The Actuary

Learning from ecu49 Canadian
in heãlth reform
experience
nited States healtb insurance
actuar& concerned about their
plight after health care reform
u
may find the history of actuaries
involved in Canadian medicare helpful.
Let’s begin with a few cavcats.
editare” will be used in this article
h its Canadian meaning, a governent-run system of universal medical
P
Featuretd
this issue:
Early Canadialn
health reform
.
expenence
. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
bJ. Bruce MncDonald
Editorial:
What the ASB means
to the profession
. .. ... ... .... ... . ... ... . ...2
@hin- Hnrdiman Adam
Perils of the actuarial
tourist
Ly Charles Barry Watsorz
.. . .... ...6
Mind your ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Ey Michael Rion
Help for unemployed
fy Judy Woklt
Actuaries
are goud
@ Mibe Cot~vll
Section
Corner
actuaries
spotis,
. . . ...9
too, II . . ..lO
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Book review:
Easy-to-use
source
on heolth insurance
issues . . . . . . . . . . . . . 14
6 17JomasLiaorsi
& E Corner
coverage, rather than the narrower use
in the United States, referring to its
current limited Medicare program. Also,
substantial differences exist between
Canada in the 196Os, when Canadian
medicare was introduced, and the
United States in the 1990s. Most of the
differences, however, are not Canada
VS.United States as much as 1964 VS.
1994. Please keep in mind the diffcrences in environment and in medicare
plans when applying
_..
- the Canadian
experience to U.S. activities.
Canadian
health reform
in the 1960s
Health insurance was not as
well developed in the 1960s
in Canada as it is now in the
United States. Fewer actuaries in al1 specialties existed
then. Few health actuarics
worked for consulting firms,
and most Canadian companies in the health field also
operatcd in the Unitcd
States. No actuary was
worried about his or hcr
job becoming redundant.
I.........,...,...,...............
letters
to editor
Lighter
Side ....................................
.............................
16
18
20
the group department of
a middle-sized
Canadian company in
the 196Os, which also
operated in the United
States. Only nvo
Fellows (one was the
vice president whose
prime interest was expanding the group
operation) and severa1 near-Associates
were on staff, who were rcsponsible for
group life and pension and group
health. When part of the health insurante field in Canada was climinated, it
just meant we had more time for our
other responsibilities.
Some of our initial assignments
resulting from medicare’s introduction
(continued on pafle 4)
2
The Actuary , September 1994
A tuary
The Newsletter of the
Society of Actuaries
Vol. 28, No. 7
September 1994
W h a t the ASB means
to the profession
by Mary Hardiman Adams
he Actuarial Standards Board
(ASB) plays a key role in strengthening the self-government o f the
actuarial profession. Since being established in 1988 as a separate entity
within the American Academy o f
Actuaries, the ASB has been responsible
for developing actuarial standards o f
practice, exposing and circulating them
in all areas o f practice, and for continuously reviewing existing standards.
As chairperson o f the Pension
Committee o f the ASB, I have experienced, first-hand, the huge amount o f
time and effort spent in developing
new standards and in revising current
ones. However, without standards,
we'd be lost. The ASB keeps the
profession on track by establishing
standards o f practice that allow actuaries to act professionally, with integrity,
and in the public's interest. Standards
give the profession one set o f rules and
present a unified front to the public.
T
Mary Hardiman Adams
Editor responsible for this issue
Editor
Michael J. CoweH, FSA
Associate Editors
Mary Hardiman Adams, ASA
Robert H. Dobson, FSA
William C. Cutlip, FSA
Michael B. McGuinness, FSA
Robert D. Shapiro, FSA
Assistant Editors
Peter J. Bondy, FSA
Charles Habeck, FSA
Curtis E. Huntington, FSA
Eric P. Lofgren, FSA
J. Bruce MacDonald, FSA
Puzzle Editor
Julian Ochrymowych
Society Staff Contacts
708/706-3500
Cecilia Green, APR
Staff Editor
Judith Bluder Wohlt
Assistant Staff Editor
Linda M. Delgadillo, CAE
Director of Communications
C o r r ~ p o n d e n c e should be addressed to
The Actuary
Society of Actuaries
475 North Martingale Road, Suite 800
Schaumburg, IL 60173-2226
TheAc~ruaryis published monthly
(except July and August).
R. Stephen Radcliffe, President
Diane Wallace, Vice President
Harry D. Garber, Secretary and Treasurer
Robert L. Brown, Director of Publications
Nonmember subscriptions: Students, $6; Others,
$15. Send subscriptions to: Society of Actuaries,
P.O. Box 95668, Chicago, IL 60694.
Copyright © 1994,
Society of Actuaries.
The Society of Actuaries is
not responsible for statements
made or opinions expressed
herein. All contributions are
subject to editing. Submissions
must be signed.
Printed on recycledpaper in the U.S.A.
H o w a standard is created
ASB operating committees, under
the nine-person board, actually draft
actuarial standards o f practice and
compliance guidelines. These committees research, identify, and interpret
current actuarial practices to develop
the standards. Six operating committees exist currently: Casualty, Health,
Life, Pension, Retiree Health Care,
and Specialty.
T o give you an idea o f what is
involved in creating a new standard,
I'll use the Pension Committee's
recent work as an example. The
Pension Committee has been putting
in long hours over the past two years
producing a second Exposure Draft
o f an Actuarial Standard o f Practice,
Selection of Economic Assumptions for
Measuring Pension Obligations.
The first exposure draft was issued
in July 1992. Two hearings were
conducted in October 1992. Eleven
formal presentations and nine informal
comments were made at those hearings.
By the end o f the comment period
deadline o f December 15, 1992, we
received more than 50 independent
comments on the draft. All Academy
members and subscribers to the
Actuarial Standards - - virtually all
actively practicing actuaries - - receive
exposure drafts.
The w o r k begins
Our initial problem was
where to start. Even in t]
comment read-through, we found a
"yes," " n o , " or "maybe" on just about
every topic. We received a variety o f
views and statement lengths from
individuals, pension or investment
committees o f the professional actuarial
organizations, pension practice committees o f consulting firms, and more.
The first step in sifting through the
material was assembling the comments
on a section-by-section basis, producing a nearly 200-page document, ready
to be studied and analyzed.
During this long review and rewrite
period, four Pension Committee
members rotated offthe committee and'
were replaced, and one more person
was added. Committee member Heidi
Rackley Dexter did more than double
duty by stepping in when we lost our
writer and document producer, Alan
Kennedy, the ASB's editor and assistant
director, to a heart attack. At least 1
redraffi:s o f the standard were createc
each progressively different. Because
the resulting document, particularly the
technical material, was a complete
rewrite o f the original exposure draft,
we had to issue a second exposure draft.
The Actuary * September 1994
ASB Casualty Committec Chairperson LeRov Boison (leJD
and ASB Pension Committee Chairperson Mary Adams
(right) discuss standards issues at an ASB meeting.
The second d r a f t
The basic underlying elements o f the
first draft have not changed. Material
was added about making provision for
deviation (pension actuaries
le terminology o f our insurance
o,unterparts), because many comments
on the first draft said we needed to
acknowledge the desirability o f conservatism in the selection o f economic
assumptions. In response to other
questions and comments, material was
added about when to change assumptions and on consistency among the
economic assumptions. We clarified the
applicability o f the standard when
giving advice on assumptions for SFAS
Nos. 87 and 88.
Some material was deleted, including tutorial material and illustrations.
We also eliminated the suggestion o f
(L-R) Vice-chairperson Gary Corbett, ASB member
Harper Garrett, and SOA President-Elect Bob Berin
review ASB projects and address areas for new standards.
using a different inflation component
in developing the investment return
and the compensation scale assumptions to reflect tax-paying investors'
expectations (the tax premium).
The new draft's appendix includes
details o f the comments received on the
original draft and the committee's
responses to them.
At the ASB's July 1994 meeting,
it voted to expose the second draft.
Now it's time for all actuaries, especially practicing pension actuaries, to
participate in finalizing the standard.
The ASB invites comments on the
second Exposure Draft o f Actuarial
Standard o f Practice, Selection of
Economic Assumptions ~ r Measuring
Pension Obligations, which will be
mailed to all Academy members with
the September Actuarial Update and to
all subscribers to the Actuarial
Standards. Others may contact Cheryl
Ayanian at the Academy for a copy.
Comments must be received by
December 1, 1994.
The Pension Committee expects that
Practice Notes will be developed by the
pension committees o f the participating
organizations to illustrate the practical
application of the standard. We hope
Practice Notes will cover diverse topics,
such as the use o f select and ultimate
assumptions, the methodology o f developing "blended rates," the use o f
stochastic methods in developing confidence levels, methods o f developing
confidence levels for plans where
modeling is not possible or not practical, and other topics that the pension
committees think need illustration.
Research actuary joins SOA staff
homas P. Edwatds, FSA, ACAS,
has joined the Research
Department to manage research
ects in the health benefit systems
retirement systems practice areas.
Hc will be key staffliaison to the Health
Benefit Systems Research Committee,
the Retirement Systems Research
Committee, the Health Benefits Systems
Principles Committee, and the Health
T
3
Financial Issues Task Force and also will
support the Committee on Research
Coordination. Ann Berg is the research
assistant working with Edwalds.
Edwalds comes to the Society after
six years at Blue Cross/Blue Shield o f
Illinois in Chicago. He was a senior
associate actuary in actuarial valuation.
He has a master's degree in mathematics
from the University of Illinois/Chicago.
Tom L d)),alds, FSA, ACA,~'
Research Actuary
4
The Acbary
Early
Canadian
l
September
1994
experience
were making cost estimates for the
program and estimating the effect on
physicians’ incomes, both for the
provinces and the medical profession.
The Canadian Institute of Actuaries
(CIA) was not involved in this work
because it did not exist until 1965,
when the implementation of Canadian
medicare was well underway. Quebec
is a partial exception to this, because it
made greater use of actuaries. Claude
Castonguay, a Fellow of the Society of
Actuaries, played a prominent part in
developing the Quebec system.
Overestimates
by non-actuaries
a costly mistake
Non-actuaries did some initial work that
actuar& should have performed. A nonactuary made a projection of the
Canadian population for the end of the
century, estimating about 37 million
citizens, a figure about 10 million too
high. The population projections were
made during the baby boom, and it
,x,,,c
.,cc,,m~A
TIC..,
Uu..U...bU
rhqt
LI.YL
(continued
from page 1)
made. This act requires that:
l
Administration be on a non-profit
basis by a public authority
l
All necessary hospital and medical
services be covered
l
Services incurred outside of Canada
be paid at the rate that would have
been paid in Canada
l
Coverage be universal
l
Coverage be portable within Canada
l
Coverage be accessible to all
l
User fees, co-insurance, and
deductibles are not allowed, and
individual premiums, a type of
deductible, are allowed.
Some provinces elected to cover
services that were not required, such as
eye refractions solely for prescribing
glasses, services of chiropractors and
similar health care professionals who
were not medical doctors, and the full
-
+h.“hnnm”
L..b
-““III
would continue. They were not
revised when the birth rate
dropped drastically. Hospitals were
built based on this estimate and, as
a result, there are now more
hospital beds than needed. This
occurred even without allowing
for improved medical techniques
that have shortened hospital stays.
This contrasts sharply with the
Canada Pension Plan (CPP), whose
actuaries quickly revised demographic
projections when the experience
changed. In fact, the CPP actuaries
never counted on the baby boom
continuing and used a net fertility rate as
low as 2 live births per female through
reproductive age as early as 1964. More
involvement by actuaries in Canadian
medicare probably would have resulted
in better demographic forecasts.
Canadian
medicare
structure
outlined
Under the constitution, Canadian
health care is a provincial responsibility,
lünded in par-t by the federal govemment. The federal government sets
guidelines under the Canada Health
Act, under which transfer payments are
cost of coverage outside Canada. Some
provinces established drug insurance
(“Pharmacare”) plans, although in
most cases they were limited to residents age 65 oc up, or who had low
incomes. A few provinces established
dental insurance plans for children. Not
all these coverages were required under
the Canada Health Act, so provinces
could impose conditions that the Act
did not allow and could make changes
unilaterally without federal consent.
Many services not under medicare
are included under private health insurance, usually called Extended Health
Bencfits. A partial list of these covered
benefits may include:
l
Glasses and eye refractions solely for
prescribing glasses
l
Dental procedures in the dentist’s Office
Semi-private or private hospital care
Extra cost for services incurred
outside Canada
l
Ambulante service
l
Drugs (except those prcscribed
while hospitalized)
l
Services of physiotherapists, chiropractors, ostcopaths, chiropodists,
naturopaths, masseurs, podiatrists,
and speech therapists
l
Nursing care at home and most
private duty nurses in hospitals
l
Stays in convalescent hospitals and
nursing care
l
Laboratory charges incurred outside
hospitals
While the market no longer existed
for basic hospital, surgical, or medical
insurance, a market still existed where
health insurance actuaries could design
and market health insurance.
As health costs escalated, the
provinces began cutting back on service,c x- \
not required under the Canada Health
Act that they had originally elected to
cover. Cutting back these services might
transfer the claims to Extended Health
policies, depending on the contract
wording. So the health insurance actuaty had to make sure that private health
insurance was not required to cover
additional services without an increasc
in premiums and take the necessary
stcps to counteract this.
Missed opportunities
Many other opportunities have evolved
for health insurance actuaries in Canada,
in the areas of cost containment, claims
analysis, and designing managed care.
1 fear many of these opportunities
have been missed, but for good reasons.
Not many health insurance actuaries
working for insurance companies have
actively analyzed claims, but the greatest amount of claims under Extended
Health policies have been for prescription drugs. Though this sevcrely limits
the claims health insurance actuaries _. ,.
can analyze, room for improvcment
and the actuarial touch rema&.
Underwriters have been inconsistent in
their claims analysis, with somc using
sophisticated techniques and others
using primitive methods.
l
l
The Actuary
m
Medicare authorities have a much
greater opportunity to analyze claims,
but unfortunately, few, if any actuaries,
are working for medicare agencies,
except in Quebec. As a profession, we
have not pointed out the contribution
we can make to medicare agencies.
Economics professor
urges
Canadian
actuaries
to get more
involved
Jane Fulton, a professor of cconomics
at the University of Ottawa, has
completed some interesting studies on
Canadian health claims. She has
appeared on the Phil Donahue show
and has been an advisor to Hillary
Rodham Clinton. She spoke about her
work, much of which has been corroborated by a recent study done by the
Ontario Ministry of Health, at the CL4
spring mecting in March (tapes of her
address are available through the CIA).
For example, Fulton found that
hysterectomies are much more common
than in Toronto and in
Ontario than in urban areas. For
e other sex, prostatectomies were
more common on the west coast than
Daniel Burke
ASA 1992, MAAA 1992
David A. Chan
FSA 1979, FCIA 1979, MAAA
1980, EA 1981
Charles D. Cox III
FSA 1976, MAAA 1977
William A. Drew
FSA 1958, MAAA 1965
Daton Gilbert
FSA 1946, MAAA 1965
Kenneth W. O’Neill
FSA 1978, FCA 1979, MAAA
1979, EA 1976
Kevin Lee Spitser
ASA 1988, MAAA 1988
the east coast. 1s this the result of some
environmental or genetic differences in
the population, or is it a fimction of
the per capita number of specialists, or
some difference in medical theories and
practice between thc arcas?
She also found that many tests are
performed whose medical value is questionable, and some even identify
non-existent conditions. Other procedures are used to prolong life for very
short periods, wbile contributing negatively, if at all, to the quality of life.
Fulton concluded her talk at the
CIA meeting by urging actuaries to get
involvcd in solving the Canadian
medicate problems. She was diplomatic
enough to mention the contribution
the profession could make to this field,
not what it could have been doing for
the past 30 years.
Actuaries
could do more with
their skills
Our training allows us to accomplish a
great deal. We certainly know the
effect that changes in practice or reimbursement methods have on incidence
and cost of coverage. Actuaries are
Henry F. Rood, who died June ll
at the age of 87, was president of the
Society of Actuaries from 1957-58.
His service on thc SOA Board of
Governors included secretary-treasurer
from 1949-52 and vice president from
1952-54 and 1955-57.
He also was co-founder and the first
president of the Ameritan Acadcmy of
Actuaries. He spcarheaded the effort to
establish a national body to represent
qualified U.S. actuaries of all specialties, beginning with his Presidential
Address to the Society of Actuaries in
1958. In 1963, he organized a joint
committee of representatives from the
Casualty Actuarial Society, the Conference of Actuaries in Public Practicc,
the Fraternal Actuarial Association and
the Society of Actuaries, which led to
the four bodies approving formation of
the Academy in 1964.
Rood held many leadership
positions in the insurance industry
l
September
1994
5
trained to put a monetary value on
probabilities that affect human beings,
and medicare in any form offers a great
opportunity to do so.
Actuaries should be able to suggest
cost containment methods that do not
reduce quality of care. 1 may be prejudiced, but 1 believe that actuaries have
a better overa11grasp of the problems
than other professionals in the health
field, including statisticians and physicians, who may focus too narrowly on
their own specialty, and not really see
thc “big picture.”
Health care reform in the United
States will certainly change the work of
thc health actuary, but there will still be
work to do, and it may be even broader
and more challenging. Actuaries should
be ablc to influente the course of
health care reform in the United States
more than they did in Canada, and 1
hope they seize the opportunity that
most Canadian actuaries missed.
J. Bruce MacDonald, retired, does
some consulting work for the Senior
Citizens Secretariat of Nova Scotia.
and in his community of Fort Wayne,
Indiana. He was former chairman
and president of Lincoln National
Corporation and Lincoln National Life
Tnsurance Company, where his career
spanned 40 years.
Mcmorials can be sent to the
Turnstone Center for Disabled
Children and Adults, c/o Klaehn, Fahl
and Melton Wayne Street Chapel, 420
W. Wayne St., Fort Wayne, IN 46802.
***
Obituaries detailing the careers of all
deceasedmembers are prepared by the
Committee on Memorials and printed
in the Transactions. Members with
waivers of dues who do not receive the
Transactions may request copies of
obituaries on any deceasedmevnber by
contacting E.J. Moorhead, chairperson,
at bis Directory address.
6
The Actuary
l
September
1994
Perils of the actuarial
tourist
by Charles Barry Watson
S
0 you’vegot an ass&ment
overseas?That’sgreat! Where is
it? ‘You+e not szsre,bttt the city’s
name begins with the letter Y? Is it
Stockholm? No, you think it could be
Sarajevo? WeLl, it definitely could be
worse. I(ignLi, maybe. What will you
be doing?
And so it gocs. You sense your
questioner’s curiosity, interest, and
even a touch of envy. It’s exciting to
have an assignment that takes you out
of your homeland. But it’s not al1
peaches and cream, 1 can assure you
(not even milk). Working overseas is a
different ball game, which requires lots
of pre-season training.
If you are still determined to take
this momentous step, let’s look at what
you need to do.
The assignment,
should you
choose to accept
Likc good actuaries, let’s first makc
one simple assumption - you’re t‘aking
on the assignment for your current
employer, who may be an insurer,
consultant, university or industrial firm.
What kind of assignment is it? Are
you setting up a ncw opcration in
another country! Are you going to
work for a foreign affiliate, or a firm
owned by (or owning) you? Will you
supervise work done by a foreign
subcontractor? Or, is this an isolated
assignment you’rc doing for a current
client, or a new one (located here or
elsewhere), in response to a request for
proposal (RFP, to the cognoscenti), or
for a foreign government or an intcrnational organization?
The preparation and training you
need is similar in scope for all of these
assignments, although there are differences in the intensity of the challenge,
dcpending on how long you will be
staying overseas.
Challenges
to overcome
A culture in another country will
conflict with yours in thousands of
ways. You must adapt; they won’t.
This is known as culture shock and can
be very traumatic.
You should master the country’s
language up to the leve1 of polite
discourse. English, being the (so to
speak) currcnt lingua franca, normally
suffices for business.
Be familiar with the laws and regulations, both forcign and domestic, that
you will use on your assignment.
Canada and the United States are good
examples of regulator prolixity, and
other countries are going into overdrive to catch up to their level.
Thc professional environment in
which you will be functioning differs in
many countries. Will your credentials,
both actuarial and academic (very
important in many countries), be
acceptable? Whose code of conduct
and standards of practice must you
follow -yours or the local one’s? (Not
an idle question with the sprcad of
global actuarial ties.) Will age or
gender bc an issue in the local culture?
Keep an eye on the content of your
assignment. You may be asked to deal
with new issucs - peculiar policie
bizarre bencfits, public privatizations, even a single-paycr
get tricky. Make surc you
know who you report to - you
home employer or the overseas
client - and where your loyalties
should lie.
Travelling to another
country, or severa1counRemember that if
you’re visiting five
cities in tbree days,
Rome is no less tiring than a trip visiting Dayton, Columbus, Youngstown,
Eric, and Buffalo, no matter how
glamorous it may sound.
Living overseas tops thc challenge
heap. You’ll havc to dcal with al1 the
concerns of possibly moving your
family - the adaptation of an (usually)
unemployable spousc, housing, education, homc lcave, and the list goes on.
And, who pays for it all?
Tap your resources
How do you overcome al1 these challenges, problems, and headaches? If
you get organized and use the multitude of resources available, you can be
a successful overseas business travcler.
Learn about the country and its
language by taking classes, reading
,
books, listening to tapes, watching
movies, and talking with natives and
travcllers. You can get an introduction
to the laws, regulations, and general
business cnvironment from journals
and publications available in most
good librarics.
Takc advantage of othcr
verseas assignments
_
The Actuary
(II)
ead. Keep an opcn mind. Your
employer can, and should, help out,
but you must take thc lead in doing
your homcwork.
Is it Worth it?
1s that exhaustive, and exhausting,
enough? Enough to lower your enchantment to a reasonable level?
In search
Ifyou approach your assignment
realistically, you’ll gain many bencfits
from your overseas work in oppomlnity, excitement, and the challenge of
the job. Just remember, this is a job,
not a jaunt. You will be judged on
your performance, and the job is inherently more difficult than your usual
of an overseas
If you want the challenge of working outside your native
country, but don? see it happening where you work, what
are your options?
Here are some suggestions from participants in an open
forum sponsored by the Actuary of the Future Section at
the Orlando intcrnational spring meeting:
Be a Mag’ellan
- start exploring
l
Use personal contacts in companies that have overseas
operations or in actuarial societies overseas.
l
Áttend international actuarial, economic, and
financia] meetings.
l
Join international organizations.
l
Read advertisements in overseas newspapers and
international publications.
l
Find foreign student exchange programs or internships.
l
Express your interest in international work to your
employer. You never know what plans for global
expansion have not been officially announced.
l
Find short-term teaching oppommities overseas if you
meet the qualifications (see notice on page 16 in this
issue asking for visiting lecturers).
l
If you are a woman, investigatc whether you will be
accepted in your country of choice. Some business environments acccpt women well as consultants, but do not
place them in upper positions in companies.
Position yourself
to accept your dream job
l
Learn the language of a country that has oppommities.
Eastern European languages are especially valued now.
l
Get the credentials needed to work there.
l
Study the cultural, business, and political environment.
l
Learn how to sell yourself.
l
Hone your communications and problem-solving skills
so you can respond quickly.
l
Demonstrate maturity (even if you don’t have any
gray hairs). Age may be more valued overseas than in
your country.
Getting ready to leave
What if\lou actially get an overseas assignment?
If you think your cómpany will handle &erything, think
l
September
1994
7
one. Bring to the assignment your
curiosity, adaptiveness, a willingncss to
get involved, and, yes, humility, and
you will profit immensely from it.
Charles Barry Watson, of McLean,
Virginia, has been an international
consultant for more than 20 years.
job
again. A recent article in the Chicago Tribune by Elizabeth
Williamson gives some tips on how to get your financial
house in order.
Contact your bank and arrange for direct payroll deposit,
and ask them about wire transfers, bill payment services,
ATM withdrawals, and investment fimd transfers.
Depending on your length of stay overseas, decide
whether to sell your house, leave it vacant (expect your
homeowner’s insurance to increase), or hire a housesitter. Renting it may be a problem if you don’t hire a
leasing management firm.
See if your liability insurance covers your car and
belongings overseas.
Put your phone on vacation service if you want to
retain your prescnt number.
File a mail-fonvarding form and notify magazines. The
post Office will fonvard first-class and express mail only.
Decide what you want to take with you. You can ship a
whole housefill of belongings by boat for about $6,000
to $7,000, which takes 21 to 30 days.
Contact the Ameritan Society for Prevention of Cmelty
to Animals for regulations and papenvork on shipping
your pets.
SOA establishes
Ambassador
Program
The International Section Council, with the Committee on
Intemational Rclations, has established an SOA Ambassador
Program. It will iden+ and appoint members of the
Socicty living or working outside North America as liaisons
for the actuarial profession and the SOA in North America.
They will provide an important link with the SOA to meet
the special needs of members practicing overseas and will
be a valuable resource for other members.
More information on the Ambassador Program will
be available at the October annual meeting in Chicago.
Also contact Charles Barry Watson, chairperson of thc
International Section, at his Directory address, or
Lois Chinnock or Chelle Brody at the SOA ofFice for
more information.
8
The Actuary
Mind
l
September
your
1994
ethics
by Michael Rion
he notion of “business ethics”
ofien prompts two distinct reactions. Some see it as an oxymoron
like “jumbo shrimp.” Others recognizc
that ethics are an important part of
business and suggest a simple approach
- bring children up properly, hire
good people, and the rest will take care
of itself.
Both reactions are too simplistic.
We should rcmember H.L. Menckcn’s
advicc that “for every human problem,
there is a solution that is simple, neat,
and wrong.” So it is with ethics in
busincss. Neither the worldly wise
cynic nor the virtuous manager looking
for like-minded people is prepared for
the challenges of being a responsible
professional. Ethical challenges are
unavoidable and not easily resolved
by simply relying on our upbringing
and character.
While we cannot easily teach
integrity to adults in the workplace,
we can teach practica1 tools for
strengthening responsible decisionmaking in our business organizations
and professional lives.
Recognize,
analyze
ethics
In actuarial work, ethical questions
arise as a natural part of the work.
Actuaries may have to ask themselves:
l
How do 1 respond to a request
from a boss or client that may be
morally questionable?
l
How much responsibility do 1 have
to others who might be affected
by my work even if they are not
paying the bill?
l
What happens if 1 discover an
error in my past work or that of
another actuary?
l
How far should 1 go in raising
the issue?
l
What about the gray areas in interpreting standards and regulations?
l
How do 1 understand confidentiality
and avoiding conflicts of interest?
T
First we must recognize ethics in
our professional decision-making, and
then we must analyze them. Ethics
have two fundamental dimensions:
integrity and sound judgment.
Integrity - strong personal character
- is an important foundation. But we
cari’‘’ stop there, because “good”
people can get puzzled and make
mistakes. This is where sound judgment comes in.
How do I respond
to a
request from a boss or
client that may be
morally
questionable?
Too obten, professional people
assume that ethics are “sofi? and
“emotional.” They resist recognizing
and addressing ethical questions, even
though we can analyze the ethical
dimensions of our judgments just as
we do the business aspects. Because
numbers are seen as “hard,” we tend
to assume financial and actuarial judgments are precise, while ethics are that
“SOfi stuff.”
Whether we are discussing ethical
or financia1 issues, the thought process
remains the same. Ethical reasoning is
a logical process, similar to actuarial
analysis. Actuarial reasoning applies
principies to numbers, and ethics apply
principies to human situations. We
begin with a basic principie, such as
honesty or limitation of risk, and then
we apply various techniques to help us
rcach a judgment about what the printiple means in a particular case. While
actuarial calculations have a certain
precision, the important conclusions
are often based as much on seasoned
judgment as on particular calculations.
In the same way, we can use tools of
ethical analysis to help us make the
judgments that will resolve difficult
moral situations.
For example, 1 have developed a
series of six questions that provide a
framework for managerial ethical
decision-making. Two of these questions illustrate how the process works.
Thc question, “Who else mattcrs?,”
encourages us to look beyond the
immediate relationship and consider
the decision’s impact on others. We
need to idcntify those affected,
consider their interests and any
possible commitments to them, and
try to anticipate che impact of
proposed actions on them.
~The question, “1s it my problcm?,”
makes us consider what is required to
treat others with respect, and when it Ir
legitimate to draw the line and accept
that we cannot do everything. This
involves understanding our role
responsibility in a given situation, as
well as the practica1 meaning of such
ethical norms as honesty, fairness, and
promise-keeping.
,_
Ethical reasoning
is a
logical process, similar
to actuarial
analysis.
Ethical systems carry long
history
Developing a system like my sixquestion framework, grounded in
ethical theory but formulated as a
kind of “algorithm” to help people
think through dilemmas systematically,
has a long tradition. Since the days of
philosophers like Plato, Aristotle,
Aquinas, Kant, and Mill, and many
19th and 20th century thinkers,
systematic approaches to ethical
reasoning have developed. While
philosophcrs’ approaches may diffcr,
they all recognize ethics as an arena
-
lhe
q
r rntional analysis, rather thnn
emotional outbursts.
Whether using my approach, which
integrates insights fiom severa1different schools of thought into a logical,
sequential analysis, or using another
one, sound judgment is a part of
ethics. We can reason through an ethi-
cal issue to gain greater clarity as we
makc our judgments.
Michael Rion, author of The
Responsible Manager and founder of
Resources for Ethics and
Management, has a Ph.D. in ethics
from Yale University. He wilí
Actuary
l
September
1994
9
present a teaching session on
“Business Ethics: Theory and
Practice” at the SOA October
annual meeting.
Editor3 Note: Amtaries shoulcl be muare
that the ABCD is an excellent resoztrce
for counselin. on professionnl ethics issues.
actuaries
SOA urges more unemployed
resume matching
use confidential
to
byJucly Wohlt
hen the Society’s frec
resume matching program
began in January, Pat
Holmberg, SOA ombudsperson,
expected to have many more candidates contacting her for jobs, with
fewer positions. nvailnble to match
those ñumbers. This has not happened.
“Companies are eager to use this
Holmberg snid, “but unemployed actuaries seem to be holding
back. WC know thcre are more unemployed actuar& out therc who could
use our help.”
As of mid-July, 142 jobs nnd 146
candidatcs werc listed with the service
for unemployed SOA mcmbcrs and
students with at least 100 exnm credits.
Holmberg believes some unemployed actuaries may feel embarrassed
about their situation or may not wnnt
others to know and therefore feel
W
uncasy about using the servicc. “We
have vice presidents of large insurance
companies using our service, and they
are perfectly comfortable with thc
situation,” she said.
Holmberg is the only one who sees
candidates’ resumes besides the
employers they are sent to, assueng
confidcntiality. Candidates must send
Holmberg a registration form and 10
copies of their resumes. Employers
submit job Iisting applicntions describing thc position to be fillcd. She
matches rcsumcs with jobs and sends
resumes only to the appropriate
employers, who then are responsible
for follow-up with the candidate.
Holmberg stresses that employcrs
never see the initial application actunrial candidates fil1 out that lists their
educational and cmployment backgrounds, practicc area, and csperiencc.
In return, candidates don’t review job
listings; only Holmberg does.
Another reason why more candidates
may not be using resume matching, she
said, is that they think only jobs paying
lower salaries are availablc. Open positions run the gamut-from
requiring a
couple years’ experience to requiring
10 or more years’ cxpcrience in 3 vcry
specialized arca.
She urges recently unemployed
candidates to send 10 copies of their
resumes with a registration form to her
as soon as they
bccomc unemployed. “People
who hesitate may
be losing their chances at a job, and
many cornpanics are in a rush to find
qualified people to fill positions,”
Hohnbcrg said.
In addition to matching candidates’
skills with prospcctivc jobs, Holmberg
helps participants rework their resumes
to their advantage. “One candidate
had an HMO background buried in his
resume, and 1 suggested he emphnsize
that experience since there are many
jobs available in that ficld,” she said.
Five people have found jobs
through the service since resume
matching began in January. This may
not seem like many, but, according to
Holmberg, it’s a very encouraging step
in the right dircction.
Anyone interested in using resume
matching should call Holmbcrg for a
registration form at 708/706-3527.
Meet Pat at
annual meeting
Unemployed nctuaries and
employers with job openings
who are attending the SOA
Chicago annual meeting can
meet with Pat Holmberg, SOA
ombudsperson, in the eshibit hall
on October 17 and 18 from
3:30 - 6:30 pm.
Information and registration
forms for the resume matching
scrvice will be available.
10
The Actuary * September 1994
Actuaries are
good sports,
too, il
by Mike Cowell
n the June issue, Judy Wohlt
related John Dewan's fascination
with sports statistics. The group o f
stories also covered actuaries involved
in basketball and wrestling.
This summer, the U.S. Corporate
Track Association's Annual Meet was
at Colby College in Waterville,
Maine. About 1,200 participants,
representing about 30 teams,
competed in road racing and track
and field events. H o w many actuaries
would you expect to be competing in
a field o f 1,200? Currently, about
15,000 actuaries practice in the
United States in a working population o f about 125 million, a ratio o f
1 in 8,000. At this meet, we counted
I
W h a t makes
actuaries run?
George Young, FSA, of UNUM (second rutmcrji'om hJ?) and Bill Mastcrson, FSA,
of CIGNA (third runner frora left), are in the starting lineup for the Senior Relays
at the USCTA Meet in July. They are two of the I1 actuaries participating.
no fewer than 11, which, by my
statistics, is about 75 times as many
as you'd expect on a random basis.
I noticed this over-representation
o f actuaries participating in
endurance sports in the mid-1980s,
when, for three years, I published
determination needed to keep studying
for exams with an actuarial designation in
mind: "You keep running because you
have a goal like a marathon to strive for."
by Cecilia Green
G e r a l d I. Wilson
Sam Gutterman
A consulting actuary at Price
Waterhouse in Chicago and SOA vice
president, Sam Gutterman may hold
the actuarial record for the longest
distance in one event. H e once ran 104
miles in a 24-hour race. H e has entered
more than 30 marathons (26.2 miles)
and more than 30 ultra marathons (any
race more than 26.2 miles).
"I have four goals when I race,"
Gutterman said. " O n e , to enjoy it.
Two, not to be injured. Three, to
finish smiling. And four, to do my best
time in that distance."
He thinks more actuaries may be
involved in running than the general
population because they are very goaloriented people. He equates it to the
Gerry Wilson, a partner at Hewitt
Associates in Lincolnshire, Illinois, is
believed to hold the actuarial record
for the most marathons run - - 117.
He has slowed down now to two or
three a year. Before he reached his
100th race, he was running between
five to eleven a year.
" I f I were to speculate why more
actuaries are runners," Wilson said, "it
may he because most actuaries arc
usually either studying or working in
an office, and physical exercise brings
some balance into our lives. Also, there
may be some discipline and concentration aspects o f running that actuaries
accept better than other personalities."
H e prefers the smaller marathons
with no more than 2,000 runners.
The Actuarial Marathoner on a quarterly basis. Other actuarial citings on
the marathon scene follow, and I am
encouraged by these and other examples o f our profession's participation
in sports and fitness.
"A marathon is not a race; it's an
experience, a happening," Wilson said.
"For most o f us, it doesn't matter how
fast we run it or if we win. People are
very supportive and help each other."
H e said in a marathon, unlike a 10K
race where people sprint ahead at the
end, you are more likely to see people
running across the finish line arm-inarm or holding hands.
Steve Gathje
It would be hard to top Steve Gathje's
record. He has not missed a day o f
running in 22 years. Since 1972, he's
averaged about eight miles a day and
has run in about 14 marathons,
fi'equently finishing in the top five.
The company where he is an actuarial officer, Fortis Benefits Insurance
Co. in St. Paul, Minnesota, coordinated bringing 90 people from all over
the world last fall for the New York
Marathon, in which Gathje ran.
Running with 26,000 people through
The Actuary
q
OA Board
meeting report
T
he Society of Actuar& Bonrd of
Governors met in San Antonio,
Tesas, on June 14-15, 1994. The
Board discusscd severa1 items, including thc current status ofpublications,
continuing cducation programs, and
thc SOA Foundation.
Bonrd actions included approval ofi
l
The SOA Foundation bylaws
l
A revised ducs policy for uncmployed
SOA members. Thc revised policy
allows an unemploycd member to
have his or her dues deferred, then
waived, at year cnd. If the member
remnins unemployed for the entire
year, dues will be dcfcrred when a
membcr submits a request stating hc
or she is unernploycd. Ducs will be
waived at ycar end when a mcmber
submits a signcd statement attesting
to having becn unemploycd for the
remainder of the year. A defcrral
tcrminates when a member bccornes
rmploycd and he or shc must pay the
deferred dues. A mcmber may rcccive
up to hvo consecutivc uncmploymcnt waivers. Another addition to
the dues policy is that income of a
, thc streets of New York was a grcnt
thrill for this admittcdly small-town
boy. “It was a real carnival atmosphere:
before, during, and after the race.
Everyone was amazingly fricndly.”
Dave Buddington
With 105 marathons bchind him, Dnve
Buddington at Hookcr PCHolcombe
in West Hartford, Connecticut, said he
enjoys the camaraderic.
“In my 101 st rnce in Huntsvillc,
Alabama,” he said, “it was prctty cold,
and for the last ll miles we were
running into a stiff head wind. Without
a word, four of LIS began rotatg, blocking the wind for each othcr
v running a littlc ahead.”
Buddin&on also cnjoys thc challenge of allocating his physical
resourccs so he has enough left at the
end to finish. Running is his way of
member sceking unemploymcnt
dues defcrral/waiver must not
exceed $15,000 (including severante pay, but cxcluding investment
income).
The operating plan nnd budgct of
$14.3 million for the fiscal ycar
August 1, 1994, to July 31, 1995
Thc investment policy implemcntation
plan, which allows thc Society to
diversify its investments co include
Canadian and U.S. mutual fimds and
equity sccuritics on n limited basis.
The majority of the investmcnts will
remain in U.S. treasury notes.
Amendments to thc SOA bylaws
changing the name of thc Committee on Complaints and Discipline
to Committce on Discipline and
changing the namc of the Education
Policy Committec to Education
Esamination Managemcnt
Committee
The establishment of a Life Insurance
Principlcs Committee and a Health
Bencfit Systems Principlcs Committec.
The Lifc Insurance Principlcs
Committce will nianage the procrss
of articulating actuarial principles
rclated to thc life insurancc practice
area and will makc recommcndations
staying mentally and physically active,
so he can get the masimum enjoyment
out of lifc. “Therc are pcople still
running in thcir 9Os,” hc said.
DaveRubadue
Dave Rubadue had a few other things
on his mind when it came time to
qualif$ for the Olympic trials in
Columbus, Ohio, in 1992. “1 had been
in training, 1 hnd a sponsor, and 1 ran
2:23 in Columbus and 2:22 in Seville,
Spain. The qualifj,ing standard W;IS
2:20, so 1 had a good chance to qualie.” This was nt the samc time he was
beginning his own business, Employee
Bcncfits Specialists in Worthington,
Ohio. Then a month beforc the
marnthon trials, hc twistcd his knee,
and he found out he was going to be
the fathcr of quadruplets. All this made
putting off his Olympic try secm like a
l
l
l
September
1994
ll
to the Committee on Actuarial
Principlcs. The Health Bcnefit
Systcms Principles Committee will
cspnnd on the work of thc prcsent
Committec on Actuarial Principlcs,
develop actuarial principlcs as thcy
relate to hcalth benefit systems, and
rccommend thosc principlcs to the
Committec on Actuarial Principles.
A Hcalth Risk Adjuster Kesearch
Project. Thc researchcr will bc
selectcd by the Risk Adjuster
Research Task Forcc, which will
oversee thc developmcnt of thc
project. Thc selcction will be subject
to the approval of SOA Vicc
President Sam Guttcrman and SOA
President Steve Radcliffc. Thc hcalth
benefit systcms practicc arca developed the research projcct to analyze
altcrnative hcalth risk adjustcrs from
an actuarial pcrspcctivc.
The establishment of the SOA
Ambnssador Program as recommendcd by thc Committee on
International Rclntions.
Ambassadors will bc SOA members
living in or well-connccted with
another country, who would bc
(continzted on pnge 19)
good idea. “l’m going to try again for
1996 with the support of my four
chcerleaders,” he said.
Warren
Luckner
On thc surfacc, running seems likc a
sclf-centcred activity. Some, likc
Warren Luckner, SOA managing
director of research, turn it into a more
altruistic exercise. Luckner rnn in the
August 20 Pike’s Peak Ascent in
Colorado to raise moncy for his Class
of 1968 Scholarship Fund at Luther
College. He asked sponsors to pledgc
money for individual miles along the
grucling 13.4-mile run, which began at
6,000 fect and cndcd at the finish line
at 14,000 feet. Hc rnised morc than
$2,500 in pledges and survivcd to run
again, swcaring nest time “it will be
all downhill.”
12
The Actuary
l
September
1994
--
Using response keypads
to
encourage
audience participation
by Arwold F. Shapiro
peakers at actuarial meetings
often havc dificulty assessing
how knowledgeable their
audience is on a topic, whether
their audiencc lacks some key background information or skill, or has
preconceived impressions on a topic.
Even when a speaker asks for a show
of hands in response to a question
dealing with these issues, audiences
often are rcluctant to publicly
acknowledge what they perceive as
their shortcomings.
One way to evaluate an audience
is to use interactive computer
tcchnology with participant
response keypads. During thc
“Credit Risk Study” session at
the AFIR/CAS/SOA
meeting in
Orlando in April, kcypads were
used with the audicnce. They
provided .immcdiate analysis
and display of fcedback on
questions and issucs.
A participant response
keypad, which looks similar
to a hand-held calculator,
allows participants’
responses to questions to
be instantly rccorded
electronically.
Keypads allowed
session participants to
respond electronically to
true or false and rnultiple
choice questions
,
projected by a notcbook
L
computer onto a screen.
Once an answer was
chosen, the anonymous response was
sent to the computer by pressing the
send button. The computer tabulated
and displayed responses in a bar graph,
instantaneously visible to participants
nnd panel members.
Question
formats
used
True or false questions were used to
elicit responses to such questions as
“Have you read the final report on the
1986-89 Credit Risk Loss Esperience?”
and “Are you familiar with transition
matrices and their uses in analyzing
mortgages with crcdit events?” With
keypads providing anonymity, the audience revealed that 75% of them had not
read the fina1 report, and 80% were not
familiar with this use of transition
I.
matrices. These responses helped to
focus the presentations.
Using multiple choice questions,
the “Credit Risk Study” panel was
able to gauge the audience’s prcconceived impression about trends with
the question, “In a good real estate
L.
market, the ACLI baseline percentage
of delinquent commcrcial mortgages
is about 1%. In 1992, that percentagc
went up to: 2 x normal, 4 x normal,
6 s normal, 8 x normal, or 10 x
normal?” Twenty percent of the
audience thought it was 4x, 50%
thought it was 8x, and 20% bclieved
it was 10x, which gave al1 attending a
sense of the depth of knowledge.
When asked to evaluate the
effectiveness of the keypads, morc than
70% of the participants who
-used the kcypads believed they
improved the speaker/audience interaction, and more
than 80% said that other
/sessions should use keypads
when appropriatc.
More than 80% of
participants who used the
keypads said they increased
their participation, added
to their enjoyment, and
encouraged them to
consider using keypads
for their own presentations if appropriate.
-
Arnold F. Shapiro
is professor of
actuarial science and
insurance, Robert
G. Schwartz
Faculty Fellow,
and director of
, Risk Management
’ Research Center
at the Smeal
College of Business at Penn State
University. He also is chairperson of
__ ,_ _
the SOA Education and Research
Section Council. This project was
supported in part by the William
Elliott Chair of Insurance.
The Actuary • September 1994
Meet Colin Powell at
annual meeting
Insights from one of the world's
most admired leaders and exciting
resources from the city of Chicago's
business mad academic community
make the annual meeting in Chicago,
October 16-19 at the Hyatt Regency,
one of the best educational meetings
our industry has to offer.
w~
m
Ir
r¢
r2
Reinsurance Section
By early September, each Reinsurance
Section member will have received a
copy of the Discussion of Reinsurance
Provisions in a Life Reinsurance
Agreement, prepared by the Treaty
Committee of the Reinsurance Section,
chaired by Johanna Becker. Extra
copies and copies for non-members of
the Section will be available for $5
from the SOA Books Department.
Health Section
The Health Section will sponsor a
lunch October 19 with speaker Don
Ph.D., at the annual meetlgo. Steinwachs is a health
cc()nomlst and is chair and professor of
the Department of Health Policy and
Managent at Johns Hopkins School of
Hygiene and Public Health and
Retired Army Gen. Colin L. Powell,
former chairman of the Joint Chiefs
of Staff, speaks at the first general
session on "The Management of
Crisis and Change." He is expected
to address how the Society can
manage its future during this time of
tumultuous changes in our financial
security systems, as well as to relate
anecdotes about his career.
Powell stepped down last fall
from his position in the Defense
Department after serving from 1989
to 1993 under President Bush and
President Clinton. He is currently
working on a book, which will cover
his life from birth in the South Bronx
to his retirement after 35 years in
the Army.
"Life is a series of doors closing
and doors opening," Powell once
said in an Associated Press interview
when asked his plans for the future.
"I am now waiting to see what new
director of the Johns Hopkins
University Health Services Research
and Development Center. Advance
registration is required.
The Health Section has approved
fianding for several projects, including
partial funding of research studies on
health carrier insolvencies, health risk
adjusters, and mental health and
substance abuse utilization and cost.
Plans also are being made to fired an
annotated database of health-related
information.
The "Now Health" section of the
Society's electronic bulletin board,
Actuaries Online, is devoted to helping
actuaries stay informed on related SOA
and Academy activities in health reform.
Education and Research Section
The Education and Research Section
will sponsor five sessions at the annual
meeting in Chicago in October. They
include presentation of papers resulting
from SOA-sponsored research, a
Section breakfast and sessions on the
international "core" of actuarial
13
door opens." His reluctance to give
specifics about his future has led to
speculation about a try for the 1996
presidential race and which party, the
Republicans or the Democrats, can
win his allegiance.
N e w interactive formats
Sessions at the annual meeting will
allow members to actively participate
in lively interchanges through
debates, interactive forums, role play,
and interview sessions similar to talk
shows. Computer-assisted learning
with PCs, using CD-ROM to
progress through the educational
material, uses "hands-on" exercises.
New offerings include two field trips:
one to Northwestern University for
a health care discussion and one to
the floor of the Mercantile Exchange
to play a trading game with an actual
trader as a coach. Case study
discussions and scholarly paper
presentations also have been added.
science (co-sponsored with the
International Section), professional
education, and new developments in
actuarial theory.
This Section's August newsletter,
Expanding Horizons, included a
request for research ideas from Harry
Panjer, SOA Director of Research. Sam
Cox wrote an article on how the
Committee on Papers works, and
Arnold Shapiro wrote on the actuarial
program in Pennsylvania State.
Financial Reporting Section
The Financial Reporting Section is
sponsoring a breakfast Tuesday, Oct.
18, at the annual meeting in Chicago.
It will be followed by a discussion on
the status and future impact of emerging issues in financial reporting,
including the latest developments at the
FASB, MCPA, NMC, SEC, and ASB.
The Section will sponsor the GAAP
Overview Seminar September 13,
immediately following the Valuation
Actuary Seminar in Orlando.
14
The Actuary
l
September
1994
Book is eaiy-to-use
insurance
iisues
source
on health
by Thomas Livorsi
Health Inswance Annver Book, Thiyd
Edition, John D. Reynolds and Robin
N. Bischoff,Henlth Inswance Annver
Book, 1993 Cumulative Supplement,
Thomas A. Darold. Published by Panel
Publishers, Inc, 36 W. 44th St.,
Suite 1316, New York, NY 10036,
212/354-4545,1993,
$96,396 pp.
he Health Insatrance Annver Book
providcs plan sponsors with the
answcrs to many questions
encountered in implementing and
maintaining a hcalth carc plan. It is
writtcn for business professionals,
owncrs of small to medium-sized
busincsscs, and their legal and financia1
advisors. Thc book addrcsscs questions
surrounding basic hcalth insurancc
issues, such as:
l
Whom to work with in dcsigning
and purchasing a plan
l
What bcncfits to providc
l
How much to spend
l
How to fund the plan costs
l
What cost-control mechanisms to
implement
l
How to dcal with ongoing administration, including govcrnmcnt
compliance
The book is divided into 13 chapters
to take the rcader from the fundamental concepts of group insurance
through the selection and buying
proccss, financing, and administration.
Thcsc basics are followcd by discussions on managing health care costs,
alternative approaches to providing
health care benefits (for examplc,
HMOs, PPOs, and flcsiblc benefits),
somc thoughts on current issues of
special intcrcst (c.g., Mcdicarc and
nondiscrimination rules), and
finally a dctailed discussion of
cost-saving strategies.
The list of questions in the front of
the book helps the reader locate areas
of immcdiate interest. Each question is
identified by a question number and
the corresponding page number on
which it appears. An appendix provides
a listing of health insurance resources.
An alphabetical glossary is included to
help cxplain health insurancc tcrms,
abbrcviations, and acronyms.
The book is recommended for
shidents new to the field who want a
quick introduction to group health
insurancc bencfits. The book’s importance arises from the broad scope of
topics covered in easy-to-understand
languagc and the valuable insight into
so many hcalth insurance issues from a
stratcgic viewpoint. Expericnccd practitioners also will find the book useFul
bccause of thc array of idcas and issues
that are presented on each topic in one
casy-to-use source. The clcar cxplanation of many concepts are usefill in
communicating with clients.
Unfortunately, a work like this
becomes quickly outdated because of
the quick pace of new developments in
thc ficld. Pancl Publishcrs maintains a
subscription service that updates the
Annver Book with periodic supplements to reflect important changes.
It would be useful, especially for
students, if the book contained a
bibliography of periodicals and other
works that could be consulted for
late-breaking developments.
While the book tries to provide
accurate and authoritativc information,
some of the answers given are misleading or inaccurate. For this reason, the
book should not bc uscd as a substitute for primary source material, such
as applicable IRS regulations or FASB
accounting statcmcnts. For cxamplc,
the 1993 Catmulative Supplement stâtes
that partnerships cannot have selfinsured medical plans even if the
partncrs’ prcmiums are paid with aftertax dollars and must have benefits
provided by third-party insurcrs. In
another example, the book statcs that
FAS 106 applies to retiree health plans
with fewcr than 500 cmployees for
fiscal years beginning afier December
15, 1994. The Health Insurance
Annver Book certainly should not be
used to replace the professional advice
of competent employee benefit
professionals.
/In addition, the work would be
more valuable if it contained footnotes
and bibliography rcferencing sources
for the information presented so
students could refer co more in-depth,
authoritative materials.
-
Thomas J. Livorsi is principal,
Alexander and Alexander
Consulting Group Inc, Chicago,
and a member of the Committee on
Review of Literature.
r
October
Board
meeting
open to
members
The SOA Board wclcomes
interested Society membcrs to
attend the Board of Governors
meeting October 16 in Chicago.
Anyone with questions about the
meeting or a request for minutes
should call the Society officc,
708/706-3500.
-
,--x
The Actuary • September 1994
Factuaries
Bob Shapiro
Name:
Current hometown:
Milwaukee, Wisconsin
C u r r e n t employer and
function: The Shapiro Network
Inc., consulting and
implementation assistance in
mergers and acquisitions, strategy
development, and financial management
Marital Status: Married to Karen
Children's names and ages: Lee, 27; Stacy, 25;
Jenny, 22; Tracy, 13; and Jeff, 10
Birthday: September 11, 1942
15
The book I recommend most often: Joel Barker's book,
Paradigms, the Business of Discovering the Future
The movie I'd most like to own the tape of: Since the
popcorn is better in a theater, I don't watch movies on
tapes
N o b o d y would believe it if they s a w m e : Sleeping past
7 a.m.
The TV show I stay home to watch: Wisconsin teams
and championship or All-Star sporting events
I f I could change one thing about myself, I'd: Become
16 again and replay the last 35 years
When I'm feeling sorry for myself, I: Look to my wife,
kids, and friends to remind me that I have no right feeling
sorry for myself
Birthplace: Milwaukee, Wisconsin
I f I could do anything, I'd: Own a Concorde to make
business and personal travel easier
My first job was: An actuarial student at
Northwestern Mutual
I f I could do it over, I'd: Do it all over again, pretty
much the way it was (I've been very lucky)
With experience, I've learned: I continuously need
experience(s)
I care most about: My wife and kids
I completed my FSA in: 5 years
My favorite way to spend a Sunday: Either attending or
participating in a sporting event with my family
I'd give anything to have met: Lou Gehrig and Albert
Einstein
My proudest actuarial moment: Learning I had passed
my last actuarial exam
1994 Continuing Education Calendar
September 9-10
Risk Theory and Risk Based Capital
Orlando
Disney's Yacht & Beach Club Resorts
September 12-13
Valuation Actuary Symposium
Orlando
Disney's Yacht & Beach Club Resorts
September 13
Introduction to GAAP: An Actuarial
Overview
Orlando
Disney's Yacht & Beach Club Resorts
September 22
ERISA Basics Part I (Teleconference)
Various Locations
September 29
ERISA Basics Part II (Teleconference)
Various Locations
October 16-19
Annual Meeting
Chicago
Hyatt Regency
November 14
Direct Marketing: A New Profit
Opportunity for Companies with Agent
and Other Distribution Systems
Nashville
Wyndham Garden Hotel
December 5-6
Critical Issues in Underwriting
New Orleans
Hotel Inter-Continental
16
The Actuary
l
September
1994
New ASAS, FSAs
Succcss on the May exams resulted
in 445 new Associates. A total of
118 Fcllowship candidates were
invited to participate in the
August/September sessions of the
Fellowship Admissions Course.
Intensive
seminars
set record
A record number of participants registered for the August Intensive
Seminars. The Applied Statistical
Methods (ASM) Seminar scheduled
seven wcek-long sessions, with 220
candidates registered. Instructors for
the ASM Seminar included fivc academic and four business faculty. The Risk
Theory Seminar scheduled four weeklong sessions, with two academic and
two business instructors for 120 participants. Most candidates who have taken
the scminars have found them beneficial. Making the courses eligible in
some cases for Fellowship-level elective
credit has increased their popularity.
Reminder
of new ASA
requirements
We want to remind aspiring ASAs that
the new Associateship requirements
(300 credits, including Core courses)
take full effcct July 31, 1995. While the
new ASA requirements rcpresent a
positive change, we recognize that
some candidates would like to become
ASAS by passing the speci6ed 200
required credits and elective Series 100
courses bcfore that date. The
November 1994 and February and
May 1995 examination scssions provide
the last opportunities for attaining the
200-credit ASA designation.
As might be expected, the changes
in educational requircments for
Associateship have caused some confusion. As rcported in the April 1993
Actuary article outlining the new ASA
rcquirements taking effect July 31,
1995, candidates in some cases can
take certain Series 100 courses (the
Intensive Seminar, Demography,
Graduation) as elective credit options
toward Fellowship. The confusion
caused by this expansion of elective
options stems from the need for a
candidate to decide which course catalog he or she will follow to meet the
requirements. The Fall 1993 catalog
was the last catalog that lists Courses
200, 210, and 220 as Core requirements. Candidates following the Fall
1993 catalog to complete their
Fellowship requirements are not
required to complete Core Course 230
(Principles of Asset/Liability
Management) if they complete all
requirements for Fellowship by the end
of 1998 and attain Associateship
before July 31, 1995. These candidates, however, cannot use any Series
100 courses to satisfy elective requirements toward Fellowship.
Candidates who want to use Series
100 courses for Fellowship elective
credit will need to satisfy all requirements under the Spring 1994 or a later
catalog. These requirements include
Course 230 as a Core requirement
toward either Associateship or
Fellowship.
It is always difficult to balance thc
various educational and individual
interests that come into play when a
major change in E&E requirements
occurs. Expanding election options is
clearly of benefit to candidates, who
have more freedom to make individualized course selections. E&E views
the educational value of Course 230 as
essential. The course probably would
have been required sooner, but we
wanted to minimize the unsettling
effect it could have on candidatcs. We
try very hard not to create a delay in a
candidate’s attaining Associateship or
Fellowship. Linking the Course 230
requirement with the expandcd elective options represents what we view as
a fair exchange.
For the next few exam sessions,
until candidates become familiar with
the changes, the SOA Office will
contact any ASA who is well along in
progress toward Fellowship and who
registers for a Series 100 elective
course without already having passed
Course 230. We want to reduce any
possibility of a candidate writing an
exam for which he or she will be
unable to apply the credit.
For questions on exam changes or
exam planning, please call Pat
Holmberg, E&E ombudsperson,
708/706-3527.
Signed applications
needed
We want to remind exam candidates
that the SOA Office needs an original,
signed application on file for each
session in which they want to write an
exam. Candidates’ signatures follow
the statement that they have read the
rules and regulations and attest that
they agree to be bound by them.
Anyone turning in an unsigned or
facsimile application is not considered
fully registered.
Overseas educational
opportunities
The Society of Actuaries will begin
a posting service for educational
institutions overseas who are interested in having SOA members as
guest lechlrers on actuarial science.
The Actuary will print information
for members, who will contact the
universities directly.
Interested universities should
send details, including topic,
length of assignment, and financia1
assistance available, to the editor
of í’%eActuary at the SOA Office.
Please include fax ore-mail
addresses. The deadline for items
for l%e Actzmy is six weeks beforc
the date of Publishing; for example, the deadline for the
November issue is September 15.
The Actuary
m
More than 300 subscribers are using
Actuar& Online, the Society’s new
Bulletin Board System (BBS) on the
CompuServe network, now in its sixth
month of operation.
The system recently received its first
inquiry from a subscriber in Israel, and
international connections continue to
grow, with inquiries fiom Japan,
Pakistan, and Jamaica. Discussions on
the system covcr such topics as mortality tables, pension issues, exposure
drafts, and task forte reports.
What the BBS does
For those unfamiliar with the BBS, its
forum offers messaging, libraries, and
conferences. The message board gives
users a place to conduct publicly visible
real-time dialogues. Data libraries
contain files filr downloading to users’
PCs. Conferencing is the moderated
use of the messaging concept, where
sers can have private conversations,
rticipate in meetings, or talk with
featured guests on current issues.
Fall exam
seminars
September
1994
17
Dan Amold, a regular “chatter,”
wants others to join him. In the
“General” message section, he
proposed “a regular nightly conference. . .to give members oppot-tunities
to learn the feature.”
learning
Online lingo
Snail mail = U.S. mail
<g> = grin
<VBG> = very big grin
ALL CAPS = SHOUTING
ROTFWL = rolling on the floor with
laughter
HTH = hope that helps
TL4 = thanks in advance
Where do I sign up?
For $16.95 a month, BBS subscribers
get unlimited use of Actuaries Online
and CompuServe’s basic services.
For more information about Actuaries
Online, contact Peggy Grillot, BBS/PC
manager, by calling 708/706-3504,
or by e-mail 72662,356.
What have peaple been talking
about online?
Jim Kaiser, who prefaced his message in
the “Software” section with “This may
prove controversia1 and/or start a flame
war. . . . ,” asked, “What (spreadsheet
program) do most actuaries use?”
More than 10 responses carne from the
United States and one fiom thc United
Kingdom. Everyone seems to prcfer a
difli-rent program, so get online if
you’re curious about the answer.
“When will exam results be avnilable?” was a question often asked by
students anxiously awaiting the release
of the lists of passing candidate
numbers. Results became available for
the íirst time on the BBS in July in the
“Education & Exam library” when the
exam hotline was activated.
Just for fün: “If you build your
house on a crack in the earth, it’s your
own fault,” was contributed by
Alan :-) Finkelstein.
offered
Exam preparation seminars for the November exam period
will be conducted in October and November in Chicago, New
York, and Toronto for Courses 120, 130,135,140,150,
151,
and 160. For more information, please contact Professor S.
Broverman ofthe University of Toronto at his Directory
address, or cal1 416/978-4453.
l
l
**
The following intcnsive review seminars, sponsored by
Temple University Actuarial Institute, will be conducted in
Philadelphia, Pennsylvania:
Course 140
October 15-16
October 7-9
Course 15 1
Course 160
October 14-16
Course 165
October 9-10
Course 2 10
September 24-27
Course 220
September 28-Octobcr 2
Course 1343U
Septcmber 17-18
Other review seminars, also conducted in Philadelphia, are
offered by thc Casualty Actuaries of Mid-Atlantic Region
AMAR):
Course 100
October 6-9
Course 110
September 29-October 2
Course 120
October 23-24
Course 133
October 21-22
Course CAS4B
October 7-9
Course CAS4A
September 22-25
For more information, please contact Bonnie Averbach,
Program in Achiarial Science, Rittcr Annex 475 (OO4-OO),
Temple University, Philadelphia, PA 19122, or call
215/204-8153.
***
Study manuals and textbooks for the November 1994 SOA
exams are available from Actuarial Study Materials (ASM).
See your Society Study Note package for details, or contact
ASM, P.O. Box 522, Merrick, NY 11566; phone:
516/868-2083;
fax: 516/868-6595.
ASM will offer an intensive three-day problem-solving
workshop for the EA-2 exam on October 14-16 in New
York City. For details, consult your SOA Study Note
package, or call Harold Cherry at 516/868-2924.
***
Waterloo Actuarial Seminars will conduct the following
review seminars:
l
In St. Louis from October 5-12: 150,210, 220, 320, 343,
441,522, and 542
l
In Waterloo from October 14-30: 151,160,161,165,
220,342,361,362,364,385,440,445,482,485,562,
566, and 590
l
In Hartford from October l-6 for Course 210.
For more information, please contact Professor F.G.
Reynolds, P.O. Box 28024, Waterloo, ON, N2L 6J8,
telephone: 519/886-5232.
-
18
The Actuary
l
September
1994
Work group chair
clarifies statement
Replies to May
assumptions
While 1 applaud the coveragc of the
Amcrican Academy of Actuaries’
monograph on guarantccd standard
benefits under health care reform, 1
would like to add one important piece
of information to the story that
appearcd in the Wccshington Post on
April 6 and to a similar story in the
June Actzmry.
Many large employers use wellmanaged mental health care to provide
benefits without the limitations found
in most unmanaged indemnity plans,
while actually reducing the total cost.
Thus, it is possible to provide parity of
mental health benefits with physical
health benefits at a reasonable cost,
under certain circumstances.
My comment at the media btiefing
on April 5 that “mental health should
not be granted parity with physical
health benefits” was intended to apply
only to unmanaged fee-for-service
indcmnity health insurancc. 1 based
the comment on a statcment on page
16 of the monograph in a section on
copayments that “medical necessity is
difficult to determine in mental
health treatment.”
The Guaranteed Standard Benefit
Package Work Group, of which 1 was
chair, deliberately did not take a position on the public policy issues
involved in health care reform. The
monograph’s intent is to provide technical advice to decision makers. The
Ameritan Academy of Actuaries has
neither taken nor intends to take a
position on the public policy issues of
hcalth care reform.
1 also would like to point out that 1
participated in the work group as a
member of the Academy, not as an
employee of ~Milliman & Robertson,
Inc., who also has not taken and does
not intend to take a position on these
public policy issues.
Julia T. Philips
In his lettcr in the May Actuary,
George Hogeman indicated that, by
juggling assumptions, an actuary can
compensate for an unrealistic assumption mandated by a legal or regulatory
authority. 1 believe he missed the
point of the editorial in the Februaw
Actuary. We all know that we can get
any answer we want. Unless there is no
recourse, what kind of professionalism
is it to try to use two or three (or
more) bad assumptions when one
bad one is forced upon us?
The Actuarial Standards Board and
its Pension Committee have been
suong proponents of placing the
responsibility for selecting assumptions
on the actunry. These nssumptions
should be individually reasonable and
internally consistent.
We might note that, when a “bad”
economic assumption is mandated, and
the only recourse we have is to try to
compcnsate by altcring other assumptions, the job is not rcally done. For
example, in a final pay plan the salary
scale can be altered to make up for a
mandated interest assumption. This
takes care of the benefit obligations
regarding present employees’ active
service period, but does nothing for the
pensioners or the post-retirement
period of active employees, putting
their bcnefit obligations in the same
position as those under non-pay-rclatcd
plans. To take care of this, a rccourse
would be to fiddle with the mortality
tablcs. Howcver, if the task is to make
up for an interest rate that is, say, two
percentage points too high, this might
need a set-back in the mortality tables
of some four years (plus or minus,
depending on the absolute interest
rates, the blend of male/female, the
pensioners’ ages, and the assumed
retirement ages). Try to defend that in
an audit or a peer review situation. All
of this is what we are trying to avoid.
Mary Adams
Chair of the Actuarial Standards
Board Pension Committee
letter
on
***
George L. Hogeman’s Icttcr in the
May issue discusses the selection of
assumptions for a pension valuation
and the “building block” approach to
developing the interest assumption. Hc
also mentions the salary scale assumpti011 and the expense assumption,
stating “( the) inflation component
must be the same for all three assumptions if the assumptions are to be
internally consistent.” That statement
itself is an assumption.
1 would agree that the ultimate inflation assumption should probably be the
same, but that docs not precludc the
selcct inflation assumption from diffcring for the various uses. For example,
if thc general inflation rate is 5%, that
does not mean that thc inflation acting
on salaries at that time and that place
also is 5%. The formcr usually is
,.
considercd a national trcnd, but thc
latter may be more local, reflecting the
actuary’s “best estimate” for the particular plan sponsor.
We al1 are aware of circumstances
where salary inflation lags the general
inflation. In fact, recognition of this
does not require using selcct and ultimate assumptions. A similar analysis
can bc rclatcd to thc cxpcnsc assumption. There should be consistency
among the various inflation assumptions, but this does not require
equality.
Let’s also debunk the myth that the
assumption for increase in the Social
Security wage base must somchow be
linked to the salary scale in use. Again,
the former is national in scope, and the
latter should reflect the anticipated
expcriencc only of thc plan sponsor. In
fact, assuming the use of “individually
reasonable” assumptions, it should be
very difficult for 3.given actuary to
justifi (except as to the issue of materi--_
ality) using a wage base’scale of 4% fo:
sponsor X and a wage base scale of 5%
for sponsor Y, since the underlying
measure is the same, not related at all
to either sponsor. How do we know
this? Ask yoursclf, if the plan sponsor
-.
__.
lhe
m
cxperienced a 100% salary increase, will
that have any measurable effect on the
actual wage base increase? 1 think not.
David P. Rigby
All invited to New
Zealand
actuarial
confereme
Anyone visiting the southern hemisphere may want to consider attending
the 1994 New Zealand Society of
Actuaries Confcrence. The theme is
“Broadening Perspectives,” and the
conference will be conducted at
Quality Resol-t, Rotorua, New Zealand
on October 19-21.
Why not include an actuarial conference in one of the most exciting areas
of New Zealand? Even George
Bernard Shaw was impressed.
For more information, please write
to the New Zealand Society of
Actuarics, P.O. Box 1965, Wellington,
New Zealand.
.G. Benison
m
Keep pie charts
round
Page 8 of the May Actuary includcd a
pie chart seen edge on, and 1 have a
small problem with this. 1 think pie
charts should be circles rather than
ellipses. The rationale of using a pie
chart is to enable the reader to
compare thc sizc of the slices at a
glance. A circular pie chart does this;
an elliptical pi.e chart does not.
1 raise this admittedly nit-picking
point because 1 think that as actuaries,
we should try to present numerical
data as undcrstandably as possible.
Julius Vogel
SOA Board
m
meeting
report
available to assist the Society in administering its programs and to make sure
e Society knows thc needs of SOA
embers in that country. The
International Section Council recently
approved ambassadorial appointments
in Australia (Maricllc Brunelle-Theron),
Liaison
to ORSA
reports
in
As liaison represcntative from the
Society of Actuaries to the Operations
Research Society of America (OKSA),
1 attcndcd, on April 14, 1994, a seminar on “Management Science in Assct
Allocation,” sponsored by the Collcge
on the Practice of Management
Scicncc of The Institute of
Managcment Sciences (TIMS). TIMS
probably will merge so011 with ORSA
to form INFORMS.
Two sessions - Alan J. King of
IBM with “Strategic Multi-Period
Portfolio Management Using
Stochastic Programming” and Douglas
Monticciolo of Goldman Sachs with
“Mathematical Methods Used by
Financia1 Institutions” - appeared the
most interesting to actuarics.
1 also would like to inform SOA
mcmbcrs of the publication of “The
Russcll-Yasuda Kasai Model: An
Asset/Liability Model for a Japancsc
Insurance Company Using Multistage
Stochastic Programming,” in Interfaces
24: 1 JanuaryFebruary 1994.
Interfaces
is the applications journal of
TIMS and in practice of both ORSA
and TIMS. From its abstract, the
model appears to have been a substantial, practical success. Yasuda Kasai is a
Japanesc fire and marine insurer.
The April 1994 OR/MS Today, the
newsletter of thc two societies,
contains niy letter comnienting on
“The Game of Life,” published in the
April 1993 issue. This article said,
“The [life] insurance industry is a
potentially rich environment for operations research.”
(continued
from
page
Actuary
l
September
1994
The author (not an actuary)
proposes the use of mathcmatical
programming to assist in a varicty of
life insurance problems. My letter indicates an important practical difficudty and,
in the process, gives some joint history of
actuaries and operations research.
I will filrnish what 1 havc on any of
thcsc itcms to requesting members of
thc Socicty.
Any opinions expressed in this lettcr are
not necessarily sharcd by my employer,
the New York Insurance Departmcnt.
Nathau F. Jones
Latest version
of
award
paper
availa ble
The paper by Adam J. Keese,
“Health Care Costs in thc Last Year
of Life,” has been updated. An
earlier version of this honorable
mention recipient of the 1993
Actuarial Education and Research
Fund (AERF) Practitioncr’s Award
appearcd in ARCH 1993.3. The
most recent version is available fiom
the SOA Research Department.
The Pnctitioner’s Award rccognizes research done by actuaries in a
nonacademic environment and
encourages publication of rcsearch
performed in thc work environment.
Submissions appear in Actuarial
Kesearch C&aring Hwtse (AKCH).
II)
New Zealand (Richard Gcisler), China
(Luo Yu), Hong Kong (Dominic Lee),
and Japan (Stephcn Conwill).
In addition, the Board received a
Icgal opinion from Peterson & Ross
that thc Society has no legal obligation
to change its cxamination system to
19
make the system a valid prcdictor of
occupational aptitude or performance.
Harry D. Garber
SOA Vice President Retirement Systems Practice,
Secretary and Treasurer
The Actuaty
20
Notice
l
September
to puzzle
1994
fans from
For the small percentage of our readers
(8%, according to our most recent
readership survey) who turn to this
page first to get your Actucrossword
and Actucrostic “fix,” we’re sorry. To
the 72% of our readers who said in thc
Editor
Mike
survey that they never rcad the puzzle
page, we hear you. That’s why when
we put together this issue and had an
overflow of material that caused us to
expand to 20 pages, we dccidcd to
include the more popular “lighter side”
Buzzword
bingo
winners
admirably
insincerity
scales
Cowell
page instead of a puzzle page.
Don? worry, Actucrosswords and
Actucrostics have not disappeared fiom
The Actuary. They will be included as
often as space permits.
tip
We received four well-thought-out
entries in our buzzword bingo
contest announccd in the April
Actuary, but one seemed to tip the
scales on insincerity and affectivity
(two qualities we admire in a buzzword). We congratulate Rick Burd
and Vincc Macrina for their winning entry (printed on this page). We also want
to thank Norman Noduhnan, Phil Cernanec, and Mark Spevacek for their
admirable buzzword contest entries. Their entries were trite and empty enough;
however, they did not attain the outrageous leve1 of emotional immaturity
displayed by the winners.
Scoring was based on the Vapidity Index, a tool for language analysis developed in the think tanks of the Buzzword Research Group. Each expression was
rated on the index as follows:
Strike while
the iron is
hot
Doe
8 pony
show
weve not
in this for
charity
Dupfication
of effolts
Roning
IWS not
brein
SWW
Our ptate
was full
With ell
deliberete
speed
cti off at
the knees
Bust their
chops
In the tmk
Thfnk
outside the
9 dots
0
Neutral:
Tritcness:
Emptiness:
Affective:
00
the vine
1
2
3
Standard expressions, including “corporate mission” or “strategic thinking,” as well as technical terms of
specialized use.
Worn-out and overused expressions, such as “synergy” and “brainstorming.”
Used so much that the expression is empty, and further explanation is needed to convey the desircd meaning.
An emotional element, often injected at project initiation meetings, that departs from rationality in an attempt
to intimidate the team members.
If anyone would like copies of the other three entries, please cal1 Cecilia Green at the SOA Office, 708/706-3561.
Actuary Editor Mike Cowell (secondfTom right) conpatdates
Linda Del&adillo, SOA director of commwicatioq
on
reccivin5 the Society of National Association Publications
(SNAP) 1994 Gold Ewel Award. She accepts on behalfof the
editorial board and StaffEditor Cecilia Green. Thc Actuary
received the award for the Szewslctter most improved.D
Its des@ was apdated i?l November 1993. Other editorial
board members (L-R) are Charlie Habeck, Mary Adams,
Bob Dobson, Michael McGztiwess, and Bruce MacDonald.