Final January 30, 1998

INTERNATIONAL FORUM OF ACTUARIAL ASSOCIATIONS MINUTES OF THE COMMITTEE MEETING HELD AT THE

GOLD COAST, AUSTRALIA ON 17 AUGUST 1997

Present: Please see Attachment A 1. INTRODUCTION

The Chairman, Chris Daykin, opened the meeting by recognizing the presence of Yves Guérard, the IAA Secretary General Elect, who would have oversight of the new International Secretariat; and of Ed Levay of the Israel Association of Actuaries who was the new Chairman of ASTIN.

Chris Daykin thanked Catherine Prime and the Institute of Actuaries of Australia for their

generous hospitality and for their assistance in making the necessary arrangements for the IFAA’s meeting.

2. AGENDA The agenda was approved as presented. 3. MINUTES The minutes of the IFAA Committee meeting held in Zeist on April 25 1997 were

approved, subject to the correction that the name of Paul Grace of the Faculty of Actuaries be added to the list of those present.

4. VOTING ARRANGEMENTS It was agreed that to save time this item would be dealt with only if a formal vote became

necessary.

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5. APPOINTMENTS RECOMMENDED BY THE NOMINATIONS SUBCOMMITTEE a) Motion

• That Chris Daykin of the Institute of Actuaries be appointed IFAA Past Chairman.

• That Walter Rugland of the Society of Actuaries be appointed IFAA Chairman. • That Jean Berthon of the Institut des Actuaires Français be appointed IFAA

Deputy Chairman. • That the above appointments become effective at the conclusion of the

Australian meeting of the Committee. Proposed by: Paul McCrossan Seconded by: David Hartman Carried Unanimously

b) Motion

That Junzo Tanaka of the Institute of Actuaries of Japan be appointed Chairman of

the Public Statements Subcommittee and withdrawn from membership in the Education Subcommittee.

Proposed by: Paul McCrossan Seconded by: Curtis Huntington Carried Unanimously

c) Concerning a new chairman for the Accreditation Subcommittee, Chris Daykin indicated

that there had not been enough time to present a formal motion but that Howard Webb would be the temporary chairman until other changes had been made to the Subcommittee and a new permanent chairman could be appointed.

d) Concerning the Nominations Subcommittee, and in keeping with the tradition established

at the Committee meeting in Brussels in September 1996, the following was proposed: Motion

• That Chris Daykin be appointed Chairman of the Nominations Subcommittee; • that Walter Rugland be appointed Vice-Chairman of the Nominations

Subcommittee; and • that Jean Berthon and Takashi Mitamura of the Institute of Actuaries of Japan

be appointed members of the Nominations Subcommittee. Proposed by: Paul McCrossan Seconded by: Mo Chambers Carried Unanimously

e) Concerning the appointment of an IFAA Deputy Chairman, Paul McCrossan indicated

that while the Nominations Subcommittee intended to inform members a year ahead of

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time who the next nominee would be, it had not foreseen the need to have a contingency plan in case of death, resignation or unavailability of a nominee.

It had been intended that Willem Meijer would become Chairman at this meeting and that

Walt Rugland would become Deputy Chairman. Unfortunately Willem Meijer was unable to become Chairman due to a change in work circumstances and Walt Rugland had agreed to move directly to Chairman.

The Nominations Subcommittee intends to nominate Catherine Prime as the next Deputy

Chairman and this will be done formally next year, assuming that the IFAA continues more or less in its present form during the IAA reorganization. This was to be discussed later in the agenda.

f) The Chairman paid tribute to the important part played by Willem Meijer during the

formation of the IFAA and his powerful and effective voice in encouraging the acceptance of the new organization by actuarial associations, particularly in Europe.

He then thanked the retiring Subcommittee chairman, Paul McCrossan, who was stepping

down from the Nominations Subcommittee and the position of Past Chairman, and who had made an enormous contribution leading up to the formation of the IFAA and also during the first two years of its existence.

He also recognized the contributions made by Walt Rugland on the Accreditation

Subcommittee during the admission of some forty associations to the IFAA, and by Jean Berthon on the Public Statements Subcommittee for his leadership in developing the Guidelines for Making Public Statements.

6. ROUTINE SUBCOMMITTEE APPOINTMENTS Chris Daykin indicated that this item was being presented as a single motion, as had been

agreed at Zeist. The motion was also being modified slightly to reflect the view at Zeist that associations should only appoint one formal representative to each subcommittee, but that other individuals should be put forward as “Interested Persons” who would receive subcommittee mailings and be able to attend subcommittee meetings as observers. The Catalunyan association and the Actuarial Society of South Africa had each therefore agreed to withdraw one of its nominees. Consistent with this, the Society of Actuaries will be asked to review its membership on the IASC Insurance Accounting Standards Subcommittee.

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Motion That the following persons be appointed to the IFAA Subcommittees indicated

below: Advice And Assistance Subcommittee Luis Huerta, Collegio, Mexico Robert Collett, SOA, USA (to replace Sam Gutterman)

Education Subcommittee

Ulrich Orbanz, DAV, Germany Maximo Borrell, Col.Legi, Catalunya Masakatsu Nishibe, IAJ, Japan

IASC Employee Benefits Subcommittee Dennis Polisner, SOA, USA Rudolf Gouws, ASSA, South Africa

IASC Insurance Accounting Standards Subcommittee Kurt Wolfsdorf, DAV, Germany

Toshiyuki Okita, IAJ, Japan Bruce Moore, AAA, USA Mo Chambers, CIA, Canada Proposed by: Chris Daykin Seconded by: Jean Berthon Carried Unanimously Chris Daykin then appointed the following persons as provisional members of the

Subcommittee on IASC Insurance Accounting Standards. Their appointments will be formalized at the next Committee meeting:

Bruce Maxwell — Society of Actuaries of Ireland Bjarni Thordarson — Society of Icelandic Actuaries Avi Bar-Or, Israel Association of Actuaries 7. SUBCOMMITTEE REPORTS a) Accreditation Subcommittee Walt Rugland, as retiring Chairman, announced that, at the Cyprus meeting, the

Subcommittee would present for formal approval, revised commitments for the admission of new associations into the IFAA. Currently associations can apply for membership without having a code of conduct in place, provided they undertake to adopt an acceptable code within a given time limit. The new proposal, when approved next January, will require applicants to have an acceptable code in place at the time of their admission.

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Also, the Subcommittee has been using certain guidelines to assess the acceptability of a

disciplinary process and of a process for the adoption of standards of practice. It intends to formalize these criteria and to seek Committee approval of them at the Cyprus meeting.

The Subcommittee has been reviewing the commitments made by associations at the time

of their admission. All associations but one had met the commitment to have an approved code of conduct in place within a given time frame. The one remaining association still has time to comply. Many associations are well ahead of time in making necessary adjustments to their disciplinary process. The Subcommittee is reviewing these changes as they are made and in several cases is providing advice to the associations concerned.

As part of the promotion of IFAA membership, some 20 to 30 potential additional

member associations have been identified. In some cases, the associations are currently represented only by interested groups of actuaries and a formal association has not yet been established. Consistent with the view that the IFAA is an organization to which actuaries may aspire to belong, the Accreditation Subcommittee will help associations to move towards Full Member status by advising them on the development of a code of conduct and on establishing a disciplinary process. In the coming year, an attempt will be made to produce a working document for new associations on how to set up a disciplinary process.

b) Advice and Assistance Subcommittee Catherine Prime, Chairman, indicated that poor quality telephone communications had

prevented satisfactory discussion of the full agenda which had been planned and members had been asked to follow up with written comments on a number of items.

One role of the subcommittee is to provide advice to new actuarial associations or

groups. The Subcommittee reviewed a long list of potential organizations prepared by Chris Daykin. In South America, there were hopeful signs that Argentina might soon become an Observer Member. Luis Huerta of the Mexican actuarial association has offered to make contact with other South American associations. In Asia, several associations are in the process of applying for IFAA membership. In Africa and Eastern Europe, things appear to be moving more slowly but there was encouraging news of plans by the IAA Fund to hold professional meetings in these areas. Being supportive of these meeting is felt to be one of the best ways the Subcommittee can help associations to develop in these areas. A list is being prepared of possible resource persons who could be available to Max Lacroix in arranging these meetings.

The Subcommittee considered a draft paper on models for the development of actuarial

organizations and members were asked to submit written comments. A second role of the Subcommittee is to respond to request for various types of assistance

from outside organizations. One such request came from Russia and asked for help in

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developing a life insurance industry. This was felt to involve a large consulting assignment far beyond the role of the Subcommittee, but a number of relevant documents were sent and some contacts have been made with European re-insurers having offices in Moscow.

Chris Daykin reported that Dr. Lelchuck, from whom the Russian request was received,

is the current Chairman of the Life Insurance Committee of the Russian Actuarial Society and may be bringing a delegation to London later this year to follow up on a number of issues.

He drew attention to an article developed on behalf of the A&A Subcommittee in the

latest IAA Bulletin summarizing various forms of assistance being provided by actuarial associations to other organizations around the world.

c) Education Subcommittee Malcolm Murray, Chairman, reported that an active meeting with 13 participants had

been held. The Subcommittee had reviewed its terms of reference (to recommend in time for the

Birmingham meeting of the IFAA Committee in 1998, the minimum recommended educational requirements for all new fully qualified actuaries of Full Member associations of the IFAA after 2005) and had concluded that it would be unable to meet that objective as currently written. It was therefore asking if the Committee could agree to revising the terms of reference along the following lines, “…preparing a report for consideration by the IFAA Committee at its General Meeting to be held in conjunction with the 1998 International Congress recommending educational guidelines for an internationally recognized actuarial qualification. It is expected that newly qualified actuaries of Full Member associations of the IFAA will, from 2005 reach this international qualification standard.” The Subcommittee would thus propose recognizing “education guidelines” rather than “educational standards”.

Concerning the detailed syllabus itself, if the Terms of Reference could be modified as

proposed, then progress had been made towards an acceptable syllabus at the morning’s meeting and, with further progress expected at the Cyprus meeting, a detailed syllabus should be available for the Birmingham meeting. Adoption of revised Terms of Reference could require an adjustment to the wording of the education commitment contained in the application material for new member associations.

Jim MacGinnitie commented that the proposed change would be helpful to the American

Academy of Actuaries in accommodating the needs of, for example, life, casualty and Enrolled Actuaries in its membership. Given that the examination travel time is about 8 years in the U.S., the phase-in process for the new requirement will need to be carefully managed.

d) Nominations Subcommittee

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Paul McCrossan, retiring Chairman, added the following comments to supplement the minutes of the last Subcommittee meeting which had been sent out with the agenda papers.

The Subcommittee had re-examined its intent to have in the IFAA, over a six year period,

two chairmen from Europe, two from English speaking North America and two from the rest of the world and concluded that this was a practical and desirable objective.

Concerning the selecting of candidates for the position of Deputy Chairman, it was

concluded that in the near future the candidate post should be restricted to people who had either served as chairmen of subcommittees or in leadership capacities in ASTIN, AFIR or other IAA bodies. The IFAA now had seven subcommittees and these, along with the IAA organizations were expected to allow a choice of two individuals who in any one year would help meet the geographical considerations. The anticipated progression would be from IFAA subcommittee member to subcommittee chairman to IFAA Chairman. These conclusions had been reached in Zeist before the scope of the IAA Provisional Executive Committee recommendation on the IAA reorganization were known, but the subcommittee believes the principles should be carried over into the new organization.

An additional task of the subcommittee has been to encourage wide representation on

IFAA subcommittees and the response from associations to date has been excellent. Chris Daykin endorsed this last remark and added that informally a number of

associations have been encouraged to position people within the IFAA who they would like to become leaders. There is potential for conflict if associations promote members who may be well-known domestically into senior IFAA positions where they may be unknown internationally, and vice versa. Continuing liaison between associations and the IFAA leadership on the long term positioning should do much to reduce this potential for conflict and to ensure that able people have an opportunity to grow and to become known both domestically and internationally.

e) Public Statements Subcommittee Jean Berthon, outgoing Chairman, reported that members of the Subcommittee had met

earlier in the day and welcomed Mr. Tanaka as the new Chairman. Ballots have been received for the new “Guidelines for Making Public Statements”.

Twenty two associations had voted in favour and there were no votes against. The revised Guidelines were therefore considered to be adopted.

There was discussion as to whether some emergency procedure should be established for

making a public statement when less than the required two weeks’ notice could be given to the member associations. The Subcommittee concluded that such an emergency procedure was unnecessary, but that documents issued by the IFAA under these circumstances should be accompanied by a disclaimer along the lines “This document has not been subject to the necessary due process within the IFAA and is not a formal

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public statement”. This procedure had been used recently in order to meet two IASC comment deadlines. Drafts of the IFAA position papers were sent to the IASC with the caveat that both documents were being submitted to IFAA member associations for their approval and would be resubmitted to the IASC as Public Statements once that approval had been obtained.

f) Subcommittee on the IASC Employee Benefits Accounting Standard Paul Thornton reported that eleven members representing eight countries had participated

in the morning’s subcommittee meeting. Of the eleven, eight were subcommittee members and three were interested members of the IFAA Committee. Three persons participated by telephone.

Since the Zeist meeting, there was a meeting in June of the IASC Steering Committee

which had been drafting the revised IAS 19 and was the Committee which produced IAS E54. IFAA representation at this two day meeting in London was provided by Paul Thornton and Paul McCrossan. A main point on which the IFAA focused was a proposal for the choice of discount rate for liabilities. Some success was achieved in that the Steering Committee agreed to put proposals to the IASC Board meeting in July which incorporated two alternatives. The first was the original E54 proposal (discount rate based on corporate bond yields). The alternative was the IFAA proposal (discount rate should take into account the nature of the liabilities). Most members of the Steering Committee supported the first proposal and informed the Board accordingly. One member (an actuary representing International Chambers of Commerce) supported the alternative proposal.

Another main point dealt with actuarial gains and losses. The IFAA proposal was that

gains and losses should be recognized but amortized. The IASC Steering Committee favoured adopting a 10% corridor within which gains and losses were deferred, but with immediate full recognition of all gains and losses once they exceed the 10% corridor. This is similar to FAS 87 but differs in that FAS 87 allows amortization outside the corridor while the IASC approach required full immediate recognition.

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The issue of book reserve schemes, which is of particular interest to Germany, but also applies to other countries, was also raised. The IFAA recommendation is that the normal costs showed in the revenue account should be split into current costs and interest costs. The German member on the Steering Committee argued strongly in favour of this proposal but the remainder of the Steering Committee rejected it.

The experience was a depressing one for the IFAA representatives who felt that after

spending two days explaining concepts to the Steering Committee, they had achieved very little progress.

Subsequent to this meeting, the IFAA Chairman, in cooperation with Paul Thornton, sent

a strong letter to the Chairman of the IASC Board effectively warning them that the IFAA strongly supported the alternative proposals and that if they proceed with the adoption of the E54 proposals they should anticipate adverse reaction from members of the IFAA. The letter had not been subjected to due process and carefully pointed out that these were Chris Daykin’s personal views as to what might happen. The IASC Board then met in July in Beijing and discussed among other things the key issues described above. Somewhat surprisingly, given the strong recommendations of the Steering Committee, the voting on the discount rate was 9 members in favour of the E54 proposal, 5 members in favour of the alternative proposal and 2 abstentions. This represented a significant shift in opinion. It is also known that the chief executive of the IASC, and the secretary of the IASC responsible for E54, have been encouraging the Board to move towards the IFAA position. The Board approved the proposal to use the 10% corridor with immediate recognition outside this and did not accept the IFAA proposal on treatment of interest costs.

The report back to the IFAA on the July Board meeting indicated that these matters will

be discussed again at the November Board meeting and that the decisions taken so far have not been finalized. The IFAA thus has a further opportunity to influence the situation. It appears that the IFAA Chairman’s letter in July did convince the IASC to take the IFAA seriously and that without it the E54 proposals would have already been finalized.

In the morning’s subcommittee meeting, the members reviewed further the alternative

proposal because the current wording was drafted by the IASC Secretariat rather than by the IFAA. The IASC text will now be circulated to all IFAA associations to establish whether or not there is support for the alternative wording and to establish the extent to which member associations would take a strong line in objecting to the adoption of E54 if it is not modified as recommended by the IFAA.

There was further discussion also of the discount rate issue and whether some

compromise solution might be possible. It was concluded that it would be better to press forward with the position which members believed was right rather than to seek some accommodation with the IASC.

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It was decided to produce a further submission for the November IASC Board meeting. While this will be generally the same as the previous IFAA submission, but with further embellishments and more examples, its consideration may benefit from the movement evident within the Board and by its not being buried among a large number of other submissions as was the case at Beijing.

In Zeist, there had been discussion of a draft framework directive which would be

endorsed by the IFAA and sent as an umbrella document which associations could tailor to their national requirements. It was difficult to take the drafting of this document any further without some kind of encouragement from the IASC.

It would be helpful to offer, in the IFAA submission, to produce such a standard but

clearly this would first need to have the support of IFAA associations. This and the other approval mentioned above will be sought as soon as possible.

The Subcommittee expects to have a revised draft of its E54 submission ready for

circulation to member associations for approval about the end of September. It will, however, be difficult to give associations as much as a month to indicate their approval, given that the IASC Board meeting is in early November.

Plans are being made to lobby the 16 individual IASC Board members after the IFAA

submission is finalized but also, before the Board meeting takes place, to explain to them more fully the points which the IFAA is making and provide any needed clarification.

Paul McCrossan then elaborated on possible future actions. He indicated that the

proposals favoured by the technical people on the IASC Steering Committee produce results which most actuaries will find unacceptable. It involves a two stage process. First projecting expected benefit payments using long term averages of wages and inflation, for example, and secondly discounting those expected cash flows according to the spot rate at the moment of the valuation. This produces a disconnect between inflation linked or real commodity linked (e.g. health service) benefits, and the discount rate. The IFAA has stated before the Steering Committee and in its briefs that this can produce seriously misleading financial values for the liabilities. The questions now are how strongly is this view held among IFAA members and, if so, what should be done.

Concerning actuarial gains and losses, the IASC proposal will likely lead very quickly to

most companies being outside the corridor, thus triggering immediate recognition of year to year gains and losses and producing a very material effect on company accounts.

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The intent is therefore to submit to IFAA members the IASC view and the alternative view as drafted by the IASC staff and to ask associations: a) would they be willing to endorse the alternative view which attempts to meet the IFAA’s concerns; and b) would they be willing to condemn or oppose the imposition of something that does not meet the IFAA concerns.

Considering the politics of the situation, the IASC is embarking on a new phase as a

setter of international standards likely to affect all the major economies. They are struggling for recognition against some of the well-established national accounting groups. If the actuarial profession offered to substantially endorse one of their standards that would raise the IASC’s credibility. If actuaries were to condemn the standard, that could damage the IASC. If the consensus within the IFAA is that the IASC’s first approach is unacceptable because of the discount point mentioned above, then the IFAA should say so quite forcefully, and if the alternative is acceptable to the IFAA, it should make clear its willingness to endorse it and to stand with the IASC against any opposing national accounting bodies if it agrees to adopt it.

The IFAA will need to have consensus among its members in order to be able to take

such a strong position. Any dissenting views will weaken its position. Careful drafting of the IFAA proposal will be required to obtain the level of consensus especially among US actuaries, but if this can be achieved, the IFAA’s position will be substantially strengthened.

If the IFAA succeeds with this approach, it is likely to establish a mutually beneficial

partnership with the IASC and to enhance the credibility of the actuarial profession in a way which will be particularly helpful when it comes to the much larger issue of dealing with the IASC regarding its proposed Insurance Accounting Standards. If the IFAA fails to support its principles and goes along with the IASC’s initial drafting of E54, it will severely damage any credibility it may have to intervene decisively as an international actuarial body.

The IFAA’s position must encompass all three of the following:

a) the linkage between the payout of the obligations which are in real terms and real interest rates;

b) the systematic recognition of all gains and losses — not no recognition of some and full recognition of others; and

c) accommodating the increasing need to take account of book reserves systems throughout the world.

If a united position on these three issues can be achieved, it is more likely that the IFAA

can influence the IASC. In the discussion which followed, Paul Thornton undertook to circulate a membership list

of the IASC Board with nationalities and indicated that plans were being made to lobby various Board members.

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A point was made that actuaries appear to be operating at a higher intellectual level than the accountants; accountants appear to be focusing on comparability of results and unmanipulable procedures while actuaries are concerned with the intellectual robustness of arguments and the use of professional judgment.

Yves Guérard suggested that the IFAA seek out allies in the accounting profession who

would be adversely affected by the adoption of the IASC version of the standard. This might include Stock Exchange Commissioners and Vice-Presidents responsible for compensation and employee benefits in large corporations. Also a campaign might be mounted in international financial magazines to explain the differences in approach and the appropriateness of the actuarial position.

There also appears to be a significant tendency for accountants in some countries (e.g.

Australia), to be highly suspicious of actuaries and to regard them as manipulators. This view was evident among some of the younger, technically oriented members of the IASC Steering Committee.

g) Subcommittee on Insurance Accounting Standards Sam Gutterman, Chairman, reported that this Subcommittee had also been very active

since Zeist and had had nine countries represented at the morning meeting. The Subcommittee had issued two draft Public Statements to the IASC in response to their Exposure Drafts. These statements had been or would be circulated to associations for formal approval. The first was in response to the Discussion Draft on “Accounting for Financial Assets and Financial Liabilities”. The second responded to the Exposure Draft on “Impairment of Assets”. It was important to respond to both these documents since they addressed issues likely to surface in the context of the Insurance Accounting Standard over the next two years.

A key issue in the “Accounting for Financial Assets and Financial Liabilities” paper was

the move towards fair valuation for insurance company assets while deferring the issue of fair value liabilities. This inconsistent accounting could potentially yield very misleading results.

In “Impairment of Assets”, the significant issue was discounting which was also key in

the pension area. Because of the significance of discounting in the insurance and pension areas, the Subcommittee decided to prepare a fundamental paper on discounting and the use of alternative discount rates in related actuarial or non-actuarial issues. No budget is available for this project so the Subcommittee will be considering how to accomplish it in a financially prudent manner. A cross-practice effort will be undertaken because of the applicability to the pension and insurance areas.

The first meeting of the IASC working party on the Insurance Accounting Standard (or

all these standards) will be held in October and Paul McCrossan will be the IFAA liaison person.

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A second area concerns P&C insurance and whether to recommend to the IASC the recognition of a catastrophe allocation. There was consensus that this should be done. It had been introduced in some countries but then discontinued because of perceived risk of manipulation of insurance enterprise profitability statements. This recommendation would need to be accompanied by some safeguards, one of which might be some sort of framework standard. This needs further discussion.

The principle of fair valuation of life insurance company provisions has already been

agreed to by the Subcommittee but extensive discussion will be required to determine the kind of approach to be used.

The Subcommittee will likely produce discussion papers on this issue so that, rather than

having a “yes” or “no” vote, associations will all be given an opportunity to comment. Much work remains to be done but it has been encouraging to find a surprising degree of consensus in the Subcommittee despite its wide geographical make-up.

Paul Thornton then supported a coordinated pension/insurance approach to the

discounting issue. He also reported that the IASC had started work on an exposure draft on “Provisions” in which the whole subject of discounting will need to be addressed. Because they are meantime under pressure to put in place the Employee Benefits Accounting Standard, which includes reference to discounting, by March 1998, some reference to discounting may be needed by November 1997, but this could subsequently be revised when the Exposure Draft on “Provisions” is produced.

One further topic which the Subcommittee may be discussing is the potential for

recommending the inclusion of an actuarial opinion with accounts which are of concern to the actuary and appear in the public or shareholder accounts of companies. This would be a major departure from current practice for most countries.

8. IFAA FINANCES a) Approval of Financial Statements Chris Daykin reported that the audited financial statement showed that by the end of the

financial year the IFAA was insolvent. This was a reflection of last year’s tight budgeting to avoid a fee increase, and of the very success of the organization. There had been a substantial growth in the activity level within the IFAA. An additional meeting of one of the subcommittees had to be called, some staff overlap had been arranged to allow for a smooth transition on the retirement of Brian Wooding, Executive Director, more papers were produced and translated, the Web site was established and so on, all resulting in extra costs above the budget. Actual insolvency was avoided because not all of the bills due had been presented and because several associations had paid next year’s fees in advance. No apology was necessary for this situation but it would be necessary to take it into account for setting the budget for next year. The following was then proposed: Motion

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That the auditor’s report for 1996-1997 be adopted as circulated. Proposed by: Chris Daykin Seconded by: David Hartman Carried Unanimously

b) Proposed Budget for FY 1997-1998 Chris Daykin introduced the new budget. He clarified the new staff arrangements which will apply once the CIA Secretariat in Ottawa establishes the new International Secretariat and Brian Wooding retires. He drew attention to the proposed fee increase from $3 to $6 Canadian which was intended to cover anticipated operating costs and to build up some surplus to help cover the period between the beginning of the new fiscal year and the receipt of association fees some six months later. Motion

That the proposed budget for 1997-1998, including the increased annual fee of C$ 6.00, be adopted as presented. Proposed by: Chris Daykin Seconded by: Mo Chambers Carried In the discussion, Jim MacGinnitie, American Academy of Actuaries, expressed thanks to the Canadian Institute of Actuaries for subsidizing the operation of the IFAA Secretariat and supporting its development. He did however, express the Academy’s concern over the rising costs, noting that they are expected to level out. Many US actuaries belong to more than one actuarial body and membership in the Academy would be the easiest to terminate if the overall cost of membership fees became excessive. He recommended that the new IAA General Secretary and the CIA make every effort to keep costs down and particularly to make more use of electronic distribution of documents.

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Klaus Heubeck, speaking for the DAV, endorsed Jim MacGinnitie’s thanks to the Canadian Institute of Actuaries. Concerning the fee increase proposed, this represented a very significant increase for German and Austrian actuaries and serious complaints had been received. He recommended that the increase be reviewed and that every effort be made to ensure that it was not carried forward into future years. As it now stood the DAV would be unable to support the proposed increase. The vote was then called. All associations except Germany and Austria voted in favour. The German and Austrian associations voted against. The motion was carried. Chris Daykin indicated that it had been hoped to limit the fee to C$5.50 but it had had to be increased because of the outcome of 1996/97 and because the organization could not be run on a deficit. It is expected that the $6.00 fee should hold for at least the next two years and if the membership increases, it could hold for longer. In the meantime, every endeavor is being made by the Secretariat to keep the costs as low as possible and there are some potential savings to be made by using electronic distribution of documents and by using the dedicated subcommittee E-mail networks on the Web site. No credit for these savings has been reflected in the budget papers. The sooner all members can make themselves available on the Internet, the sooner these savings will be realized. It may not be possible to economize on meeting costs and indeed as the organization matures it may become necessary to hold more meetings.

9. DISCUSSION OF THE REPORT ON THE FUTURE OF THE IAA FROM THE IAA

PROVISIONAL EXECUTIVE COMMITTEE (PEC) Chris Daykin indicated that the motions on this item contained in the agenda papers had

been withdrawn because a revised report from the PEC had been received after the agenda was circulated.

This item dates back to the start of the IFAA when the IAA President established a task

force under Hans Bülhmann to consider the future of the IAA itself. The PEC was established by the IAA Council last year to carry this work forward and it has now issued the eighth draft of its report. The main thrust of the report is that the IAA should become an association of associations but it also takes into account many points raised by Chris Daykin, Paul McCrossan, Walt Rugland, in consultation with others, in response to earlier drafts. The latest report together with notes by Chris Daykin had been circulated to all associations.

Jim MacGinnitie, a member of the PEC, was invited to report on the PEC’s activities.

His two main points were:

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• time compression problems are being experienced by the PEC because of the need to have a proposal ready for the 1998 Congress in Birmingham which is the only time all members will be assembled prior to the next Congress which will be in Mexico in 2002.

• the main objective is to create an association of associations and most work now is being devoted to building “roadmaps” to determine precisely how that can be accomplished without prejudicing the activities of ASTIN and AFIR and without inhibiting the formation of new sections.

He welcomed feedback.

Chris Daykin indicated that this was one of the most important issues facing the IFAA and he hoped it was being actively discussed by member associations. Many people were surprised by the way in which the proposal had been structured and some felt it would be simpler to let the IFAA become the IAA, a suggestion raised by Malcolm Murray at the Founding Meeting. There were clearly political interests involved. The IAA Council felt it was the controlling body in all of this and in fact was the controlling body at this point. While some associations were represented on the IAA Council by the same individuals who were on the IFAA Committee, others were not, and some countries were not represented at all. There were some concerns among members of the IAA that any move to recreate the IAA solely out of the IFAA might prejudice the interests of individual members within the IAA as well as the positions of ASTIN and AFIR. He as Chairman had been asked to report to the IAA Council on what the feelings of the IFAA were and he invited members’ comments.

Paul McCrossan made the following points:

• Any executive committee should not have executive powers, but should be made up

of the leaders of ASTIN, AFIR and the committees, who should consult among themselves directly to develop consensus positions and function as a steering committee. The delegation of any executive powers to an executive committee should be made only on the basis of a strong majority (65% or 75%, along the lines of the IFAA requirements) vote of all Council members. Recent experience in the Canadian Institute of Actuaries and the Society of Actuaries showed that in both cases the development of strong executive committees resulted in the Boards themselves becoming marginalized and very dissastified with the situation. This has since been corrected. Because of the way power tends to gravitate to a strong executive, the IFAA should: a) arrest the development of a strong executive having executive powers for some time and, b) adopt a structure which will facilitate rapid rotation of the leadership so that experience is built up as quickly as possible in member associations.

• A two year term of office as Chairman is too long given the time commitment required. It will also make it more difficult to get candidates because a lot of companies will not support that level of activity. A rotation through the position of President-Elect, President and Past President with one year in each position provides an easier workload, a larger pool of potential candidates, and a more rapid increase in

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the number of leaders with international experience. Having a pool of experienced leaders will be particularly important over the next 10 to 15 years as the profession establishes itself as a truly global entity.

• Concerning an Honorary Auditor, this position is unnecessary and there should certainly be no reimbursement of any individual’s expenses until the organization has proved over some time, possibly 5 years, that results achieved by the organization can show value for money spent. The executive should receive first priority for expense reimbursement once that condition is satisfied. It has not been satisfied yet, although there is very encouraging evidence of how members are starting to work together.

• The profession needs to invest more in its intellectual capital. The PEC report needs to make a stronger reference to scientific activities for the future.

David Holland, President of the Society of Actuaries, fully endorsed the importance of working together globally as a profession. While supportive of the general direction taken by the PEC, the SOA favours investing authority with the Council rather than an Executive Committee; is skeptical about the Honorary Auditor proposal; emphasizes the importance of good communication between the restructured IAA, its subcommittees and the member associations; indicated sensitivity to the way members are assessed fees, e.g. with respect to overlapping memberships; expressed concerns about IFAA cost increases (no taxation without representation); wishes to ensure that the new IAA has appropriate provision for a due process in its decision making system which will protect the interests of associations. Concerning Malcolm Murray’s report on the Education Subcommittee, the SOA supports the change in the terms of reference to “guidelines” as opposed to “requirements” but is unsure of the precise intent of the initiative, e.g. should the education syllabus become a surrogate for accreditation, the SOA would have some reservations.

Walt Rugland then spoke from the perspective of an IAA delegate to the Committee, an experienced leader of the profession in North America who had been active in the drafting of the IFAA’s constitution, and the next IFAA Chairman. He asked all present to urge their associations to support the creation of an association of associations for the new IAA structure. This would mean that the new IAA Council Members would be representatives appointed to the position by their own associations and instructed by their associations as to what positions they should take on issues. In essence, a direct link would be established between member associations and the governing body of the new association of associations and its committees. There should be no honorary auditor position. Any executive committee should function only as a steering committee. Nomination to office in the first year of the new organization should be made through a more open process. Leadership terms of office should be short as recommended by Paul McCrossan in order to develop a cadre of internationally experienced leaders. Rather than create a detailed “roadmap” as suggested by Jim MacGinnitie, the PEC should consider establishing some principles and let the associations create the “roadmap”.

Duncan Ferguson, President of the Institute of Actuaries, indicated that the UK had been given numerous opportunities to consider the various proposals and therefore had well considered views. There was very strong support for an association of associations and it

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was hoped this principle would be approved at the IAA Council in September. Proof of the need for a strong, representative international actuarial organization is provided by the work the IFAA is doing on the various IASC Accounting Standards. The Groupe Consultatif has also shown that actuarial bodies working internationally have been able to influence EU legislation in a way which previously was not possible. The PEC proposal is “about right” and the PEC deserves the profession’s thanks for the substantial amount of work it has accomplished.

UK points are: do not have an executive committee with any powers as proposed; shorter organizational lines of communications facilitate faster action and gives better value for money; an executive committee would lengthen the lines and slow reaction. There was a preference for a 2 year term as Chairman but not if it would interfere with the recruitment of able candidates. There should be no Honorary Auditor.

Catherine Prime of the Australian Institute of Actuaries thanked the PEC noting that the IFAA’s role was most important and it was essential the IAA be structured so as to be able to perform that role well. Scientific and research efforts are important and the proposal recognizes that. The Australian Institute has not fully considered the proposal but will likely support the association of associations concept and the one year term of office. Catherine Prime’s own preference however would be for a 2 year term to allow more time for the Chairman to influence the running of the organization and to bring about any changes required.

Sam Gutterman felt that the 2 year term as President with one year as President-Elect and one year as Past President would almost certainly turn into three two-year terms making 6 years in all because of the need to know well ahead of time who the next President was going to be. He preferred a one year term as President with the probability of having sustained enthusiasm throughout the period rather than the longer term with the risk of declining enthusiasm part way through, bearing in mind that these individuals might already have just finished a term in some senior position in their own association and a term as chairman of an IFAA subcommittee.

Jean Berthon supported the comments made by Duncan Ferguson as well as the 2 year term for Presidents, noting that in the second year of his term of office, the President would be able to draw on the support of the new President-Elect. He also recommended that the new IAA Council should be the body to decide what committees it wishes to have. Each IFAA Subcommittee should become a Committee of the new IAA and the two scientific sections of the old IAA should become the scientific committee of the new IAA. Committees would all report directly to the new IAA Council. Chris Daykin strongly supported the important principle of having this direct reporting relationship, noting that any intervening layer of authority would slow the decision-making process and increase the organizational distance between the Council as decision maker, and its working committees. There was no benefit to be had from changing the kind of structure which already existed in the IFAA and which was working so well.

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Ed Levay, speaking on behalf of both the Israel association and ASTIN, supported Duncan Ferguson’s comments and the intent to work towards an IFAA type of structure. He favoured a two year term as President because of the significant scope of the new organization. It is proposed that ASTIN remains independent but, from a scientific viewpoint, consideration should be given to adding life insurance into that committee. Health insurance, however, should be dealt with separately. Also given the longer term growth in membership of the new IAA, there will continue to be a requirement to bring knowledge to those countries where it is needed.

Frank Cederbye reported that the Danish association supported the IAA’s transition to an association of associations. It agreed with the general approach followed by the PEC and also with Duncan Ferguson’s views. It had the same concerns as others about the formation of an Executive Committee. A bureaucratic structure with several organizational layers should be avoided because of its poor responsiveness.

Klaus Heubeck reported that the DAV fully supported the IAA’s change to an association of associations. The DAV did not have a position on the President’s term of office and he had originally favoured the 2 year term but had been impressed by the arguments in favour of a short term with a rapid turnover and more opportunities for different individuals representing different countries to be appointed. He supported, based on the Groupe Consultatif’s experience, direct communication between the Council and its working committees with no intervening structures. The DAV is particularly interested in the scientific arrangements since in the future there may be other organizations like ASTIN and AFIR, and it would be appropriate to group these bodies under a single scientific committee reporting to the new IAA Council. This would help ensure coordination of all scientific activities, simplify lines of communications on scientific matters and help ensure that the profession continued to have a sound scientific basis.

Georg Harbitz reported that the PEC proposal had been discussed by the Norwegian association, whose views were consistent with those of their Danish colleagues. The PEC proposal was generally acceptable with the exception of the proposal for an executive committee with delegated powers.

Jean Berthon recommended that ASTIN and AFIR should be reorganized so as to be transparent and democratic bodies in the same way that the IFAA had been organized as a transparent and democratic body. These qualities would then prevail throughout the new IAA.

Mo Chambers spoke of the fee concerns expressed by some North American associations. He recommended that the PEC, in discussing the fee structure of the new IAA, be careful to present the fee as a charge to associations (albeit based on the number of fully qualified members). It was not a charge to each individual member and was not intended to offer individual members the option of subscribing or not subscribing.

Yves Guérard promised to transmit the members’ thanks, congratulations and comments to the PEC. There was still time for the PEC to make changes and its proposed action

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plan is to draft bylaws for discussion at the September IAA Council. There was no intent to create an Executive Committee with an independent power base. Super majority voting procedures would be proposed. The Honorary Auditor was not an essential part of the process. An audit function will be required and as Secretary General he would want to have a senior independent person appointed to play the role of an audit committee in a company and to provide an audit report to the Council. A minimalist approach to organizational structure will be recognized and it will need to be flexible to accommodate changes which at the present cannot be foreseen. All agree that expenses should be kept down and he is currently working on reducing the distribution cost of the Index and other papers using electronic means. He personally strongly favours increasing the scientific effort and the proposed structure is flexible enough to accommodate that. The term of the President remains to be resolved. All are seeking the best solution and individuals are invited to send their ideas to the PEC.

Chris Daykin thanked members for an active and useful debate and indicated that it would be helpful if the PEC were to make available any further drafts of the paper itself and of the by-laws. Chris Daykin will take the various points made to the IAA Council meeting in September 1997.

10. CONTACTS WITH OTHER INTERNATIONAL BODIES a) Report on Contacts with the International Association of Insurance Supervisors

(IAIS) Chris Daykin reported that, following what was reported at Zeist, he would be attending a meeting of the IAIS in two weeks’ time in Sydney where he would moderate a plenary session on “The Role of the Actuary”. Walt Rugland will attend and speak on behalf of the IFAA. A German lawyer will speak on the introduction of the “responsible actuary” system into the German legislation, and a regulator from France is also expected to speak.

b) Report on the Contacts with the International Social Security Association (ISSA) Chris Daykin reported that, further to the note (Attachment D to the Agenda papers) which had been circulated previously, the Conference of Social Security Actuaries and Statisticians which had been held in Prague in June 1997 under the auspices of the ISSA had made the suggestion that it would be worthwhile developing a formal link between the ISSA and the IFAA with the particular objective of developing Standards of Practice for social security actuaries. Such actuaries are often under considerable pressure because of their working in a political environment with governments. It was felt that some internationally agreed Standards of Practice on how they should report on social security schemes could be helpful. The ISSA does not have a mandate to develop or promulgate such standards and there was a feeling that if the IFAA were willing to share in that task, the standards would have a firmer standing. The following motion was then proposed: Motion

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It is resolved that the IFAA should establish a Social Security Subcommittee, with the following terms of reference:

• to liaise with the International Social Security Association, and, in particular,

with the Executive Committee of Actuaries and Statisticians, on matters of mutual interest;

• to work with the ISSA to develop and promulgate a standard of practice for actuaries making formal reports on social security systems;

• to raise the profile of the actuarial role in relation to social security organizations and to support actuaries working in this field;

• to seek to reflect the views of the world-wide actuarial community, as expressed by the member associations of the IFAA, in discussions and debates at the international level on social security issues;

• to promote the public interest through the role actuaries can play in social security.

Proposed by: Chris Daykin Seconded by: Klaus Heubeck Carried Unanimously c) Report on Contacts with the United Nations Conference on Trade and Development

(UNCTAD) Chris Daykin referred to the Agenda Papers (Attachment E) which had been circulated. Contact had been made with Lorraine Ruffing, Chief of the Accounting Section of the Division on Investment, Technology and Enterprise Development within UNCTAD. This lady had been dealing with the internationalization of the accounting profession but was very interested in knowing what the IFAA had been doing regarding actuarial education, development of a core syllabus and mutual recognition of qualifications. Chris Daykin anticipates having face-to-face discussions with this person later in the year.

The IFAA should pursue this contact because the person is working closely with the World Trade Organization on the Freedom of Services initiative and, while the main emphasis will be focused on the accounting profession, the actuarial profession may at some future date be affected by what the World Trade Organization does in relation to Freedom of Services. The IFAA should therefore be involved at an early stage.

11. MATTERS ARISING FROM PREVIOUS MINUTES a) Streamlining

Chris Daykin introduced the following motions which were intended to give effect to decisions on streamlining taken at the Zeist meeting. They were considered as one block.

Motion

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I. That to give effect to the recommendation in Item 54 of the Zeist Committee

minutes, April 1997, associations agree that routine formal items on the Committee agenda such as Subcommittee appointments and changes to terms of reference be approved as a single block of formal business.

II. That to give effect to the recommendation in Item 55 of the Zeist Committee

minutes, April 1997, Article 12 of the IFAA Regulations dated 10 September 1995, be revised as follows:

“The IFAA is directed by a Committee composed of a Chairman, a Deputy Chairman, the Immediate Past Chairman, one delegate from each Full Member and Associate Member, 4 persons appointed by the Council of the IAA and the Chairman of each IFAA Subcommittee. The officers and members of the Committee shall themselves be individual members of the IAA. Each Observer Member may send one delegate to Committee meetings as a non-voting observer.”; and

III. That the IFAA Subcommittee Protocol adopted in Item 12 of the Founding

Committee Minutes be amended as follows:

“That the Chairmen of all Subcommittees shall automatically be ex officio members of the Committee without prejudice to the right of their associations to nominate another member to the IFAA Committee to carry their vote(s)”; and

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IV. That to give effect to the discussion at Item 56 of the Zeist Committee minutes, April 1997, associations agree that the current restrictions on the membership of the Accreditation and Education Subcommittees as set out in Item 13 and Item 14 of the minutes of the Founding Meeting, Brussels 1995, be waived on a trial basis for a period ending August 1999 and that a final decision be taken at that time as to whether further restrictions are warranted.

Proposed by: Chris Daykin Seconded by: Ed Levay Carried Unanimously After confirming that parts of the motion would need to be modified once the terms

of the IAA reorganization had been decided, the motion was carried unanimously.

b) Teleconferencing:

Those subcommittee chairmen involved in the teleconferencing earlier in the day were asked to comment briefly on the success or otherwise of their experience. Comments were:

• Paul Thornton — very helpful; line quality variable, but may be reflective of quality of

equipment at the other end (good for US; faint for Norway); in favour of continuing. • Walt Rugland — used old equipment borrowed from CIA; good contact; need better

quality equipment with more microphones; outside participants should not use speaker phones; develop a protocol; make clear we are trying to save people money.

• Sam Gutterman — need more microphones; people working in a second language can have difficulty if the sound is of marginal quality; continue to use but with better technology.

• Catherine Prime — used old equipment; poor contacts; need to continue but must improve effectiveness.

It was concluded that teleconferencing should be pursued and be made available as an option for members to help reduce their costs. Better equipment will be sought and a protocol will be developed.

12. WEB SITE

Brian Wooding reported that the CIA was expected to introduce a password access section to its Web site in the next few weeks. Once this was operating satisfactorily, the same system would be introduced for the IFAA Web site so that non-public documents such as the member database, submissions on sensitive issues and other documents could be accessed by members using password control. This system should be in place well before the end of this year.

13. FUTURE MEETINGS

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Chris Daykin introduced the motion shown below. The following clarifications and additional facts were provided:

• In Cyprus, the Committee will meet on the afternoon of 30 January, 1998.

Subcommittees may meet in the morning of 30 January or, if they wish, on the previous day, 29 January. The hotel has been tentatively reserved for both days.

• For the UK meeting, there will be a gathering at Staple Inn on Thursday, 4 June 1998 for the reception of gifts from associations. IFAA delegates will be invited. The subcommittee meetings will be held on the morning of Friday, 5 June in Birmingham with the Committee meeting being held in the afternoon.

• The Instituto de Actuarios Espanoles, in cooperation with the Col.Legi d’Acatuaris de Catalunya, will host the IFAA Spring Meeting for 1999 in Madrid in March or April. A formal motion will be presented at the Cyprus meeting.

• The Col.Legi has also informally indicated it would like to host an IFAA Committee meeting in Barcelona in the year 2000.

• It is being assumed that these meeting, in addition to those planned for Cape Town in November 1998 and Tokyo in August 1999 will be retained on the meeting calendar and incorporated into the schedule of the reorganized IAA.

Motion • That the IFAA Committee and Subcommittees meet on 29/30 January 1998 in

Paphos, Cyprus at the invitation of the Cyprus Association of Actuaries. • That the IFAA Committee meet in Birmingham, England on 5 June 1998, in

conjunction with the 26th International Congress of Actuaries. • that the IFAA Subcommittees meet on the afternoon of Monday, 2 November

1998 and the IFAA Committee meet on the morning of Tuesday, 3 November 1998 in Cape Town at the invitation of the Actuarial Society of South Africa.

Proposed by: Chris Daykin Seconded by: David Holland Carried Unanimously

14. OTHER BUSINESS Paul McCrossan asked that the minutes record a vote of thanks to Brian Wooding, the

Executive Director, who was retiring, for his work on behalf of the IFAA. Members responded with applause.

Mo Chambers then moved a vote of thanks to Chris Daykin for his leadership as

Chairman during the past year and members again responded with applause.

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15. ADJOURNMENT The meeting was adjourned at approximately 5 pm. 16. NEXT MEETING The next meeting of the IFAA Committee will be in Paphos, Cyprus on 30 January 1998.

Chairman Executive Director