I THE ACTUARIAL

Academy Annual Meeting: Kaufman nAssumesPresidency, Hickman Honored with Service Award

Ilan Kaufinan took the gavel as Academy president at the October 6 Academy Annual

Meeting in Scottsdale,Arizona . In his remarks, Kauf man praised the Academy's unique

role as the only organization for U .S. actuaries in all areas of practice and promised to

strengthen its activities in professionalism, public policy, and communications .

Kaufinan announced that in January he will convene a meeting ofleaders of all Academy committees, task forces, and work groups. Theleadership meeting will focus on ways to better coordinate work among

Allan Kaufinan (right) accepts the president's gavel freer 1997Academy PresidentLarryZmnpleman.

the practice areas. "It is my hope that Academy leaders will emerge fromthat meeting with a clear idea of our common destination and a roadmap of how to get there," he said .

Communication is vital to the success of the Academy mission,said Kaufinan. "If our public policy achievements are to make a differencefor the profession, they must be communicated as effectively as possible tooutside audiences," he said. "The profession's credibility with regulatorsand other outside audiences depends on our reputation for professional-ism. We will work to better communicate the fact that actuaries' profes-sional judgments are supported by meaningful standards of qualification,practice, and conduct," he added. Kaufinan is a principal with Milliman& Robertson in West Paterson, N.J . and a former president of the CasualtyActuarial Society.

In his valedictory remarks, 1997 President Larry Zimpleman not-ed that the Academy has initiated a planning process to assess the organi-zation's strategic plan and keep it in line with emerging challenges . In par-ticular, Zimpleman cited the emergence of a global financial-serviceindustry, which willl further the trend toward international actuarial prac-tice. "The Academy has a special role to play as the United States pro-fession's designated representative with international organizations," hesaid. "Our profession's increased international focus will place additionalresponsibility on the Academy, which will need to assess how best to car-ry out its role ."

Before handing off his presidential duties, Zimpleman presentedthe 1997 Jarvis Farley Service Award to Jim Hickman, former dean ofthe University ofWisconsin Business School.

Hickman was honored for his career ofservice to the profession . Hisvolunteer resume includes service on the Academy Board of Directors ;

founding membership on the Actuarial Standards Board and its predecessorInterim Actuarial Standards Board; and eleven years' association with theActuarial Education and Research Fund. As an academic, Hickman hasheld teaching posts at the University of Iowa, Georgia State UniversityUniversity of Manitoba, and Nankai .University in the People's Republilof China, and has to his credit more than 120 scholarly publications . In ac-cepting the award, Hickman urged increased emphasis on actuarial re-search, calling it vital to the profession's long-term growth .

By voice vote, the Academy members present at the meeting ap-proved the nominations of three new members to the Academy Board o~Directors. Linda Bell, senior vice president and chief actuary of thHartford Insurance Group in Hartford, Conn . ; Jan Lommele, a principalwith Deloitte & Touche in Hartford ; and Peter Perkins, senior vice pres-ident and chief actuary ofTrigon Blue-Cross/Blue Shield in Richmond,Va., will serve three-year terms . Other Academy officers whose termsbegan at the Annual Meeting are President-elect Dick Robertson ; LarryJohansen, vice president for the Financial Reporting Council; Ken Steiner,vice president for the Pension Practice Council ; and Bob Wilcox, vicepresident for the Life Practice Council .

To fill Johansen's two remaining years as a regular director, theBoard of Directors chose Curtis Huntington, professor of actuarial scienceat the University of Michigan. In addition to the officers and regular di-rectors, the presidents and presidents-elect of the American Society ofPension Actuaries, Casualty Actuarial Society, Conference of ConsultingActuaries, and Society of Actuaries serve as special directors on theAcademy Board . Presidents-elect joining the board are Howard Bolnick(SOA), William Falk (CCA), Steven Lehmann (CAS), and Carol Sears(ASPA). (For a full list of the Academy's 1998 Board of Directors, seepage 3.) The Academy Annual Meeting was held in conjunction withthe Annual Meeting of the Conference of Consulting Actuaries .

1997Jarvis Farley Service Award recipient Jim Hickman receives his engreved pewterhowl from Larry ZYmplaman. The award honors outstanding volunteer service to theprofession and is named for Jarvis Farley, who donated countless hours to professionalactivities over his long corset

Actuary Selectedfor Medicare PostAlice Rosenblatt, senior vicepresident and chief actuary ofWellpoint Health Networks, hasbeen appointed to the federalgovernment's Medicare PaymentAdvisory Commission . The 15-member commission is a new en-tity that replaces the ProspectivePayment Assessment Commissionand Physician Payment ReviewCommission. Rosenblatt is theonly actuary on the new com-mission .

Rosenblatt is a member of theAcademy Board of Directors andlong-time volunteer, whose ser-vice includes a term as vice chair-person of the Health PracticeCouncil. Last February, she rep-resented the Academy in testi-mony on Medicare reimburse-ment methodologies before theHouse Ways and Means HealthSubcommittee .

0casualtyActuariJiteden LiabilityA front-page story in theOctober 17 New York Timesquoted three Academy memberson auto liability rates. The ac-tuaries explained the reasons be-hind increased liability rates onsport utility vehicles andpickup trucks .

Two insurers, FarmersInsurance Group and theProgressive Corporation, havechanged their rate cal-culations because ofhigh costs associ-ated with heaviervehicles. "It's pretty obvious thatthe size and weight of these vehi-cles and the way they're built iscontributing to the loss experi-ence," Jonathan Adkisson ofFarmers told the Times. "Whenan accident occurs the heavier ve-hicles are more likely to inflictdamage and injuries, and these re-sult in larger claims, so it seemsappropriate to charge the driversof those vehicles higher premi-ums!,

Mike LaMonica,Allstate's vicepresident for auto insurance pric-ing, said that his company alsowas interested in adjusting rates ."What I envision is a liability sys-tem that varies rates more finelyby make and model," he said .However, according to Dale

Nelson of State Farm, his com-pany is not planning rate calcula-tion changes because its experi-ence shows higher costs only forlarge pickup trucks .

AcademyConsulted onPSG SolvencyIn a teaching session on risk, reg-ulation, and risk-based capital,Academy Board member PeterPerkins briefed a federal com-mittee on the hazards faced byprovider service organizations(PSOs) that provide Medicareservices. The Health CareFinancing Administration nego-tiated rulemaking committee onPSO solvency met in Arlington .Va. on October 20 .

Perkins's presentation detailedthe types of risks confronted byPSOs and other health plans: in-surance, business, regulatory, andinvestment risks . He explainedthat antiselection is an insurancerisk derived from a "uniquely hu-man factor. . . . People are goodat predicting the amount of carethey will need." Risk-sharingarrangements can help healthplans manage the business risksthey face. For example, Perkinssaid, copays designed to shift costscan also discourage overutiliza-tion of services, and reinsurancereduces the risk of large claims .Perkins noted that solvency regu-

lation is undergoing a shift to-ward risk-based capital .Risk-based capital regula-tion determines a mini-mum surplus to cover thelevel of risk unique toeach entity.

Negotiated rulemak-ing is a process used by the

federal government to develop reg-ulations for newly passed legisla-tion. The proposed rule is devel-oped by a committee ofrepresentatives that may be signifi-cantly affected by the rule, with thegoal of reaching consensus . TheBalanced Budget Act of 1997,which expanded the PSO role inMedicare, required HCFA to con-sult with the Academy on solvencyas part of the rulemaking process .

Academy members JuliaPhilips, a life and health actuarywith the Minnesota Departmentof Commerce, and Ted Lyle, aprincipal with Towers Perrin, alsoparticipated in the meeting, dis-cussing the application of risk-based capital formulas to solvencymonitoring and PSOs .

Social Security Issue Briefs Go to Hill'ith two new Social Security issue briefs in hand,

members of the Academy Social Insurance

Committee visited Capitol Hill on October 22 .

Their message to congressional staffers was that the

Academy is a unique technical resource that is ready and willing to

be of assistance in the Social Security debate. Committee mem-

bers also presented advance copies of"Raising the Retirement Age"

and "Changes to the Benefit Formula and Taxation," the latest in a

series of reports designed to educate the public on the implications

of various Social Security reform options .The series of eleven Capitol Hill visits were intended to strengthen relationships with key congression-

al staffers and gather intelligence on the 105th Congress's agenda for the next session . Congressional staffers,who are frequently bombarded by requests from lobbyists, expressed appreciation for the Academy's objec-tive assistance on policy matters, according to Social Insurance Committee Chairperson Jerry Bogart . "Ithink it is really refreshing for Hill staff to hear from a group [the Academy] that doesn't have an axe to grind,and understand that we are there for them as a resource for extremely complex issues that Congress must tack-le each day," he said. "For a staffer with five or ten different issues on his or her plate, the Academy brings se-rious value to the table."

The consensus of the staffers: Social Security reform will be a major issue next year, with a large part ofthe debate focusing on partial privatization of the system. The Academy examined the issue last year in twoissue briefs on aspects of privatization, which were widely distributed on the Hill . Like their predecessors,the newly completed issue briefs on retirement age and changes in benefits and taxes outline the problemsand possible solutions .

The report on retirement age notes that the U .S. normal retirement age (NRA) of 65 was determined onthe basis of life expectancy in the 1930s . Although the NRA is scheduled to climb to 67 over e next twodecades, some ers advocate a further increase that could achieve a substantial portion of need-ed to restore So al Security to long-range balance. The Academy report presents possible consequences ofan increased NRA and urges Congress to consider several underlying questions during its debate on the is-sue. These include: What will be the impact on employer-sponsored benefit plans? How will Medicare beaffected? Will the public accept additional increases in the NRA, especially individuals who would work full-time past age 67? To what extent will savings to the retirement trust fund be offset by losses to the SocialSecurity trus for disability insurance? ~

In "Chang o the Benefit Formula and Taxation," the Academy committee examines the''Crrrent ben-efit formula and notes that "the cost ofthe Social Security program may be reduced from current levels throughany number of possible changes to the benefit structure." Among the cited changes are reductions in the fac-tors that determine the primary insurance amount or increasing the number ofyears in the averaging peri-od for benefits. However, such changes could affect Social Security's traditional balance between providingindividual equity (or "money's worth") and serving as a safety net for the lower income elderly .

"The issue briefs, in addition to the committee's Hill visits, are two important parts of an expanded ef-fort by the Academy to make sure that Congress recognizes and benefits from the independent expertise ofthe actuarial profession"Academy Executive Director Wilson Wyatt said . Social Insurance Committee mem-bers met with the staffs of the following lawmakers : Sens. Phil Gramm (R-Tex.), Bob Graham (D-Fla .), BenNighthorse Campbell (R-Colo.), Jim Jeffords (R-Vt .) ; and Reps . Earl Pomeroy (D-N.D.), Sam Johnson(R.-Texas), Jim Kolbe (R-Ariz.), and Mark Sanford (R-S .C.). The committee also exchanged informationwith the House Ways and Means Subcommittee on Social Security and the Select Committee on Aging .Copies of the issue briefs on changes to the retirement age, and changes to the benefit formula and taxation,can be obtained from the Academy Web site (www@aactuaryorg) or by faxing a request to Doreen Evans at202-872-1948 .

-RIVERA Is ACADEMY STAFF LIAISON TO TFIE PENSION PRACTICE COUNCIL .

0

At the October 6Anuual MeetingExecutive Director Wilson Wyatt (left),on behalf of the entire staff, thanked1997 President Larry Zimpleman for hisyear of service. Wyatt presentedZimpleman with a set of presidentialjulep cups, handcrafted in Kentucky ina tradition that stretches back to theadministration of George Washington.Before his service as president.Zimpleman was an active volunteer inthe pension practice area and in hismeeting remarks, urged other actuariesto consider volunteering forAoadamypublic policy or professionalism pro-jects. His presidential teen completed,Zimplemen has joinedthe newlyreestablished Membership Committeethat is considering enhanced recogni-tion for Academy volunteers.

ABCD Responds to Comments on Bylaw Change

E arlier this year, the Academy Board of Directors circulated for comment an exposure draft

of proposed amendments to Article X of the Academy bylaws, which established and em-powers the Actuarial Board for Counseling and Discipline (ABCD) . The proposed

changes generated sixty-three comment letters from eighty-three individuals .As ABCD chairperson, I can as-

sure you that the ABCD takes themembership's comments serious-ly and has devoted considerabletime and thought to the commentletters . At our September meet-ing, the ABCD completed an ini-tial review of the comments andbegan developing changes to theproposed amendments that wouldreflect commentators' suggestions .

Work continues on the pro-posed bylaw changes . In themeantime, there are a few obser-vations that I would like to makeregarding the comment letters andthe ABCD's responses to them.

Due ProcessIt was never the desire or intent ofthe ABCD to eliminate actuaries'due process rights as set forth inArticle X; rather, we intended sim-ply to enumerate those due processrights in our Rules of Procedure .Nonetheless it is apparent that anumber o aries feel verystrongly th hese protectionsshould continue to appear in theAcademy bylaws, so that they willbe subject to change only by a voteof the membership. In order toreassure thoaries, the ABCD

Allen M. KaaimanPress dent

William F Blalunrice President

Vince Amoroso

Curtis E. Hmdington

Am M. Rappaport

currently intends to recommendto the Academy Board that ArticleX contain a fist of due process pro-tections that would include the fol-lowing-

- Notice of an ABCD inquiry andthe factual basis for the inquiry,and an opportunity to commenton the matter before the ABCDdetermines to refer the matter toan investigator.• Notice of the ABCD's decisionto refer a matter to an investigatorand the investigator's name, and anopportunity to object for cause tothe particular investigator ap-pointed by the ABCD.• The opportunity to review andcomment on the InvestigativeReport before the ABCD takes anInvestigative Report based vote onthe disposition of an inquiry.• Reasonable advance notice of ahearing to be conducted regard-ing the actuary's work and/or con-duct, including the issues for in-quiry and the date, time, and placeof the hearing .• Within a reasonable period of timeprior to a hearing, a list of any wit-nesses whose testimony the ABCDintends to consider, as well as a list

Richard r. Robertson Larry 0. ZimplemanPrudent Elect hnmrwdrale Past President

Ken W. HartwellWee President

Theodossios Athanessiades

Edwin C. Hustoad

Alice Rosenhlatt

Lawrence A. JahansenVice President

Lhae L Hell

Karen A . Jordan

Carol R. Sears

of documents the ABCD expectsto consider and, if not previouslyprovided, a copy of such docu-ments .• Notice before or during thehearing of any additional witness-es or documents the ABCD de-cides to consider, and a reasonabletime to review and respond to suchtestimony or documents .• The right to reasonable assistanceof counsel during a hearing, in-cluding the right to seek and re-ceive advice from counsel and tohave counsel articulate legal ob-jections, if appropriate . Any limitson the role of the actuary's coun-sel would apply equally to ABCDcounsel.

The ABCD also agreed thatArticle X should provide thatchanges to the ABCD Rules ofProcedure should be exposed tothe membership for comment pri-or to their adoption .

Legal RepentationOne of the points that appeared tobe of greatest interest to commen-tators is the role of attorneys inABCD cases . It was apparent thatsome membe derstood that the

Jack K TamgalstPost President

Kenneth A. StainerWee President

Howard J . Rolnick

Steven G. Lehmann

James R. Swenson

Stephen R. KamSowehrry-Treesarer

Michael L ToatimmaVice President

William J. Folk

Jan A Lommele

MovieA. Walters

MOM=WoePresident

John H. Fliuie

P. Andrew Ware

exposure draft would essentially pre-vent attorneys from attendingABCD hearings or assisting theirclients in responding to ABCD in-quiries . As stated above, that wasnever the ABCD's desire or intent .We do believe, however, that it isappropriate for the ABCD, as a factfinding body established by the ac-tuarial profession to address issuesarising out of members' profession-al conduct, to speak directly to ac-tuaries who are the subject ofABCD inquiries on a professional-to-professional basis. An attorneywho appears in lieu of the actuary isunlikely to be able to answer theABCD's technical questions, withthe result that professional dialoguebetween the actuary and the ABCDis impeded, and the ABCD's fact-finding responsibilities becomemore difficult to fulfill .

It should also be noted thatcounsel to the ABCD does notfunction as a "prosecutor," but in-stead acts as an adviser to the ABCDOur intent was to place the actu-ary's counsel in a parallel role, ad-vising the actuary but not servingas a "defense attorney" in a processthat is not and, in our view shouldnot be, comparable to a court pro-ceeding. We are seeking to makeour procedures more accurately re-flect our private administrative na-ture. Having attorneys actively par-ticipate in our hearings tends tomake them more adversarial, a ten-dency we wish to avoid. Althoughsome commentators apparentlywould favor a more courtlike, ad-versarial system such as that inCanada, I do not believe that theUS. profession would be well servedby the use of such an approach.

The ABCD members believethat the role of both attorneys in ahearing should consist of giving le-gal advice to clients (which wouldinclude interrupting the proceed-ings for private discussion and en-tering objections for the record) .At this time, I anticipate that theABCD will recommend accord-ingly to the Academy leadership.

ConfidentialitySeveral commentators raised ques-tions concerning the confidential-ity of the ABCD process. Havingdiscussed confidentiality and relat-ed privacy issues at considerablelength, the ABCD currently plansto recommend to the Academyleadership as follows:-The confidentiality requirementapplies to the ABCD, but not to thecomplainant or subject actuary.While the ABCD may consider itpreferable for all the participants inthe process to respect the privacyof those involved, we recognize thatwe currently have no means to en-force this preference .

Henry Knowlton

'The subject actuary should bepermitted to waive confidentialitysubject to agreement by theABCD. Before releasing its recordsto any third party, the ABCD willneed. to assess carefully the privacyrights of the subject actuary, thecomplainant, and any other indi-viduals involved.-An actuary's waiver of confiden-tiality would not result in theABCD conducting a public hear-ing.ABCD proceedings would bekept confidential while under con-sideration .

Public HearingsSeveral commentators strongly sup-ported the idea of holding hearingsthat would be open to varying de-grees. After a great deal of discus-sion, we have come to believe thatit is not practirun both pub-lic and private under a sin-gle set of rules . Public hearingswould, we believe, require a sepa-rate set of procedures akini to thosecurrently in use in Canada ..

If the US. profession wishes tohold public he~the best venueto do so might membershiporganizations' discipline commit-tees. MostABCD cases are resolvedthrough private counseling; onlythose cases that are deemed by theABCD to be serious enough towarrant public discipline are for-warded to the membership organzations for consideration and action .It may be appropriate for the disci-pline committees to act publicly, butit seems unwarranted to questionthe professionalism of an actuary ina public setting unless disciplinaryaction is seriously contemplated.

A number of additional changesare likely to be recommended inlight of comments received.Thesechanges range from restoring lan-guage calling for the ABCD mem-bers to be "broadly representative"of the profession to replacing theterm "ombudsman" (thought to bemasculine gender by one com-mentator) to "mediator."

When the revised proposedamendments to Article X are re-leased, the ABCD hopes that themembership will recognize its sin-cere efforts to respond to mem-bers' comments. We recognize, ofcourse, that not all members of theprofession will be entirely satisfiedwith the ABCD's recommenda-tions . Nevertheless, we believe thatthe changes to Article X that weintend to recommend to theAcademy Board of Directors willimprove the ABCD process and,thereby, enhance the value of theprocess to the actuarial professionas a whole.

Washington Commentator Addresses Academy` an Quayle was right," political

commentator William Kristol toldthe luncheon audience at theOctober 6 Academy Annual

Meeting. Kristol, a regular on ABC's This Weekand publisher of the Weekly Standard, is a politicalveteran who served as Quayle's vice presidentialchief of staff

According to Kristol, social science researchand crime statistics continue to support Quayle's1992 comments on single parenthood and TV's

Academy Executive Dire tar WilsonWyatt fright) l an engraved panset to luncheon speaker William Kristad

Murphy Brown . Kristol told the Academy audience that the current

fluid political situation makes it frustrating to workas a commentator and impossible to predict whowill emerge as serious presidential contenders in2000. Over the long-term, however, Kristol be-lieves that conservatism will be dominant for theforeseeable future. "The elections of 1994 marked asea-change in American politics, with Republicansmaking tremendous gains at the state and local lev-el in once-solidly Democratic areas;' he said. Henoted that although the Democratic Party hasmoved to the right under President Clinton, the

Republican Party should retain control of Congress in 1998 .

Opinion Signers : Time To Check Your CE

0O nce again, it's time to start work on year-end reporting .Actuaries must not overlook the need to be qualified to is-sue Public (Professional) Statements of Actuarial Opinion(PSAOs). If you intend to sign an insurer's actuarial opin-

ion letter this year-end or issue a PSAO during 1998-whether fora life and health, property and casualty, or a hospital/medical servicecorporation--remember to review the continuing education (CE)requirements for signing Professional Statements ofActuarial Opinion .Those requirements are outlined in a publication already on yourbookshelf. Qualification Standards for Public Statements of Actuarial

OpinionJanuary 19, 1993 version-are found under the AcademyProfessional Standards tab of the Actuarial Standards Board's ActuarialStandards of Practice. An exposure draft of revisions to that book-let is included with this month's Update .

To be qualified to issue a PSAO, actuaries need to meet require-ments in basic education, continuing education, and experience .The Annual Statement reserve opinions require meeting the SpecificQualification Standards; those CE requirements are described be-ginning on page 7 of the January 19,1993 Qualification Standards andon page 9 of the draft second exposure booklet .

Qualtfieation Standardsfor Professional Statements ofActuarial Opin i-cluded with this mailing. There you will find the latest drinking ofthe Committee on Qualifications and two helpful pieces of infor-mation among its many improvements.

First, there are forms at the end of the booklet for use in record-ing continuing education credits. If you find the print a bit small, donot worry. The Committee on Qualifications will send full-sizedforms with the final booklet . The information on those forms willhelp you collect and organize continuing education hours . The formsare essentially unchanged from the prior exposure draft of this book-let dated June 1996 .

Second, if you don't earn the 24 hours of CE in 1996 and 1997that are required to be qualified to issue PSAOs in 1998, be sure toread the clarification of the current Qualification Standards that is in-cluded in the exposure draft (the paragraph at the bottom of footnote3 on page 5 and on the bottom of Form 3 on page 6 . It states that ifyou obtain enough CE in 1997 and 1998 to be qualified to issuePSAOs in 1999 (a total of 24 hours in 1997 and 1998), you may be-gin to issue PSAOs in 1998 at any time after the date you qualifyfor 1999 .

-Continuing Education

-BOB CITIEECHAIR OF THE ACADEMY COMMITTEE

Please review the current second exposure draft of the booklet ON QUALIFIC NS

EEXEEcuTm DIRECTOR

Wilson W.Wyatt Jr.

PRESIDENTAllan M. Kaufman

PRESIDENT-ELECTRichard A. Robertson

VICE PRESIDENTSWilliam F. BluhmKen W. HartwellLawrence A, JohansenKenneth A . SteinerMichael L.Toothman`Robert E. Wilcox

SECRETARY-TREASURERtephen R Kern

EXECUTIVE OFFICEThe American Academyof Actuaries1100 Seventeenth Street NW7th Floor

(202) 223-8196

n~= Ia NamIMR~"~siden at#nle =_ ... .

SHIPXTRATIDN

Woodfield Corporate Center475 N. Martingale Roadchaumburg,;iL 661-7-3226--

(847) 706-3513

I " UCO]4MITTEE ON-PrtBUCATLONS

CHAIRPERSON

` Julia Philips

EDrroRAdam Reese

AssocIATE EDITORSWilliam CarrollRonald GebhardtsbauerPatrick J. Grannan

MANAGsNGrEDrrOR`Jeffrey Speicherspeicher@a actuary.oig'

CONTRIBUTINGE:DIToaKen Krehbicl

PRODUCTION MANAGERRenee Saundeml

eats offact-and opinion in this publication,is. editorials. and letters to the editor, are

ma e'onthe responsibility of the--authors aloneand do not necessarily imply or represent theposition of the American Academy of Aetuari es,the editors, or the members of the Academy.

©1997 The American Academy of Actuaries .' AllRights Reserved

Social Security Issue Briefs Travel to Capital Hill

ABED Responds to Comments an Bylaw Changes

LJpinion Signers Must Check Continuing Education

In Search Of -a -ASH Bnxscare ∎=[xpasure Draft nn QualificationsStan k fefi Statements of Actuarial pinion

Comment Deadline Extended far ilualification Standard Draft=Please note that the January 15 comment deadline for the second exposure draft of Quart ficatianStandardsfor Professional Statements ofActuarial Opinion, included in this mailing, has been extendedto February 15 .