg CaseThe Academy filed an amicus curtaebriefwith the Supreme Court of the Stateof Washington In the case Omega National Insurance Company, et aL u.Marquardt (No. 56255-5) . The case concerns the validity of a regulation prom-ulgated by the Washington Department of Insurance, which requires life Insur-ers to pay minimum death benefits equal to ten years' premiums (plus 5%interest per year, compounded) on individual life insurance policies with a leveldeath benefit of less than $25,000, In effect setting a ceiling on premiums forcovered policies .

The Academy brief points out that the regulation is unreasonable becauseit violates proper risk classification principles and actuarial standards ofpractice that are essential to the business of insurance . The brief notes thatthe regulation mandates premium levels that are deficient under applicablevaluation laws. Copies ofthe brief are available on request from the Academy'sWashington office.

The Actuarial Update

Other ActuarialOrganizations'Involvement

Once fully operative, the practice coun-cils would support the overall effort tostrengthen the profession, Murphynoted-the task force's foremost objec-tive. "It's the Academy's structure," heacknowledged, "but the other organiza-tions are to playa key role in identifyingpotential officers to be placed €n chargeof each practice area council." Murphysaid that under the new practice coun-cil structure the Academywould acceptsuggestions for nominations for vicepresidents from the Casualty ActuarialSociety, the American Society of Pen-sion Actuaries, the Conference of Actu-aries in Public Practice, and the Societyof Actuaries. Over the next three years,the presidents and presidents-elect ofthe other actuarial organizations willbecome full-fledged board members ofthe Academy. "That involves them di-rectly in Academy policy making andwould help to guide the practice coun-cils as they oversee the work of thepublic interface committees." Murphyreflected .

A Slow, Steady Phase-In

This restructuring of the Academycommittee structure in response to thetask force report Is being accomplishedgradually. Last year, as a first step,President Jim MacGinnitie reorganizedthe Academy's public interface commit-tees so that each committee came underthe supervision of an Academy vicepresident, each of whom had oversightover a distinct practice area .

The current president, Joe Brownlee,has extended this arrangement for the1989-90 Academy year by assemblingInformal councils to support the vicepresidents in each practice area. A fifthpractice council on professionalism alsohas been created. "It will be structuredlike the other councils, but will Includethe committees on Discipline, Guidesto Professional Conduct, Qualifications,and a new committee, the Committeeon Professional Responsibility," reportedBrownlee. (See October 1989 Updateeditorial.)Normally the professionalism coun-•

cil would come under the supervision ofthe president-elect . However, Presi-dent-Elect Mavis Walters has beenasked to oversee the casualty practicearea for this year, since that is her own

February 1990 5

field ; Vice President Harry D . Garber Board of Directors throughout 1990 . committee structure." He anticipateswill supervise the professionalism area 'We want to see how it works , and we that at the Academy's 1990 Annualcouncil . don't want to formalize a structureyet," Meeting the practice council conceptThe practice council concept will said Murphy . -except to the extent that will be formally adopted.

continue to be tested by the Academy we would put it into place for the 1991

198"0 Academy Committee Roster(Reflecting Supervision of Practice Areas)

Committees Under the Committee on Continuing Care Committees Under theSupervision of President Retirement Communities Supervision of Vice PresidentHarold J. Brownlee Alwyn V. Powell Harry D. Garber

Executive Committee Task Force on National Retirement Professionalism AreaHarold J. Brownlee Income Policy

Kenneth A. Steiner Committee on DisciplineCommittees Under the John A. FibigerSupervision of Past President Committees Under theW. James MacGinnitie Supervision of Vice President Committee on Guides

John H. Harding to Professional ConductNominating Committee Douglas J. CollinsJohn AL Fibiger. Life Practice Area

Committee on ProfessionalTask Force on Public ServiceDwight K . Bartlett, III Committee on Life Insurance Responsibility

John J . Palmer William David Smith

Committees Under theCommittee on Life Insurance Committee on QualificationsSupervision of President-ElectFinancial Reporting James F. Reiskyti

Mavis A. Walters Paul F. KolkmanTask Force on Continuing EducationCommittee on Planning

Mavis A. Walters Joint Committee on the Valuation Requirements and RecognitionActuary Daniel J. McCarthy

Casualty Practice Area Walter S. RuglandCommittees Under the

Committee on Property Committee on Nonforfelture Values Supervision of Secretaryand Liability Issues Walter N. Miller Virgil D. WagnerRobert V. Deutsch

Committees Under the Admissions CommitteeCommittee on Property and Liability Supervision of Vice President Judy FaucettInsurance Financial Reporting Daniel J . McCarthyDavid G . Hartman Committee on Risk Classification

Pension Practice Area Jean M. WodarczykJoint Program Committeefor Casualty Loss Reserve Seminar Committee on PublicationsPatrick J Grannan Pension Committee.

John B . Thompson Roland E. King

Committees Under theSupervision of Vice President Committee on Pension Accounting Committee on Relations with

Darrel J Croot AccountantsHarper L. Garrett, Jr. .

Edwin F . BoyntonCommittee on ServicesHealth Practice Areato Enrolled Actuaries Committees Under the

Committee on Health Kathleen S . Elder Supervision of TreasurerEdward J . Wojcik Thomas D. Levy

Committee on Social InsuranceCommittee on Health and Welfare Plans Robert J. Myers Budget and Finance CommitteeJeffrey P. Petertll Thomas D. Levy

Joint Program Committeefor Enrolled Actuaries MeetingNeil A. Parmenter

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SOCIAL INSURANCE POLICY(continuedfrom page 1)

States, prepared, in part, by Academymember Gordon Trapnell, were avail-able to Congress . The CongressionalBudget Office (CBO) paid no attentionto AARP's testimony and Trapnell's fig-ures. Basing their cost estimate on aprescription drug spending estimate of$200 per capita. CBO estimated that aprescription drug plan with a $500deductible and a20% coinsurance couldbe financed in 1989 for a mere $2 .40per month. To my knowledge, not asingle congressman or staff memberquestioned the hugediscrepancy betweenwhat AARP and CBOwere saying.

Here was a financialproblem ofimmense pro-portion that would costalmost nothing to solve,from the legislators'point of view. The situ-ation was tailor-made forWSD! You can imagineCongress 's extreme dis-pleasure when the actu-aries in the Health CareFinancing Administra-tion (HCFA) came in withan estimate of $20.00per month for the samebenefits that CBO hadsaid would cost only$2.40 per month .The HCFA actuaries

were definitely interfer-ing with Congress'sWSD, and In my experi-ence politicians do noteasily tolerate such dissent. The HCFAactuaries were told that their method-ology was flawed , that they were usinginappropriate statistical techniques,and that their data were not represen-tative . And, of course, they were sub-jected to the most crushing criticism ofall-that their cost estimates were po-litically motivated . Virtually endlessreams of documentation were demandedand supplied . And each round of an-swers led to a new round of questions .

Legislators' WSD was further chal-lenged when Blue Cross /Blue Shieldorganizations and commercial insurersbegan reporting their data for prescrip-tion drug plans for the elderly, andthese costs were even higher than whatthe HCFA actuaries were assuming .However, evidencing a full-blown caseof WSD , Congress quickly dismissedthis Information , proclaiming that these

new data represented people who were"sicker than average ."

Initially, HCFA s cost estimates wereeven questioned as too high by theOffice of Management and Budget(OMB). To put this in perspective, youhave to remember that, in the ReaganAdministration , almost no cost esti-mate for expansion of a social insur-ance program could be too high. Evenafter OMB had been convinced thatHCFA s prescription drug cost estimateswere reasonable and technicallysound,the White House was still skeptical andwanted more reassurance before goingout on a limb in support of cost esti-

mates that were so radically differentfrom the "conventional wisdom ."

So. as HCFAs chief actuary, I wasinvited to the White House for what theOMB budget examiner referred to as a"sanity check." I apparently passed thetest, for within a short period of time,rumbling of a possible veto began toemanate from the White House, andthree cabinet officers wrote a letter toCongress stating that they would rec-ommend a veto to the President unless,among other things, the prescriptiondrug benefit were removed from thelegislation .

Despite this warning, in early Juneof 1988, Congress enacted the Medi-care Catastrophic CoverageAct, includ-ing the prescription drug benefit, albeitscaled back from earlierversions. Overthe course of the debate, CBO's cost es-timates had quadrupled, so that by the

The Actuarial Update

time the bill was passed, HCFA's actu-arial estimates were roughly doubleCBO's, instead of being over eight timesgreater, as they had been in the begin-ning .The Reagan Administration had

threatened a veto because of two otherfacets of the legislation besides the pre-scription drug benefit . It objected towhat was termed the "staggering long-term tax and premium Increase" andthe "use ofa complicated and unneces-sary surtax." Some observers have saidthat if the same ideologues who hadbeen advising the President early in hisadministration had advised in 1988, he

bill. As it was, he knewthat if he were to vetothe bill, it could have be-come a major election-year issue.

Although a veto wasclosely debated withinthe White House, thepolitical pragmatistswon out over the Ideo-logues. On July 1, 1988,the President signed thecatastrophic legislationinto law, despite the factthat Congress hadn'tremoved any of the pro-visions that had precipi-tated the threat of aveto .

That could have beenthe end ofthe story if theelderly had just used alittle WSD , but the cold,

hard reality of the surtax began to sinkin even before they filed their first taxforms with the new surtax. There wasa highly vocal protest of the surtax bythe elderly, and by April of 1989, Sena-tor Bentsen , as chairman of the SenateFinance Committee , decided he'd bet-ter do something about It .

CBO, ever accommodating, raisedits estimates of the revenue generatedby the surtax (euphemistically referredto as a supplemental premium), andannounced that the catastrophic legis-lation had a $9 billion surplus . On.April 20. 1989, SenatorBentsen held apress conference to announce that hewanted to use the surplus to reduce thesupplemental premium. The followingday he wrote to the Secretary of theTreasury asking him whether he con-curred with CBO's assessment that thesupplemental premium was too high .

would have vetoed thebill-or that, If 1988hadn't been a presiden-

~ lii tial election year, heCJ might have vetoed the

February 1990

Not only did the Secretary of the Treas-ury, reply, but President Bush respondedwith a letter of his own . Had this beena Star Wars movie. Senator Bentsenwould surely have envisioned DarthVaderas an actuary, because PresidentBush's letter made specific reference tothe HCFA chief actuary's concern thatthe surplus was inadequate, and to theactuary's projections of the cost of theprescription drug program .

To underscore Its concern, on May 8the Administration sent to Congress acongressionally mandated report up-dating the drug estimates, using datathat had become available since thelegislation had passed . This reportindicated that the actuarial estimateswere virtuallyunchangedafter two yearsof debate and intense scrutiny. Inaddition, the Secretary of Health andHuman Services had hired an inde-pendent consulting actuary to critiquethe HCFA actuary's methodology andassumptions. The report of the inde-pendent actuary confirmed HCFA's pro-jections, and even hinted that theymight be too low. This gave rise to a newround of actuary bashing by Congress.This time, however, the criticism was,In effect, directed at the methods andassumptions employed generally byhealth actuaries, not just the actuariesin HCFA.

Senator Bentsen's WSD was com-pletely unaffected by either the Presi-dent's letter or the new report to Con-gress. He pushed ahead with his planto reduce the catastrophic supplemen-tal premium and scheduled a SenateFinance Committee hearing on the is-sue for July 11. Yet he was rudelybrought into touch with reality by star-tling new revelations from, of all places,the CBO. Having originally providedSenator Bentsen a limb to crawl out onwith its estimate ofa $9 billion surplus,the CBO changed its mind. The esti-mated surplus not only evaporated,but it turned into a deficit.

The reasons given by CBO for thetwo-fold increase in its estimate were"increases in prescription drug costsand higher use rates of drugs by theelderly." Although this new develop-ment came as a complete surprise toSenator Bentsen. he went ahead withthe hearing anyway, placing the blamefor the entire embarrassing episode atthe feet of the "so-called experts" whohad bitterly disappointed him .

Thiswas. indeed, a remarkable state-ment coming from a U.S. Senator.Congress had received, whether theyliked it or not, the very best advice

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available on this issue. The foremostMedicare financing experts in the coun-try (the HCFA actuaries) had providedadvice. The Health Committee of theAmerican Academy of Actuaries, thenational Blue Cross/Blue Shield Asso-ciation, prominent actuarial consult-ants, and commercial Insurance carri-ers all had provided advice. Well-knownhealth-policy think tanks had offeredadvice. All of these experts had unani-mously agreed that the Congress hadseriously underestimated the cost ofthe prescription drug program .

Senator Bentsen hadn't been thevictim of bad advice from the experts .He was the victim of his own WSD .Instead of relying on the advice of theexperts, he (and the rest of Congress)had relied upon the advice of peoplewho told him what he wanted to hear .

Given this remarkable turn ofevents,as well as the unexpectedly vocal resis-tance of the elderly to the income-re-lated premium, it's not surprising thatCongress voted In November to repealthe catastrophic program entirely. Thiswas the first time in history that a maj orsocial insurance expansion had everbeen repealed, and it had been repealedbefore most of the benefits had actuallygone into effect .

testified on a large discrepancy be-tween actuarial estimatesand congres-sional estimates, Congressman RonWyden had this to say: "HCFA opposeseach of the Medicaid initiatives forwhichwe are about to hear its cost estimates .Obviously, each member should drawhis or her own conclusion, but it is hardfor me to escape the conclusion that indeveloping their estimates, the HCFAactuaries picked a nice highnumber. .. and worked backward fromthere into a justification ."

It's apparent from this statementthat Mr. Wyden never considered thepossibility that the Administration'sopposition to the bill might have arisenfrom the high cost estimates ratherthan the other way around. It's alsoapparent that he has no interest Inmaking an objective assessment of thelegitimacy of the estimates. One wouldhope that Congress would have learnedfrom its experience with catastrophicthat, while WSD may have its place inthe theater, it has no place in socialinsurance policy . I only wish therewere more encouraging evidence thatCongress had learned its lesson .

King is chief actuary with the HealthMore recently, when HCFAactuaries Care Financing Administration.

Positioning Actuaries as Experts:Forecast 2000-Part Iby Erich S. Parker

In recognition of our centennial birth-day on the continent, the entire actuar-ial profession joined forces in 1989 tolaunch a public awareness campaigncalled Forecast2000 . This program wasdesigned to educate public policy mak-ers, the business community. the gen-eral public, and the print and electronicmedia about the important role actuar-ies play in society, and the increasedrole actuaries will play as we enter the21st century .Throughout 1989, we reported on

press coverage that resulted fromindividual Forecast 2000 news forums ;now that an entire year's results areavailable, it is a pleasure to report thatall of the objectives put forth at thebeginning of the program have beenachieved, if not surpassed. More than180 million people were reached throughhundreds of articles in top daily news-papers, dozens of television and radiotalk show interviews, and widespread

coverage in the trade press . The cam-paign positioned actuaries as expertsboth within and beyond traditional areasof actuarial practice. It demonstratedhow the profession can play a verymeaningful role in public policy debate .

To recap our strategy, in order toattract media attention and to fosterdialogue among actuaries and keypublics on a range oftimely issues, overthe course of the year we surveyedsectors of the North American actuarialwork force on four topics : long-termcare, environmental risk, Investmentsand asset management, and pensionsand employee benefits. The results ofeach survey were released at news fo-rums featuring actuaries with exper-tise in topics under discussion, as wellas opinion leaders from outside theprofession. Top journalists from someof North America's leading newspapersmoderated the events. Every effort wasmade to hold these news forums atsites where there is built-in Interest in

(continued on overleaf)

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the topic. Thus, the long -term careforum was held in Miami, where retireehealth and lifestyle stories typically dowell; the environmental risk news fo-rum took place in Toronto, Canada,the news media center of a countrythat has long put environmental pro-tection at the top of Its public policyissues list; investments and assetmanagement were discussed in theshadow of Wall Street in NewYork City ;and, finally, the pensions and employeebenefits forum took place in Los Ange-les simply to capture the west coastnews media .

These events successfully accom-plished a number of different objec-tives . First, through the release ofnewsworthy surveys, the forums at-tracted an unprecedented amount ofmedia coverage. Articles on the profes-sion and survey results appeared inboth the general press and trade pressincluding USA Today, the New YorkTimes, the Wall Street Journal, theToronto Globe and Mail, the ChicagoTribune, U.S. News &World Report, theJournal of Commerce, Business Insur-ance, and the National Underwriter.Broadcast coverage was also extensiveand included interviews on the PBSNightly Business Report. NationalPublic Radio. Cable News Network andFinancial News Network .

Second, they attracted both actuar-ies and opinion leaders as speakersand participants. Panelists who con-tributed their knowledge and insight tothe forums included executives or rep-resentatives from the Securities andExchange Commission, Columbia Uni-versity, UCLA, the Canadian Environ-mental Network, and the AmericanAssociation of Homes for the Aging .

Third , the Forecast 2000 programattracted the attention of opinion lead-ers and key publics important to theprofession . Thousands of individualsrepresenting abroad spectrum of fieldsrequested copies of our surveys, in-cluding academics , benefits consult-ants, securities analysts, environ-mental groups, health-care providers,members of Congress , and of course,actuaries themselves .

Finally, Forecast 2000 involved theentire profession through sponsorshipand participation . The program wassponsored by the American Academyof Actuaries , the American Society ofPension Actuaries , the Canadian Insti-tute ofActuaries , the Casualty Actuar-ialSociety, the Conference ofActuariesin Public Practice , and the Society of

The Actuarial Update

Actuaries. Actuaries from each of theprofession's specialty areas were ableto voice their opinions to the nationalmedia through the surveys.

In sum, Forecast 2000 positionedactuaries as future cost analysts in anumber of areas-a crucial step in thedevelopment of the profession as itlooks back on Its 100-year history andahead toward the changes of tomorrow .

Forecast 2000 , cost-shared as in 1989,will continue throughout 1990, buildingon the media exposure and enhancedrecognition we achieved during our cen4ptennial year. The details of this year'scampaign, at this writing still beingworked out, will be the subject of Fore-cast 2000-PartU. It is slated to appearin next month's Update.

'CI/t/•5 Standards Outlook

By Christine Nickerson

At Its January 11-12 meeting , the Ac-tuarial Standards Board (ASB) approvedthe release of two exposure drafts . Theproposed standards of practice , ExpertTestimony by Actuaries and BenefitsUpon Involuntary Termination of anEmployee Group, are described below.

Expert Testimony

The proposed expert testimony stan-dard would furnish guidance to mem-bers of the actuarial profession provid-ing testimony as actuarial experts . Itwould supplement the Academy'sGuides and Interpretative Opinions asto Professional Conduct According tothe proposal, such testimony includesvarious public forums such as admin-istrative or legislative hearings, courtsof law, and extra judicial proceedings .

As noted in the proposed standard,actuaries have provided expert testi-mony for many years . More recently,actuarial expert testimony has in-creased in frequency and scope, lead-ing to increased public exposure ofactuarial experts.

A major concern of the ASB is thatcompeting actuarial opinions on thesame issue have been so widely diver-gent at times as to cause one or both ofthe opinions to appear to be unreason-able. This situation has the potential toundermine public confidence in actu-arial opinions. The proposed standardaddresses issues such as conflict ofinterest, advocacy, obligations to theclient, obligations to the public, com-pliance with laws and regulations, re-sponsibility for data, actuarial assump-tions, analytical methods used, andcommunications and disclosures . Theproposed standard was developed by

the Expert Testimony Task Force of theSpecialty Committee of the ASB .

Involuntary TerminationBenefits

in recent years, plant closings or thepermanent layoff of a group of employ-ees have triggered additional retire-ment benefits . In some situations theseevents have resulted in the failure o

opension plans to provide for both theadditional and the normal benefitspromised by the plans. The proposedstandard addressing involuntary ter-mination benefits would add a newsection to the actuarial standard ofpractice. Recommendations for Meas-uring Pension Obligations . It deals withthe effect of such events on pensionbenefits .

An earlier exposure draft concerningthis issue was developed by the Pen-sion Committee of the ASB and re-leased in February 1989. Commentsreceived by the committee on the expo-sure draft resulted in significantchanges to the draft. As a result ofthese changes, the committee decidedthat a second exposure draft should bereleased for public comment. In theinitial exposure draft, numeric demon-strations of shutdown effects on pen-sion plans were encouraged, but notrequired. However, comments on thedraft made it clear that reviewers of theproposed standard believed it was tooweak without the requirement of nu-meric meric demonstrations . The second*exposure draft does contain such arequirement and provides a sectioncontaining examples of numeric dem-onstrations .

February 1990

Other Agenda ItemsThe ASB reviewed and discussed a

draft of a standard relating•relilninaly o long-term care, developed by the

Task Force on Long-Term Care .The board received reports from all

ASB operating committee chairs on theircommittee's plans for standards devel-opment during 1990. These developingstandards are described in the monthly"ASB Boxscore" enclosure in the Up-date . Another project that will beundertaken by most of the committeesduring 1990 Is the reformatting, and insome cases revising, of standards ofpractice adopted prior to the establish-ment of the ASB In 1988.

Finally, the board discussed issuesconcerning the enforcement of stan-dards of practice . Two questions wereraised: to what extent, if any, shouldthe ASB have a role in the enforcementof standards, and if no ASB role isappropriate, who should handle suchenforcement? The board was in agree-ment that monitoring compliance withstandards and handling discipline isnot the job of the ASB. This led to adiscussion of the role of the Academywith respect to these issues .

OnThe ASB will hold its next quarterlyeeting on April 19-20 in St . Louis,

Missouri . All meetings of the ASB areopen. Contact Nickerson at the Acad-emy for additional information. A

Long-Term CareStandard: A Jobfor ASB Task Forceby Bartley L Munson

Standards are needed for actuariesworking in the field of long-term care(LTC) for a number of reasons . LTCInvolves large risks, with pricing basedon precious little relevant experience .The prefunding of LTC involves a riskcurve that increases by age , not unlikethat of mortality, with substantial ac-cumulation of assets and reserves .There is considerable potential forconsumer misunderstanding andharm: There is equal "opportunity" forinsurer misbehavior, whether inten-tional or inadvertent.

Last year, recognizing the rapidlygrowing and largely uncharted field oflong-term care, the Actuarial StandardsBoard (ASB) created aspecial taskforceto develop actuarial standards of prac-tice for LTC .

New Products: New PracticesWhereas some forms of LTC insurancehave been around for twenty years orso, the number of companies offeringLTC policies (and the number of poli-

Checklist of Academy Statements-December/January

TO: American Institute ofCcrtffled Public Accountants Task Force on Report-ing Debt Securities Held as Assets, December 23, 1989 . RE: AICPA "State-ment of Position: Reporting Debt Securities Held as Assets ." BACKGROUND:The AICPA task force was established because the complex nature of manynew financial instruments can result in distortions of balance sheet andfinancial results . The Academy statement takes the position that theproposed AICPA statement does not solve the problem because the statementconsiders the valuation of individual categories of assets and liabilitiesindependently from each other. The Academy committee's statement empha-sizes that both asset and liability valuation techniques must be consideredtogether for proper and fair financial reporting. The Academy committee'sstatement also offers to assist the AICPA In this project .

TO: The Supreme Court of the State of Washington, January 3, 1990 . RE :Whether a Washington State regulation that, in essence , sets a ceiling on pre-mium rates for certain life insurance policies should be allowed to go intoeffect BACKGROUND: The regulation requires life insurers to pay minimumdeath benefits equal to ten years' premiums on Individual life insurancepolicies with a level death benefit of less $25,000. The Academy's amicusbrief argues that the regulation violates risk classification and other insur-ance principles and should not be permitted to go into effect because it wouldhave adverse impact on the public .

Copies of the statement or the brief are auailablefrorn the Academy.

cies overall) has exploded in the pastthree to four years.

Originally LTC Insurance came inthe form of stand-alone policies only .Now, LTC insurance Is often issued inthe form of riders on both life andhealth insurance policies. Types ofcoverage have broadened rapidly inrecent years, with new definitions ofinsured event, sites and levels ofbene-fits-fostering coverages that were onthe "no way can we do that" list just afew years ago . Increasingly, coveragesare being provided by life-care commu-nities and other group mechanisms .

LTC and the RegulatoryEnvironment

Standards are especially important ina regulatory climate that is uncertainand uneven. Existing regulations andlaws, in particular the tax laws, aregenerally unclearor nonspecific as theyrelate to LTC insurance.

Various public and private mecha-nisms for providing LTC insurance willcontinue to receive much attentionfrom federal and state governments,given the nation's aging population'sgrowing need for long-term care. Withestablished standards of practice, theLTC actuary will be better prepared totake an active role in both public andprivate arenas .

Proposed LTC StandardDrafted

Since Its formation in mid-1989, theLong-Term Care Task Force has beenhard at work . This January, the Long-Term Care Task Force discussed itspreliminary draft of a standard withthe ASB. The task force expects topresent its proposed standard at theASB's April meeting . If approved, theproposed standard will be exposed tothe membership soon after.

In the meantime, the task force wel-comesyourinput. lfyou have thoughtsabout the "do's and don'ts" of LTCactuarial practice, please contact oneof us on the task force . Task forcemembers, as listed in the new Acad-emy Yearbook, are: Don Charsky, AbeGootzeit, Bob Hall, Jim Helton, PatKinney, Ed Murphy, Dennis O'Brien,Gerry Shea, and Bart Munson (chair) .

A pastpresident of the Academy, Mun-son chairs the Long-Term Care TaskForce. He promises a response andconsideration of your views.

10

QUALIFICATION STANDARDS(continued from page 1)or an applicable standard of actuarialpractice as promulgated by the Actuar-ial Standards Board. For example,many states require an actuarial state-ment of opinion regarding the reasona-bleness of a rate filing, or for the com-pliance of a rate filing with applicableregulations . The state requirementsspecifically call for a statement of actu-arial opinion on these matters .In such a case , the new General

Qualification Standard for Public State-ments of Actuarial Opinion comes intoplay. Before making such a statement,the member must have a comprehen-sive and current knowledge of thesubject specifically involved in apply-ing generally accepted actuarial stan-dards of practice to the assignment .This knowledge is comprehensive andcurrent when it enables the member todetermine what principles are appli-cable to the assignment, and to applythem successfully. For any such as-signment . the member at a minimumshould have completed actuarial ex-aminations successfully in generalactuarial mathematics ; in the economic,regulatory, and legal considerations ofthe subject area; and in the identifica-tion, evaluation , and management ofrisk. This knowledge also may be ac-quired from experience-by having hadresponsibility for satisfactorily carry-ing out the function.

In addition , the member must haverecent, relevant experience involvingsignificant responsibility in actuarialpractice In, or related to. the subjectarea . With that experience , the mem-ber should have learned how to applythe proper techniques ofvalidating dataand data analysis, and should haveachieved the breadth ofview to properlydetermine whether all relevant mate-rial considerations have been ad-dressed .

Finally , the member's Public State-ment of Actuarial Opinion should al-ways include an acknowledgment ofqualifications , such as the following :

"I (name) am (position) for (entity) . Iam a member of the American

Academy of Actuaries and meet itsQualification Standards for (type ofassignment) ."

The General qualification StandardIs supplemented by the specific qualifi-cation standards (currently limited tothe NAIC blank requirements). It isanticipated that, in the near future, theCommittee on Qualifications will rec-ommend additional specific qualifica-

tion standards for identified publicstatements. These standards will besubjected to a required exposure andcomment process prior to adoption .

In the interim , the committee wet-comes any questions from members or.from users of actuarial opinions on thenew general standard , or on qualifica-tion issues generally.

Stmms in general counselfor theAcademy .

NAIC WinterMeeting Reportby Gary D. s

Stories in the January Update on valu-ation actuary developments and theAcademy's risk classification slide showpresentation to the insurance commu-nity were but two highlights of theannual winter meeting of the NationalAssociation of Insurance Commission-ers (NAIC), held in Las Vegas in earlyDecember.

Life and Health ActuarialTask Force Discussions

The Life and Health Actuarial (Techni-cal) Task Force focused much attentionon the valuation actuary issue. Inother news, the task force authorizedthe NAIC central office to ask for theparticipation of the states in a review ofdomestic life companies' actuarial re-ports . The states would submit a list ofso-called "clean" opinions to the centraloffice for compilation , along with a listofso-called "qualified" opinions. Athirdlist, for `incomplete or inaccurate" opin-ions, would also be collected by thecentral NAIC office . These lists wouldbe reviewed by a group of actuariesfrom each NAIC zone , and a report ontheir deliberations would be releasedfor all states to help monitor foreign oralien insurers licensed in their jurisdic-tions.

Without taking final action , the taskforce continued discussion on a widerange of subjects . It continued Itsstudy of the Academy's recommenda-tions concerning nonforfelture prin-ciples, and It debated Issues related towhether a retrospective or a prospec-tive basis for minimum nonforfelturevalues is appropriate-or whether poli-cies that have a paid-up insurancebenefit, but no cash value provision,should be allowed . The task force also

The Actuarial Update

continued discussions on other actu-arial aspects of reinsurance transac-tions, including mirror imaging sur-plus relief agreements, stop-loss/nonleproportional reinsurance contracts,reinsuring the investment risk, the useof letters-of-credit, and the securitiza-tion of future cash flows and/or statu-tory earnings . The task force alsocontinued to discuss an actuarial guide-line concerning the use of gender-blended mortality tables and smoker-nonsmoker mortality tables, but it hasnot yet drafted language .The task force recommended for

adoption a new actuarial guidelineentitled "Election of Operative Datesunder Standard Valuation Law andStandard Nonforfeiture Law." It alsoadded a new project, "Reinsurance--Capital Management for Life InsuranceIndustry," to its agenda .

Casualty Actuarial TaskForce Deliberations

The CasualtyActuarial (Technical) TaskForce focused its attention on the state-ment of opinion on loss reserves. Atpresent, many states do not require thesubmission of a loss reserve opinion,and those that do tend to require th0opinion from a "qualified loss reservespecialist," frequently defined as amember of the Academy or specialistotherwise acceptable to the insurancecommissioner. Several states haverecently amended their definition torequire fellowship in the Casualty Ac-tuarial Society for signers of loss re-serve opinions.

Three years ago, the Casualty Actu-arial Task Force had recommended thatthe property/casualty blank beamended to require actuarial loss re-serve opinions in all states and to de-fine the actuary as a member of theAcademy. or specialist otherwise ac-ceptable to the Commissioner (parallel-ing the life blank's requirements) . Thatrecommendation had been rejected bythe NAIC Blanks Task Force and re-turned to the Casualty Actuarial TaskForce for additional consideration .

Several members of the CasualtyActuarial Task Force are now consider-ing a requirement for membership inthe Casualty Actuarial Society, eitheralone or in conjunction with Academymembership, as evidence of qualifica-tion tion to sign loss reserve opinions .

In response to this development,Academy Executive Vice PresidentJames J. Murphy informed the taskforce of the benefits of limiting thedefinition to Academy members, focus-

February 1990

Ingon theAcademys qualification stan-dards, disciplinary process, and the

fact that only Academy members areand by the Academy's qualification

tandards and the standards of prac-tice Issued by the Actuarial StandardsBoard .

The task force requested that theAcademy report back to it in June onwhether any changes to the qualifica-tion standards were under considera-tion and whether the Academy mightfind some other way to insure that onlyqualified casualty actuaries were per-mitted to sign loss reserve opinions.

The Casualty Task Force also dis-cussed issues related to free extendedcoverage under claims-made profes-sional liability contracts, possible revi-sions to Schedule P , loss reserve dis-counting, and efficiency in ratemaking .

Other NAIC News

The first annual Robert Dineen Awardsfor contributions to Insurance regula-tion were presented to John H.Montgomery of the California Insur-ance Department and long-time chair-man of the Life and Health ActuarialTask Force, and to Richard Brock of the

nsasDepartmentoflnsurance . Theserds were made in honor of Robert

ineen, one of the principle organizersof the NAIC's central office, formerSuperintendent of the New York De-partment ofInsurance, and former chiefexecutive officer of Northwestern Mu-tual Life .

In his outgoing speech, retiring NAICPresident David A. Gates asserted thatthe NAIC is better funded, is moretechnologically capable, and offers moreassistance in the coordination of statedepartments than ever before . Newlyelected President Earl R Pomeroy ofNorth Dakota praised Gates's achieve-ments, and noted that even more ad-vanced technological efforts will beundertaken in the near future.

Also of interest were changes to theNAIC model law required by the repealof the Medicare Catastrophic CoverageAct-changes approved by the Medi-care Supplement and Other LimitedBenefit Plans (B) Task Force as part ofthe Medicare Supplement InsuranceMinimum Standards Model Act andRegulations .

In other health-related discussions,a Qaspecial panel presented a variety ofews on regulatory responses to a wideange of health care issues. Amend-ments to the health maintenance or-ganization (HMO) model act wouldcreate a new guarantee fund for HMOs .A

LETTERS TO THE EDITOR(continuedfrom page 3)

Our report never says that providingextended term (but not reduced paid-up) would not meet our proposed guide-lines.

Asset Share. Hawley appears tobelieve that if an asset share approach(retrospective in nature) is used todevelop theoretically ideal goals forminimum nonforfeiturevalues that willapply for all companies and all prod-ucts, then a retrospective approach ismandated for a workable, real-worldcodification of a reasonably close ap-proach to these goals . I believe this is asimplistic and unrealistic conclusion .Our task force agrees with the views ofthe Guertin Committee and the UnruhCommittee; namely, that the StandardNonforfeiture Law (SNFL) approach hasbeen tested and found to reproduceasset-share-based ideal goals to a satis-factory extent .Methodology. If Hawley had read

our full report, he would have seen, inconsiderable detail, how our task forcebelieves that SNFL methodology can beapplied successfully to all plans, in-cluding. UL (universal life), and why wethink that it is a workable approach .(After all, this methodology was consid-ered workable fifty years ago, before theadvent of computers.) Instead, heelected to put himself in the position ofcriticizing something he hadn't seen .

Most of the "complexity" ofwhich theSNFL approach is accused stems from(1) new product designs that neitherthis approach nor any other approachcould contemplate years in advance, or(2) diverse regulatory opinions as towhat should be acceptable under a sup-posedly standard law complexity thatmust be expected in the real world .

Retrospective Approach. Our taskforce believes that a retrospective ap-proach offers no particular advantageunless all parameters are controlled, inwhich case there would be rate regula-tion that we believe Is particularly un-desirable. Hawley characterizes thisreasoning as "sophistry." He says thatmost of us "accept" rate regulation forhealth insurance, but he fails to pointout that the only alternative is with-drawal from this business . Fortunately,this is not true for life Insurance, and Ido not understand why anyone wouldwillingly embrace rate regulation for lifeinsurance in a context where little, Ifany, of the regulatory input we receivedwhile we were working on this report

11

urged us in this direction . It seems likethe height of overkill to develop newminimum nonforfeiture value legisla-tion in a way that will ban companiesfrom offering whole life products withgross premiums equal to , say, 100times the net. The marketplace (andthe tax law) is highly adequate to dealwith such products .

Thus, rate regulation for life insur-ance is a bad idea whose time we hopehas not come . A current attempt illus-trates why. I refer to the unfortunateWashington State regulation that isnow under challenge in the courts . Theam€cus briefthat the Academy has filedin connection with this case (See pagefour of this Update) demonstrates thatrate regulation violates fundamentalprinciples of risk classification andequity. (In this case, one of its effects isto unfairly deny insurance coverage toolder people, especially those whocannot qualify as standard risks.)The Task Force on Nonforfeiture

Values intended its report to be a basisfor in-depth discussion of a rathercomplex subject. We hope that manypeople will read the full report andprovide us with careful, well-reasonedcomments and criticism.

Walter N. MillerNewark, New Jersey

The Academy Task Force on Nonforfel-ture Values was formed in the spring of1987, at the request of the NationalAssociation of Insurance Commission-ers (NAIC) Life and Health ActuarialTaskForce. The taskforce's charge wasto review the principles underlyingnonfortetture values and the StandardNonforfetture Law . In September 1989,the taskforce presented Its final reportto the NAIC. An executive summary ofthis report was published in the Novem-ber 1989 Update .

Having fulfilled its charge, the TaskForce on Nonforfeiture Values was dis-charged, pending the NAIC Life andHealth Actuarial Task Force's requestfor additional assistance in codingthe report into statutory language . Youare welcome to comment on the issuesraised by Douglas Hawley and WalterMiller, who chaired the task force, bysending a Letter to the editor in careof The Update . Copies of thefull reportareavallabiefrom theAcaderruy'sWash-ington office or from Walter N. Miller athis Yearbook address.

12

New Editor'sinitiativesE. Toni Mulder, The Actuarial Update'snew editor, is president of E.T. Mulder,Inc., a oompanypr ovlding casualty actu-arial consulting services . Presently onthe editorial advisory board of Con-tingencies, and news editor for theCasualty Actuarial Society (CAS)newsletter, The Actuarial Review, Mul-derbrings both actuarial expertise in thecasualty area and editorial experienceto The Actuarial Update. A warm wel-come to her and to the associate editorsjoining heron the masthead: GaryLake,Stephen Meskin, and Barry Watson .

As a new editor, I am naturally inclinedto reflect on the The Update's future inlight of its past (how has The Updateserved Its readers? How can The Updatebe improved?) . Reflecting in this way isespecially easy to do at the turn of thedecade : It's in vogue-it's what everytelevision commentator seems to bedoing .Questions come to mind such as,

What do the readers think of The Up-date? How much of it do they read? IsIt informative. entertaining?

Before actually soliciting answers tothese questions from you, I would liketo reflect on the role and purpose of TheUpdate. An overview of Its many func-tions Is enlightening.

First, and most obvious, Is Its role as"house organ" for the Academy-assuch, The Update keeps members in-formed of the leadership's directivesand the various committees' activitiesas well as profession-wide initiativesundertaken by the respective actuarialsocieties .

The second function it serves is thatof reporting on public -policy develop-ments of concern to actuaries in anyone of the practice areas . Reporting onthe government information programdirected by Gary Hendricks ofthe Acad-emy-its committees' policy statementsand members' testimony before federaland state legislators and regulators-isa subset of this function .

A third function of The Update iscommunication concerning the stan-dards issued by the Actuarial Stan-dards Board. The director of the stan-dards program, Christine NVickerson,regularly reports in The Update's 'Stan-dards outlook" column. Also, TheUpdate typically runs a story on anupcoming exposure draft, to highlight

what's in the draft and encouragemembers to comment on it.

A fourth function is a little harder todefine. Given the Academy member-ship's numerous practice specialtiesand work environments, The Updatecommunicates, in nontechnical terms,developments affecting the variouspractice areas, to actuaries both insideand outside a given practice area.Articles in this vein have ranged from

an update on the California voters' ref-erendum, Proposition 103, to a discus-sion of the privatization of Social Secu-rity In the United Kingdom. Such ar-ticles are intended to be informative,easy-to-read, even a bit entertaining.

The fifth, and what I consider TheUpdate's most important function, is toserve as a forum for Academy mem-bers. Members should think of TheUpdate as their vehicle to communi-cate with other members of the profes-sion. Some members submit articles or"Letters to the Editor" to The Updateregularly; I would encourage more ofyou to do so. In this way, The Updatecan offer the profession an all-impor-tant feedback loop for opinion and con-sensus building. We have a diverseprofession, and one benefit of that Isthe breadth of perspective to be gainedwith more members actively contribut-ing to The Update.

Given this as a backdrop, how do youthink The Update could be improved?Do you think it is performing these fivefunctions well? How could it serve youbetter?

The Actuarial Update

In order to find out what you, ourreaders, think, the March Update willInclude a readers' survey. Please takethree minutes to fill it out and send itThis is the first time that The Updathas conducted a readers' survey: theUpdate editors and staff want to serveyour needs, but we do need your feed-back .

We will be moving The Update's edi-torial and production schedule up so

that, by April, The Updateshould begin to land on yourdesk by the first of the month .

The Update's roster of as-sociate editors has been ex-panded to provide actuarialexpertise in each of the majorpractice areas : life, casualty,pensions, and health.

Gary Lake, with The WyattCompany since 1972 as anactuarial consultant to small-and medium-sized life com-panies, has agreed to reviewarticles on life insurance top-ics. Steve Meskin, vice presi-dent and actuary with theMartin E. Segal Company, hasagreed to offer expertise in thehealth area. Steve is a mem-ber of the Academy's Comimittee on Health and WelfarePlans as well as the RetireeHealth Care Committee of theActuarial Standards Board.

In addition, The Update is extremelyfortunate to have Barry Watson, whohas been editor for many years, con-tinue on as associate editor. Barry al-ready has contributed far more thanshould be expected of a volunteer . I amvery grateful that his editorial talentwill continue to be available to this neweditor. Barry has agreed to review ar-ticles pertaining to pensions and em-ployee benefits .

Thanks to Warren Cooper, too, whowill be retiring as associate editor .Warren provided enlightened perspec-tive on casualty issues such as Prop .103 in the past. Although I now repre-sent casualty practice on The Updatemasthead, I am hoping that Warren willcontinue to keep Update readers In-formed on important developments.

So, in the spirit of our trying to bemore responsive to you, I hope that youwill take the time to respond to ourreaders' survey in March . You need nowait until then to contact me . however,if you have an idea for an article, anannouncement, or a comment to relateto your colleagues. Just send it to mein care of The Update. A